Walking down H Street in Washington, D.C., just two blocks from the White House, you'll spot an imposing modernist building bearing a globe logo by the entrance. Welcome to the headquarters of the World Bank, the hot spot servicing 189 member countries through the efforts of more than 10,000 employees and 120 offices around the world.
It isn't a bank where the public can stroll in to make a transaction. Instead, it is an umbrella organization with five divisions and a mandate to end extreme poverty and create economic stability globally, which it seeks to achieve through a variety of tools and programs.
TL;DR (Too Long; Didn't Read)
World Bank headquarters is on H Street in Washington, D.C., but the organization has 120 regional offices around the globe.
The Birth of a Bank
In 1944, the world reeled from World War II, which had seen an estimated 70 to 85 million lives lost, along with inconceivable destruction on the ground around the globe. In Germany alone, an estimated 20% of housing was destroyed. In the U.S., despite joining the war late, costs tallied in at over $4 trillion, when adjusted to today's inflation. All this came on the heels of the Great Depression.
World leaders understood that rebuilding the economy was job one after the war. Experts representing 44 nations got together at the Mount Washington Hotel for the Bretton Woods Conference (formally called the United Nations Monetary and Financial Conference) in New Hampshire during the first three weeks of July 1944. Anticipating the defeat of Japan and Germany, those attending the conference understood that financial equality was needed if they were to ensure stability and global peace as battlefields fell silent.
Round-the-clock meetings had Boy Scouts rushing attendees from room to room to hear new speakers or sit in different meetings. By the end of the three weeks, two new world bodies were formed to work in tandem: the World Bank Group and the International Monetary Fund. Under their purview would be several other related organizations, including the International Development Association and the International Bank for Reconstruction and Development.
The World Bank made its first transactions in June 1946, and by the 1950s, it was funding major infrastructure projects such as roadbuilding, hydroelectric dams, sewage facilities, airports, maritime ports and more projects around the world.
World Bank Group Subsidiaries
Five constituent organizations operate under the World Bank Group, and each accomplishes different tasks on the global economic stage. They are:
- International Bank for Reconstruction and Development (IBRD): This organization provides loans at market interest rates for nations that are middle-income developing countries, as well as for lower-income nations that are creditworthy. The IBRD primarily raises funds through the world's capital markets.
- International Development Association (IDA): Formed in 1960 and funded through contributions from developed nations, the IDA gives emerging nations interest-free long-term loans, policy advice and technical assistance to help with projects in health care, education and rural development.
- The International Finance Corporation (IFC): Private investors help bankroll the IFC's loans, equity financing and loan guarantees for business dealings in emerging countries.
- The Multilateral Investment Guarantee Agency (MIGA): Working with the IFC, MIGA offers insurance and loan guarantees against losses on investment loans that may occur in developing nations and are caused by non-commercial risks.
- The International Centre for Settlement of Investment Disputes (ICSID): Essentially offering arbitration of disputes over investments between investors and their hosting developing nations, the ICSID operates independently of the IBRD to be somewhat objective in its decisions.
Who Runs the World Bank?
It wouldn't be outlandish to think of the World Bank as being somewhat of a United Nations of money. It's related to the U.N. but doesn't answer to the U.N. Security Council or its General Assembly. The organization has a complex hierarchy to accommodate its 189 member states, each of which has a representative — typically the nation's finance minister or central bank's governor — on the World Bank's board of governors.
The World Bank has 25 executive directors who wield the lion's share of power. Five member nations — the U.S., Japan, Germany, the United Kingdom and France — appoint their own executive directors. The other 175 member states are grouped into regions, and each region collectively appoints one of the remaining 20 executive directors.
The bank president chairs the Executive Board and is selected by the Board of Executive Directors to serve a five-year renewable term. David Malpass of the U.S. was named as the World Bank President in 2019; he took over from Jim Yong Kim, who is also from the U.S.
How Decisions Are Made
The World Bank is a lending organization and needs capital to do its work. Those member states that provide the most capital (via "capital subscriptions") are rewarded with greater voting power. Essentially, their economic resources and financial capacity mean they exercise greater influence and power over the direction of the World Bank. At the start of the 21st century, the economy and resources of the U.S. meant it commanded nearly one-sixth of the total voting power based on the volume of its capital subscription. In a distant second place, Japan had less than half the voting power of the U.S.
On the flip side, emerging countries with small economies have little power in the voting bloc. For example, around 25 of Africa's nations were in one voting group in the 1990s, but their weak economies and limited financial resources meant they had just 2% of votes. These nations often receive help from the World Bank, so although they have less say, they benefit from the bank's work.
The capital subscriptions provide funds for the World Bank to do its works. The bank also raises funds through net earnings accrued on interest paid for IFC and IBRD loans. Member nations pay only about 10% of their capital subscriptions to the World Bank, though, and the remaining 90% is subject to being called if the bank requires it to meet its obligations.
