McNamara’s World Bank

McNAMARA'S WORLD BANK

On March 31 of this year, Robert McNamara completed the first five years of his ten-year term as President of the World Bank Group. He has almost doubled in real terms the volume of lending by the Bank Group. He has more than doubled the size of the professional staff. He has changed the administrative structure. He has improved the relations of the Bank Group with the other international and national aid agencies. He has given the developing member-countries significant new help in their efforts to reduce their birth rates and to reconcile economic growth with the protection of their environment. He has set new criteria for lending.

He had been President for only a year and a half when he began to advocate new criteria for lending, new qualitative goals for the operations of the Bank Group. His argument ran, and runs, as follows: "Economic growth in a poor country, in its early stages, is likely to penalize the poorer segment of society relative to the more affluent sections . . . [unless poor countries] relate the goals of national growth to realistic targets of more equitable income distribution." A period of rapid economic growth, accompanied by great unemployment, by an increase in the disparities between regions and classes and by a continued growth of urban slums, may well create such political and social tensions that the period of rapid economic growth will be followed by a period of no growth or even of retrogression. A development policy which takes properly into account the need to reduce unemployment and to improve the conditions of the poor may result in a slower rate of growth of the economy in the short term but in a faster rate over the long term. "When the highly privileged [in a developing country] are few and the desperately poor are many-and when the gap between them is worsening rather than improving-it is only a question of time before a decisive choice must be made between the political costs of reform and the political risks of rebellion."

Therefore, he concluded, there must be a fundamental change in the emphasis, in the nature and in the direction of Bank Group lending, to enable the Bank Group to give as much help as it can to those of its developing member-countries which are determined to achieve the three essentials of healthy development: rapid rates of growth in the production of essential goods and services for the whole population, in the number of productive jobs at proper pay, and in the share of the national production of essential goods and services going to the poorest two-fifths or so of the population. It does not matter if this emphasis on the goals of jobs and justice is "at the cost of some reduction in the pace of advance in certain narrow and highly privileged sectors whose benefits accrue to the few."

John White said in 1970 in his book on regional development banks that Eugene Black as president of the Bank in the fifties "made international development financing respectable." The task which Robert McNamara has set himself is to make respectable international development lending to help the poorest two-fifths of the peoples of the developing countries. This is a difficult and hazardous task, for it involves the Bank Group in efforts to influence the general development policies of the countries which borrow from it on issues much more politically delicate, much more traditionally domestic, than issues related to growth in the gross national product on which the Bank Group has in the past attempted to exert leverage or influence.

McNamara has urged a fundamental change in the emphasis, in the nature and in the direction of Bank Group lending. How rapidly is the change taking place? How can the pace of change be speeded up? What are the other principal areas in which McNamara during his second five-year term as President should seek to expand or to modify the activities and the ways of operation of the Bank Group?

II

During the last fiscal year of the World Bank Group for which statistics are available, the year ending in mid-1972, the World Bank lent Brazil $437 million. It lent Mexico, Iran and Turkey a total of $539 million. The loans to these four countries constituted one-half of the total lending by the Bank that year. These countries are not noted for their devotion to McNamara's new gospel of development. The explanation of this gap between precept and practice is that it takes from two to three years for the Bank Group to process a loan, so that a change in lending policy is not likely to take effect for this period. If this explanation were the whole story, the change which McNamara began to press for at the beginning of the fiscal year 1970 should have a marked effect on lending in the fiscal years 1973, 1974 and 1975. At present, however, it seems unlikely that much of the nine to ten billion dollars which McNamara expects the Bank Group to lend in these three years will do much to reduce the number of unemployed in the developing countries or to increase the share of the national income going to the poorest two-fifths of the people.

If one were to ask the officers of the Bank Group who are directly engaged in the process of making loans to explain this, most of them would reply that it is McNamara's insistence that the volume of lending by the Bank Group be maintained at its present level, or even be increased. Perhaps McNamara does not insist on this, but this is what they believe. These officers contend that there would be a much faster advance toward the qualitative goals of Bank Group lending if McNamara were to tell them that he considers these goals to be so important that he is prepared to accept at least a temporary reduction in the volume of lending by the World Bank itself, if this is needed to speed an advance toward the qualitative goals.

