BackReformed MDBs can be the glue for a riven world order
Much hope is pinned on them in this fraught environment but MDBs must first reinvent their role
PremiumUnder the October twilight the water/Mirrors a still sky—W.B. Yeats, The Wild Swans at Coole
October is indeed a strange month and makes people do unpredictable things. US President Joe Biden burnt gallons of jet fuel to demonstrate solidarity in person with Israeli Prime Minister Benjamin Netanyahu, but ended up admitting that the US had made mistakes in its retaliation to the 9/11 attacks. The US president was cautioning the Israeli premier that the fog of vengeance might blur the distinction between ordinary Gaza residents and the Hamas leadership, which, left unheeded, could lead to undesirable outcomes. Biden’s extraordinary burst of candour has got many wondering whether if some of this sincerity will also rub off in other areas of geopolitics and geo-economics.
The hope of larger systemic changes might sound incongruous in the face of a continuing Russia-Ukraine conflict, an escalating US-China face-off and a renewed Israel-Palestine conflagration that could engulf the rest of West Asia. But then, October is no ordinary month. It was in October 1973, 50 years ago, that hostilities—now known as the Yom Kippur war—broke out between a coalition of Arab states and Israel. It was in October 1962 that missile stockpiling in Cuba almost sparked a war between superpowers the US and Soviet Union. Further back, the market crash of 24 October 1929 resulted in the longest and harshest economic depression of the 20th century. It is also in October every year that the International Monetary Fund (IMF) and World Bank hold their annual meetings; this year’s meetings in Marrakech, Morocco, held out the promise of some sweeping institutional changes. Nobody is holding their breath yet, but extraordinary hopes have been pinned on multilateral development banks (MDBs) to cement some of the cracks in a polycrisis-ridden global environment.
But first, MDBs need to jettison their outdated practices. Former foreign secretary Shyam Saran recently wrote in Business Standard that the IMF’s revival package for the Sri Lankan economic crisis has pushed an additional 4 million people below the poverty line by eliminating subsidies. This is classic IMF operating procedure; while a lender is expected to impose conditionalities, it might be time for the IMF to think of funding patterns that are not linked to policy reforms. Today’s global flux and fading appeal for multilateralism need new, bold solutions.
The 2008 financial crisis, followed later by the pandemic, was a wake-up call for a new world order. The internal contradictions of the five-decade-old economic paradigm—which had envisaged a greater role for markets and a shrinking role for the state—manifested themselves in multiple ways and forced governments to change tack. After the pandemic and Russia’s aggression exposed the fragility of the world trade networks and triggered a cost-of-living crisis, states worldwide responded by arrogating a greater role to themselves. The Economist describes the trend as homeland economics: “a protectionist, high-subsidy, intervention-heavy ideology administered by an ambitious state… This mix of protection, spending and regulation comes at a heavy cost."
It can be argued that this classical liberal sentiment fails to read the room, or the prevalent mood of economic despondency that has gripped both advanced and developing nations. At a pinch, it might even sound a bit elitist to suggest that governments ought to withdraw from their primary function of protecting the vulnerable from economic depredation. Climate change is further deepening the crisis in poor nations, with the rich refusing to make amends for their past excesses and shrugging off their responsibility of financing alternative technologies. The EU, for example, is experimenting with burden-shifting by introducing a new trade levy, its carbon border adjustment mechanism.
The other indicator of trouble in paradise, even though nascent, is the rise of trade union activity. Even in the US, workers across the Starbucks chain, in Amazon warehouses and ride-sharing companies Uber and Lyft are unionizing to seek better pay and benefits. While the number of workers joining unions is still lower than the number staying non-unionized, it is also indisputable that recent worker activity has slowed down the long-term momentum of trade union decline; the trends do point unequivocally to growing worker discontent with stagnant real wages and shrinking benefits. Even the White House acknowledged the trend in September 2022: “Organized labour appears to be having a moment."
Add to this the rising disillusionment with infirm global institutions and iniquitous global trade, which has been exacerbated by the decline of multilateralism and accelerated geopolitical fragmentation into smaller blocs. This has heightened insecurity for most countries, forcing them to become ever more protectionist. The cover story of Foreign Policy’s Fall 2023 edition sums it up succinctly: “It doesn’t help that the United Nations, World Bank, and the other institutions often look like relics of the past."
It is in these fraught conditions that MDBs will have to figure out their changed role, their renewed existential purpose. The independent expert group has submitted its final report on strengthening MDBs; hopefully, it will mark a new beginning for MDBs and not end up being just a cosmetic fix.
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