The World Bank Mandate
The world's financial realities are a constantly shifting field, but the World Bank has consistently worked to improve people's quality of life by helping to grow economies in their countries. To that end, the organization has set two primary goals to achieve by 2030. They state these goals as:
- End extreme poverty by decreasing the percentage of people living on less than $1.90 a day to no more than 3%
- Promote shared prosperity by fostering the income growth of the bottom 40% for every country
According to the World Bank website, one billion people still live in extreme poverty, while inequality is growing via the income gap in many developing countries. As noble as this mandate seems, it fans the flames of controversy for some. The trouble with the World Bank is that the loudest voices are the ones with the most money, so it's their perspective that influences the way forward and can mean sustaining the economic status quo, especially for the U.S.
The IMF and the World Bank
When the World Bank Group was formed in the woods of New Hampshire in 1944, the International Monetary Fund was born too. Each was created as a framework for economic development and cooperation that would hopefully stabilize the global economy and help usher in peace. The IMF and World Bank collaborate frequently and convene annual meetings with their Boards of Governors, where priorities and responses to economic issues are carved out.
Where the organizations differ is that the World Bank is a long-view take on the economy, working with long-term loans and with funds coming from both member countries and bonds issued. The IMF, however, promotes monetary cooperation between nations and helps facilitate policy advice and development support. It also gives loans, but they're short- and medium-term loans that are mainly IMF member-funded. The organization is staffed primarily by economists who have extensive experience in financial policymaking and macroeconomics.
Criticisms of the World Bank
There is a long list of complaints and critiques of the World Bank, not the least of which is the drastic global change that has occurred in the 75 years since it was formed. There's a good deal of concern over the allocation of voting rights within the organization because it's pay-to-play and allows nations to buy influence.
Wall Street has enjoyed the influence of the U.S. on the World Bank because much of its work helps to stoke economies that U.S. enterprises then add to their markets. In a way, being a wealthy nation and paying into the World Bank to have the most votes by a landslide, contributes to sustaining U.S. economic dominance around the world.
Some say the World Bank is the entity most capable of effecting change in how the world addresses the climate crisis in how they administer funds to developing nations and for what. For example, it could fund projects in India and China that help the switch away from pollution-spewing coal used for power, or it could invest in mass transit solutions for cities like Lagos, Bangkok and Dhaka to get cars off the roads.
It could counter the funds that fuel corruption in places like Indonesia and Brazil, where corruption and bribery are huge factors in the deforestation that is impacting the world's carbon sink potential. So far, critics say the World Bank talks the talk but is miles from walking the walk.
World Bank: Recent Controversy
A Supreme Court decision in February 2019 dealt a blow to the World Bank, which had assumed it had legal immunity for its works; the Supreme Court voted seven to one to allow the World Bank to be sued by the fishing community of Mundra, India. The town alleged its people's livelihoods and health were irreparably harmed by a coal power plant's pollution — a plant funded by the World Bank's International Finance Corporation. According to the International Consortium of Investigative Journalists, 3.4 million people were displaced, either physically or economically, due to World Bank-funded projects between 2004 and 2013, and more lawsuits may arise.
This decision in the U.S. Supreme Court means the World Bank must consider more carefully the broader outcomes and consequences of the regional projects it bankrolls. In essence, the SCOTUS decision means international financial institutions can be sued when they damage local communities, which could be a big consideration for project-funding in the age of climate change.
Criticisms abound for the World Bank's inattention to oversight on such projects. In Honduras, as an example, allegations were made that 17 people were murdered by paramilitary involved with a World Bank-funded palm oil manufacturer. In Lagos, the extreme poor that the World Bank is said to be fighting for were those affected when slums were bulldozed for projects the bank funded. The World Bank isn't alleged to be causing these things, but rather to be indiscriminately funding the projects and then failing to provide oversight for how the projects are achieved and the funds spent.
Ultimately, observers hope that the World Bank losing its presumption of legal immunity helps the organization remember what it is that its mandate states it's fighting for, no matter where in the world it works.
- World Bank: Bretton Woods Monetary Conference, July 1-22, 1944
- Investopedia: What Is the World Bank?
- The Economist: How Does the World Bank Work?
- Council on Foreign Relations: The World Bank Group’s Role in Global Development
- Foreign Policy: The World Bank Needs to Join the 21st Century
- International Consortium of Investigative Journalists: World Bank’s Legal Immunity Stripped, Opening Door for Lawsuits
Steffani Cameron is a professional writer who has written for the Washington Post, Culture, Yahoo!, Canadian Traveller, and many other platforms. Some writing projects have included ghost-writing for CEOs and doing strategy white papers. She frequently writes for corporate clients representing Fortune 500 brands on subjects that include marketing, business, and social media trends.