The connection between volume and quality is important for two reasons. The first is that the Bank Group's ability to persuade the governments of borrowing countries to adopt new policies will be greater if the Bank Group uses its loans as carrots and sticks. The Bank Group must be able to make clear to these governments that if they adopt policies leading to more production, more jobs and a more equitable distribution of income, and propose to the Bank Group the kinds of projects which will help them to implement these policies, they will receive a large volume of loans; if not they will receive little. Thus, a country which had been borrowing $200 million a year from the Bank Group might be told that lending to it could go up to $300 million a year, or drop to $50 million. This attempt to use leverage could be successful only if the Bank Group was, in fact, prepared to reduce drastically its lending to countries which had not accepted the new qualitative goals of development.

The second reason is that projects designed to yield high returns (in terms not only of production but also of jobs and a better distribution of national income) require a much greater investment of time by the professional staff of the Bank Group for each million dollars lent than do large loans for railways, ports, highways, power, telecommunications, steel plants, and so on, which in the past have made up the great bulk of Bank Group lending. If the professional staff of the Bank Group is under pressure to maintain or increase the present volume of lending, it will be reluctant to assume the heavy burden of helping the borrowing countries to identify and work out complex time-consuming projects, Instead, the staff will concentrate on putting through the traditional kinds of projects. This certainly happened during the first five years of McNamara's presidency. When he subjected the officers of the Bank Group to great pressure to double the volume of lending, the officers found themselves compelled to abandon or put aside a substantial proportion of the proposals or suggestions that came before them to help borrowers work out projects designed to increase employment without in the long run slowing down the rate of increase in the production of essentials.

It is therefore important that the officers of the Bank Group responsible for its operational activities should now be brought to feel that their contributions to the Bank Group and their worthiness for promotion are no longer to be judged by the volume of loans they process, but rather by how far the loans they process-and by their reluctance to recommend loans to countries not sufficiently concerned with the qualitative goals of development-contribute to speedy progress toward the qualitative goals of Bank Group lending. This would convince the developing member-countries that the Bank Group is sincere when it says that it would welcome requests from them for help in working out and financing policies, programs and projects which will lead to these goals.

The task of working out these policies, programs and projects is extraordinarily complex and demanding. It requires, as McNamara emphasized in his speech to the annual meeting of the Bank Group in September 1972, nothing less than a reorientation of the development policies of the developing countries. "Institutional reforms to redistribute economic power are critically required in many developing countries: land reform, corporate reform, tax reform, credit and banking reform. . . . Policies should be undertaken to eliminate distortions in the prices of land, labor and capital." "Given the intimate link between poverty and massive unemployment, unemployment and underemployment must be attacked head-on."

One of McNamara's principal advisers on development policy is Mahbub ul Haq, who was for 13 years associated with Pakistan's economic planning. Mahbub ul Haq in a speech in 1972 said: "The concerns for more production and better distribution [of income] should be brought together and not treated separately. This invariably means that employment should be treated as a primary, not a secondary, objective of development since it is the most powerful means of redistributing incomes in a poor country."

A head-on attack on unemployment and underemployment can have six prongs. The first is small-scale industry, since small-scale industry is likely on the whole to be more labor-intensive than large-scale or medium-scale industry. The second is publicly-financed programs of small-scale development works in rural areas to conserve water and soil; these development works would be labor-intensive. The third is the building of mud roads from the farms to the nearest markets and of feeder roads from the markets to the main highways; these mud and feeder roads would be labor- intensive as compared with main highways, and they could be even more productive. The fourth is the use of labor-intensive techniques and technologies in other construction jobs such as the lining of irrigation canals and the building of dams. The fifth is agricultural credit to the poorest third of the farmers. The sixth is the creative adaptation to industries in the developing countries, where capital is scarce and labor is plentiful, of the capital-intensive, labor-saving technologies which have been worked out in the rich developed countries.

The latest published analysis of Bank Group lending for manufacturing operations covers the five years ending in mid-1971. During those five years the Bank Group lent $1.4 billion for manufacturing operations. Of this, only $37 million went to enterprises with fewer than 20 employees and only $202 million to enterprises with fewer than 100 employees. In the last two years the record on loans to small-scale industrial enterprises is better, but the Bank Group has still not granted any loans for small-scale rural development works. In the other four fields of activity, the other four prongs of an attack on unemployment and underemployment, progress is being made, but the pace of advance is slow-as McNamara would be the first to admit.

One explanation which McNamara has given for the slow pace of advance is lack of knowledge of how to substitute labor for capital in developing countries without increasing the real costs of producing essential goods and services. He has stressed the urgent need for much more research. The Chairman of the Development Assistance Committee (DAC) of the Organization for Economic Coöperation and Development has also stressed the need for much more research of two kinds-"imaginative research" and "an enormous amount of localized technical and economic research of a very practical sort." "It will," he has said, "undoubtedly be necessary to test various ideas in practice on an extensive basis before firm conclusions can be reached. But the stakes are so high that it is essential to press ahead with all these steps and even to accept the risks of some failures. They can be instructive too." The Chairman of DAC has criticized the Bank Group for the low level of its expenditures on research, "a level no industrial corporation or government department would tolerate."

To move ahead quickly with a large research program under which various imaginative ideas about substituting labor for capital are tested in practice on an extensive basis, the Bank Group must find ways to encourage its developing member-countries to submit to it many experimental labor- intensive projects. Some would be for a few million dollars. Some, for rural development in a country the size of India, could be for several hundreds of millions of dollars. Most would be in countries which have per capita incomes of not more than $300 and are eligible to receive interest- free loans from the International Development Association (IDA). There are two main ways by which the Bank Group can give the necessary encouragement to IDA-worthy countries to submit to it experimental labor-intensive projects. The Bank Group can decide to bear the risks of failures. And it can increase greatly the proportion of its loans for those projects which finance local costs.

Since, as the Chairman of DAC has pointed out, some experimental labor- intensive projects are likely to be failures, the low-income member- countries of the Bank Group with their limited resources will properly be reluctant to propose them to the Bank Group (or to carry them out with their own resources) if they must bear the costs of the failures, particularly since the benefits of the experiments, whether successes or failures, will also accrue to countries other than those in which the projects are undertaken. Their reluctance would be lessened if the Bank Group were to decide that if an experimental labor-intensive project financed by an IDA loan turns out to be a failure, the Bank would assume the responsibility of meeting all the future payments on the loan. This would convert the IDA loan into a grant. Since IDA loans are interest-free and run for 50 years, the cost to the Bank of taking over all amortization payments on IDA loans totalling, for example, $100 million would be one payment of only $13 million (discounting future payments at seven percent, the cost of money to the Bank). This payment could be made out of a special research fund financed from Bank profits.

The more labor-intensive a project is, the less foreign exchange it uses. The higher the proportion of the local costs of labor-intensive projects the Bank Group is prepared to finance, the greater the encouragement it will give. The financing by the Bank Group of local costs puts foreign exchange at the disposal of the borrowing governments; virtually all the developing countries, other than the oil-rich countries, suffer from severe shortages of foreign exchange. These countries can use the foreign exchange resulting from Bank Group loans for local costs to finance high-priority purposes in economic and social development, including essential imports and the payment of interest and amortization on new loans for high priority development projects. It would be helpful, therefore, if the Bank Group were to decide that it would finance all the direct and indirect foreign exchange costs and at least two-thirds of the local costs of experimental labor-intensive projects. (This would apply to financing by the Bank proper as well as by IDA.)

When McNamara became President of the Bank in 1968, only five percent of the lending by the Bank and IDA was for local costs. The main reason for this was the opposition of the governments of some of the rich member- countries. These governments argued that what they needed to rally the support of powerful export interests in their countries behind the World Bank Group was a simple, clear proof that their country got back in export orders all or more than all the money it made available to the Bank Group by permitting the Bank to sell its bonds on their capital markets or to their central banks, or by gifts from the government to IDA. Their objection to increased local cost financing was that it would result in a falling off of their exports which could be identified as directly attributable to Bank Group loans. Under McNamara's presidency the proportion of lending by the Bank and IDA which finances local costs has gone up from five to ten percent We have here a great triumph for McNamara. But the triumph is by no means complete. If low-income member-countries are to be encouraged to propose a large volume of labor-intensive projects to the Bank Group, the ten percent must rise to 20 percent in the next few years and possibly to 30 percent by the end of the 1970s. To secure the acquiescence of the rich member-countries in this kind of increase, McNamara may well have to visit the capitals of the rich member-countries and argue vigorously with their governments. He may have to propose an amendment to the international agreements establishing the Bank and IDA.

III

Small-scale rural development works provide a good indication of the scale of operations required to make an impact on unemployment and income distribution in the low-income countries, the kinds of benefits likely to flow from well-planned and well-administered programs, and the kinds of difficulties likely to confront a government determined to combat the poverty of the poorest of its fellow citizens.

Dudley Seers recommended in 1971 in the study of Ceylon (now Sri Lanka) which he made for the International Labor Organization that Ceylon should in the next few years have a program of small-scale rural development works which would employ 100,000 workers, this in a country of only 13 million people. The corresponding figure for India would be four million workers full-time or eight million half-time. For this the wage bill for the laborers might be about $500 million a year.

The programs would not be massive programs of rural relief. They would be integrated programs of small-scale, labor-intensive development works likely to yield high real rates of economic return in both the short and the long run, either by increasing agricultural production or by reducing the farmer's costs and by improving his ability to market his crops. The projects for increasing agricultural production would include measures to improve the quality of land and to conserve water and soil by leveling land, by contouring embankments, damming rivulets and streams, constructing ponds for holding rain water and irrigation and drainage channels, by digging surface wells, de-silting existing canals and small reservoirs, and by planting trees. The other projects would consist mainly of improving the roads from the farms to the markets, thus reducing the costs to the farmers of improved seeds and fertilizer and the cost of bringing his crops to market. Labor otherwise unemployed would create valuable capital goods.

If a program of rural development works is restricted to projects yielding a high real rate of economic return, and in most developing countries there is no lack of such potential projects, the program will increase the production of food and put money in the hands of the poorer peasants, the underemployed artisans and the landless laborers. They will spend this money on the bare essentials of life which they now lack. They will buy more food to fill their empty bellies, thus providing a market for the increased production of food resulting from the projects on which they have been employed. They will buy more clothing to replace their rags; in most developing countries simple clothing material can be produced locally. Their employment on productive work at reasonable rates of pay will thus create more production and more employment; it will increase the share of the poor in the national income and, in most of the developing world, it will lead to almost no increase in the demand for imports. It will therefore not be a drain on scarce foreign exchange.

The power structure in many rural areas in many of the low-income countries, notably in India, Pakistan and Bangladesh, is a serious obstacle to the success of large programs of rural development works. The rural élite will try to get control of any development works program to abort or twist it to serve their own purposes. The larger landowners will try to evade paying a fair price for the improvements made on their farms as a result of the works projects. The moneylenders will try to seize part of the wages of the laborers to pay off debts incurred at exorbitant rates of interest. Corrupt officials will try to charge the government for work which has not been done, or for wages which have not been paid. Governments determined to help the rural poor, and it is only to these governments that the Bank Group should make loans for rural works projects, will, therefore, have to work out measures providing reasonable assurance to the Bank Group that the projects will be so organized and monitored that they will in fact help the rural poor. In the long run, as Arun Shourie has suggested,[i] this means that in many very poor countries the governments will have to help the poorer farmers, the underemployed artisans and the landless laborers to organize themselves against those who hold power in the villages.

Some waste is inevitable on all development projects; on rural development works the waste may be above the norm. On these as on other Bank Group projects waste must be kept to a minimum. But as one senior official of the Bank Group said to me at the beginning of 1973 when we were discussing rural development projects, "At least, when we waste money on projects to employ the poorest farmers and the landless laborers, we will be wasting money on the right people."

In a speech in 1969, Mitchell Sharp, the foreign minister of Canada, said:

Successful revolt, like successful government, calls for effective infrastructure, the kind of thing aid programs are designed to provide. There are countries where one can only hope that in due time the assistance they receive from us will give to the people the sinews they need to rise up and cast aside the cruel weight of unjust and unprincipled government.

The people who control unjust and unprincipled governments are not likely to use foreign aid to provide their poorer fellow citizens with the sinews for successful revolt. But governments which are determined to strengthen the economic, social and political power of their poorer fellow citizens will use foreign aid for these purposes, including loans from the World Bank Group for rural development works and for other programs designed to yield high returns in terms of production, jobs and a more equitable distribution of income.

IV

The Bank Group is not able at present to do nearly as much for its very poor member-countries as it can for its better-off developing member- countries. The very poor member-countries (those with per capita gross national products in 1970 of less than $160 a year) have a total population of 1,100 million-almost 50 percent more than the population of the better- off developing member-countries (those with per capita gross national products in 1970 of $160 to $1,400 a year). And it is the very poor countries which most need help. Their gross national products grew during the 1960s at a rate in real terms of only 3.7 percent a year, compared with 6.2 percent in the better-off developing countries. If these rates of growth continue, the better-off will double their gross national products in 12 years while the very poor countries will take 20 years to double theirs.

Hollis Chenery, a vice-president of the World Bank and McNamara's principal adviser on development policy, emphasized in a speech in 1970 the much greater importance of aid to the poorer countries compared with assistance to the better-off. His two categories were countries in the income range of $100 to $300 and countries at "higher income levels." He said:

In general there should be a presumption that aid is provided for the purpose of accelerating growth, which would result in the highest per capita amounts going to countries in the income range of $100 to $300. At higher income levels, exports and private investments should be able to finance imports, and adequate domestic savings are mainly a question of government policy.

In the four years ending in mid-1972, lending by the Bank and IDA was distributed in the diametrically opposite way from that recommended by Hollis Chenery. The countries which he recommended should get the highest amounts per capita got 63 cents a year for every inhabitant. Countries in the income range of $440 to $1,400 received $2.16 a head, almost three and a half times as much. The Bank, which lends at an interest rate of 7¼ percent a year, was lending $1,675 million a year in this period; the International Development Association, which charges no interest on its loans, was lending only $650 million a year.

The reason for the skewed allocation of Bank and IDA loans is simple. In general, the poorer a country the less it can afford to pay 7¼ percent a year in foreign exchange on its borrowings. For this reason only 15 percent of Bank loans in the four years ending in mid-1972 went to very poor countries. The very poor countries got 80 percent of IDA loans but, since IDA had only about two-fifths as much to lend as the Bank, this 80 percent did not compensate for their lack of credit-worthiness for Bank loans.

The resources of IDA have fortunately been increasing more rapidly than those of the Bank; in the fiscal years 1973, 1974 and 1975, IDA will be lending at least half as much as the Bank. But if the Bank Group is to be able to treat its very poor members as well as its better-off developing members, the resources of IDA must be increased much more rapidly than those of the Bank. The difficulty, of course, is that it is much easier for the Bank to raise money by selling its bonds at an interest rate of about seven percent than it is for IDA to raise money by begging the governments of rich countries to make gifts to it, gifts financed out of taxes. Governments are now giving IDA a little over $800 million a year. By 1975 this may have gone up to $1,200 million and by 1978 to $1,500 million (in 1972 dollars). But if IDA is to do what it should do for its very poor member-countries, it must be able to lend about twice that amount. (It would need to lend even more if Peking were to take over the Chinese seats in the Bank Group and were to apply for loans from IDA.) The only readily conceivable way to increase IDA's resources to about three billion dollars a year is to provide IDA with interest-free special drawing rights (SDRs) of the International Monetary Fund (IMF). In 1972 McNamara publicly associated himself with proposals, as he put it, to link the financing of aid, "either directly or indirectly, to future issues of Special Drawing Rights."

IDA could not expect to be the only agency receiving interest-free SDRs. The SDRs would have to be shared with regional banks and possibly also with the U.N. Development Program (UNDP). The regional banks would use special drawing rights to finance interest-free loans to very poor countries. Perhaps, beginning in 1975, an average of one billion dollars a year (in 1972 dollars) of SDRs might be made available to IDA and half a billion a year to the regional banks and the UNDP. In successive allocations of SDRs, these amounts might be increased and the share of the regional banks augmented as they take over more of the responsibility for making interest- free loans to very poor countries. By the mid-1980s, the volume of interest- free SDRs made available to IDA and the other international aid agencies might have gone up to three billion dollars a year (in 1972 dollars), on the assumptions that by then SDRs will have become the major international reserve asset and that all additions to reserves will be in the form of SDRs. By that time too, the mid-1980s, it is likely that the Soviet Union and the East European states will have become members of the IMF and of the Bank Group, and that the government in Peking will occupy the Chinese seats in both institutions.

Another way to increase the resources of IDA and of other international aid agencies is to turn over to them royalties derived from the exploitation of the seabed outside national jurisdiction. Almost three years ago President Nixon proposed to Congress that a treaty should be concluded under which these royalties would "be utilized principally for providing economic assistance to developing countries participating in the treaty." The nations of the world should conclude promptly a treaty on the lines of the Nixon proposal. The longer they delay the more difficult the task; vested interests will have been established, vested interests of governments which are constantly extending the area of the seabed over which they claim jurisdiction, vested interests of the dozen or more national and multinational corporations and consortia already actively working on the problem of how to mine one of the great potential resources of the seabed, the so-called manganese nodules which contain not only manganese but copper, nickel, cobalt and other metals.

V

The World Bank is now a very unequal partnership between the rich and the low-income countries. (Rich countries had per capita gross national products in 1970 of at least $1,600 a year and included a quarter of the population of the world. Low-income countries had less than $440 and included two-thirds of the population of the world.) Unless the Bank Group becomes a less unequal partnership, a change in its criteria of lending and an increase in its financial resources will not by themselves enable it to give to its low-income member-countries the help it should be able to provide. There are two reasons for this. The first is that at present not enough people with influence in the Bank Group know enough at firsthand of what life is like for the poorer people in the low-income countries and for their governments. The policies, the programs, the projects and the advice of the Bank Group would be sounder if the governments and the nationals of the low-income countries had more influence in shaping and implementing them. The second reason is that unless the influence of rich countries and their nationals is diminished, the influence of the Bank Group will decline. It will decline as more and more of the low-income countries become more and more unwilling to accept advice from outsiders. If the relative power of the rich countries within the Bank Group is not substantially diminished, the low-income countries will regard the management and staff of the Bank Group as outsiders.

Today, the six principal rich member-countries (the United States, Britain, Germany, France, Japan and Canada) possess about half the votes in the governing bodies of the Bank and IDA. The six most populous low-income countries (India, Indonesia, Brazil, Bangladesh, Pakistan and Nigeria) possess only about one-thirteenth of the votes, although their populations total 930 million compared with 500 million in the six principal rich countries. The whole group of rich countries has only a quarter of the population of all the members of the Bank and IDA but possesses 64 percent of the votes in the governing bodies. In April 1973, nationals of rich countries held 68 of the top 80 positions in the management and staff of the Bank and IDA.

Three-quarters of the financial resources of the Bank and IDA comes directly or indirectly from the capital markets, the central banks and the governments of its six principal rich member-countries. Almost all the rest comes from the other rich countries. The rich countries will not provide three billion dollars a year or more to an agency in which their ability to influence policy is no greater than that of countries providing virtually none of the financial resources. This is a reality of international political life at the present stage of interstate relations. Nor would the rich member-countries be alone in rejecting out of hand a proposal that every member-state should have only one vote in the governing bodies of the Bank Group. The more populous of the low-income countries would also reject it. The 58 least populous of the low-income member-countries of IDA have a total population of 350 million. Under the one-state one-vote system, these low-income countries would be able to cast a majority of the votes in IDA, which has a membership of III. The six most populous low-income countries with more than two and a half times the population of the 58 countries would have one-tenth of their votes. One million people in the 58 least populous low-income countries would have the voting power of 25 million people in the six most populous low-income countries.

It is thus obvious that there must be some kind of weighted voting in the governing bodies of the Bank Group. The present system of weighted voting in the Bank Group is based on relative economic strength as reflected in national income, imports, exports and central bank reserves. If, in addition, some weight were given to population, there would be a shift in voting power from the rich to the low-income countries. If, for example, each member-country were given 30 additional votes in the Bank and 90 additional votes in IDA for every million of its population, eight percent of the votes would be transferred from the rich countries to the low-income countries. The rich countries would have 56 percent of the votes instead of the 64 percent they now possess. They would still have control but they would have demonstrated the importance which they attach to gradually turning the Bank Group into a less unequal partnership between the rich and the low-income nations. (The United States now has 23 percent of the votes in the Bank and 26 percent in IDA. Under this proposal it would have 20 percent in the Bank and 22 percent in IDA. It would still be able to block amendments to the international agreements establishing the Bank and IDA, since amendments require either unanimity or the support of 80 percent of the total voting power and it is inconceivable that all the other members of the Bank would vote against the United States.)

To make this change in voting would require amendments to the international agreements establishing the Bank and IDA. To increase the proportion of senior officers of the Bank Group from the developing countries would require action only by McNamara. Since the needs of governments, banks, businesses and universities in developing countries for people who could become valuable members of the professional staff of the Bank Group are so great that they cannot be filled, the Bank Group would not wish to persuade many of them to become permanent members of its staff. The Bank Group should concentrate rather on borrowing experts from developing countries- men, say, in their early forties-to serve on its staff for five-year terms. These younger people could more easily be spared by their countries since the experience gained from service with the Bank Group would make them much more valuable on their return home. Their employers might therefore be prepared to coöperate with the Bank Group in granting them leaves of absence for five years. They would, of course, accept appointments only if given assurances that their stay in the Bank Group would not hinder their careers at home, and that the Bank Group would make full use of their abilities. The two conditions are interdependent. Their fulfillment would require a high degree of flexibility on the part of the management and staff of the Bank Group. By 1978 about one-third of the 200 or so senior posts might be held by these experts from developing countries.

George Woods, when President of the Bank during the five years preceding McNamara's appointment, reduced sharply the proportion of the principal officers of the Bank and IDA who were citizens of the United States. The proportion fell from 55 to 40 percent. During McNamara's first five years of office, this desirable trend was reversed. This is one of McNamara's main failures as President. In April 1973, the proportion of principal officers who were U.S. citizens was 45 percent (36 out of 80.) This preponderance of one nationality is not appropriate in international lending agencies like the World Bank Group.

About 1,200 new appointments to the professional staff of the Bank Group will have to be made between mid-1973 and mid-1978 when the staff will have increased to about 2,400. This large number of new appointments makes it possible for McNamara to achieve a more appropriate balance at all levels of the professional staff, from the vice-presidents down, among citizens of the United States, citizens of other rich countries and of middle-income and low-income countries-while at the same time maintaining high standards of efficiency, competence and integrity in the new appointments and leaving room for promoting present members of the staff on merit, regardless of nationality.

VI

To list these measures for strengthening the World Bank Group is easy. The obstacles which stand in the way of bringing them into effect are great. McNamara has to change some of his own policies and his style of administration. He has to overcome resistance to change in both the rich and the developing countries. The governments of many of the rich countries will be reluctant to provide IDA with greatly increased resources and to surrender some of their influence over the making of decisions by the Bank Group. The governments of many of the developing countries will resist efforts by the Bank Group to press them into doing more for the poorest two- fifths of their peoples. But a strong President of the Bank Group supported by statesmen in member-countries "with a wide vision, a social consciousness and a sense of history" has been able during his first five years of office to do much for the Bank Group and for international development. He can do even more in his second five-year term.

The World Bank Group has contributed much to institution-building in its developing member-countries. It is high time it paid more attention to institution-building at home. McNamara has set his personal imprint on the World Bank Group just as did his predecessors, Eugene Black and George Woods. His task now is to make the Bank Group less dependent on the personality of its president.

Under McNamara's leadership the board of executive directors of the Bank Group representing the member-governments has been given a larger share in the process of making decisions, and it has become more responsible, more creative. A similar healthy development has not taken place in the bureaucracy of the Bank Group. To correct this failure, McNamara needs to nurture in the Bank Group a style of administration in which the superior gives the subordinate ample opportunities to argue with him over the merits and demerits of alternative policies, and in which the subordinate gives the superior honest and informed advice even though he knows it will be unpalatable. McNamara inherited from George Woods a style of administration which did not possess these qualities. His greatest failure as President is that he has perpetuated this style of administration. This is not the way to strengthen the Bank Group as an institution. The more the professional officers of the Bank Group feel that they are participating in the process of making decisions on policy, the more responsible, the more creative they will become, and the stronger the Bank Group will become as an institution.

In the next five years, McNamara can greatly increase the ability of the Bank Group to help the developing nations reconcile the need to increase their production of essential goods and services for the mass of their people with the need to reduce their unemployment and underemployment and to increase the share of the national wealth going to the poorest two- fifths of their people. He can make the Bank Group a less unequal partnership between the rich and the poorer nations. He can make the administration of the Bank Group more efficient and more international. He can make the Bank Group into a strong, creative institution vibrant with argument at a high intellectual level. A president of the World Bank who sees himself as an international civil servant second only to the Secretary- General of the United Nations can become a great contributor to the long slow process of creating a world community, and the lasting peace that would go with it.

[i] See Arun Shourie, "Growth, Poverty and Inequalities," Foreign Affairs, January 1973.