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Development economics, globalism and inequality, the aid system, international financial institutions, education, Latin America, climate financing
Nancy Birdsall is president emeritus and a senior fellow at the Center for Global Development, a policy-oriented research institution that opened its doors in Washington, DC in October 2001. Prior to launching the center, Birdsall served for three years as senior associate and director of the Economic Reform Project at the Carnegie Endowment for International Peace. Her work at Carnegie focused on issues of globalization and inequality, as well as on the reform of the international financial institutions.
From 1993 to 1998, Birdsall was executive vice-president of the Inter-American Development Bank, the largest of the regional development banks, where she oversaw a $30 billion public and private loan portfolio. Before joining the Inter-American Development Bank, she spent 14 years in research, policy, and management positions at the World Bank, most recently as director of the Policy Research Department.
Birdsall has been researching and writing on economic development issues for more than 25 years. Her most recent work focuses on the relationship between income distribution and economic growth and the role of regional public goods in development.
Birdsall is a member of the Board of Directors of the International Food Policy Research Council (IFPRI), of the African Population and Health Research Center, and of Mathematica. She has chaired the board of the International Center for Research on Women and has served on the boards of the Social Science Research Council, Overseas Development Council, and Accion. She has also served on committees and working groups of the National Academy of Sciences.
Birdsall holds a PhD in economics from Yale University and an MA in international relations from the Johns Hopkins School of Advanced International Studies.
Putting Education to Work in Egypt, by Nancy Birdsall and Lesley O'Connell. Prepared for Conference, Growth Beyond Stabilization: Prospects for Egypt, sponsored by The Egyptian Center for Economic Studies in collaboration with the Center for Institutional Reform and the Informal Sector, University of Maryland; the Harvard Institute for International Development, and the US Agency for International Development, February 3-4, 1999, Cairo, Egypt. March 1999.
"Intergenerational Mobility in Latin America: Deeper Markets and Better Schools Make a Difference," with Jere R. Behrman and Miguel Szekely, in New Markets, New Opportunities? Economic and Social Mobility in a Changing World (1999)
"The U.S. and the Social Challenge in Latin America: The New Agenda Needs New Instruments," with Nora Lustig and Lesley O'Connell, in The Search for Common Ground: U.S. National Interests and the Western Hemisphere in a New Century (W.W. Norton & Company, Inc., 1999)
"Deep Integration and Trade Agreements: Good for Developing Countries?" with Robert Z. Lawrence in Global Public Goods: International Cooperation in the 21st Century (Oxford University Press, 1999)
"No Tradeoff: Efficient Growth Via More Equal Human Capital Accumulation in Latin America," in Beyond Trade-Offs: Market Reforms and Equitable Growth in Latin America (1998)
"That Silly Inequality Debate," in Foreign Policy, May/June 2002
"Education in Latin America: Demand and Distribution are Factors that Matter," with Juan Luis Londoño and Lesley O'Connell in CEPAL Review 66, December 1998
"Life is Unfair: Inequality in the World," in Foreign Policy, Summer 1998
"Public Spending on Higher Education in Developing Countries: Too Much or Too Little?" in Economics of Education Review, 1996
The multilateral development banking (MDB) system is regarded as having been remarkably successful—but is the model still fit for purpose? How can MDBs remain relevant in a changed world and tackle this century’s greatest challenges, including climate change, pandemic response, humanitarian crises, and more?
In a previous CGD Podcast, Summers explained how the recommendations in the report can help the MDBs come together to address transnational problems. For this week, I sat down with the co-directors of the High Level Panel, CGD president Nancy Birdsall and senior fellow Scott Morris, to delve further into what those recommendations are and how they can make MDBs more effective.
Watch the clip below to learn why MDBs are so important to borrowing countries, and listen to the full podcast at the top of this page.
The multilateral development banking (MDB) system is regarded as having been remarkably successful—but is the model still fit for purpose? CGD president Nancy Birdsall and senior fellow Scott Morris delve into a new CGD report's recommendations on how to make MDBs more effective.
A new report by CGD’s High Level Panel on the Future of Multilateral Development Banking offers a frank assessment of current MDB policies and practices, situating them in the context of new development challenges. For over five decades the multilateral development banks have combined financial heft and technical knowledge to support investments in post-conflict reconstruction, growth, and poverty reduction. However, the geo-economic landscape has changed dramatically in this century. There are new banks, and also new challenges that call for global collective action and financing of the sort the MDBs are well-suited to provide but have been handicapped in doing so effectively. How should the MDBs respond?
Finance and development ministers gathered in Washington this weekend at the World Bank’s annual meetings have an ambitious agenda of topics to discuss. But the truth is, it is not nearly ambitious enough. A new CGD report by a high level commission of development and finance experts explains why and what should happen.
In the coming days, ministers, who serve as the bank's governors, will return to the issue of voting reform, building on the 2010 commitments and getting developing countries as a group closer to 50 percent of “ownership.” They will discuss a new strategy emerging from a year-long “forward look” exercise, which considers resource needs and operations of the institution. They will move toward the conclusion of another replenishment of the International Development Association (IDA), the bank’s lending arm for the poorest countries. And they will consider what more the bank can do to help finance programs for Syrian and other refugees in member countries like Jordan and Lebanon—a challenge that has consumed considerable energy inside the bank in recent months.
But our new report, Multilateral Development Banking for This Century's Development Challenges,urges ministers to rethink priorities of the World Bank in the light of changes in the multilateral system, that now includes more than six other large and politically significant regional banks. The banks as a group need to be better equipped to tackle urgent transnational problems of our time—for example, the risk of antibiotic resistance and forced migration.
Shareholders ought to think of these banks not as individual institutions competing for scarce resources, but as a system of complementary actors. They should build on the key role of the World Bank as the only truly global bank in addressing transnational problems, while looking to the full potential of the regional banks to address their borrowing members’ growing investment needs, particularly but not only in infrastructure.
“A unique moment for the MDBs to embrace ambition”
The year-long assessment of the MDBs by CGD’s High Level Panel on the Future of Multilateral Development Banking, co-chaired by Montek Ahluwalia, Lawrence Summers, and Andres Velasco, lays out a vision for the shareholders of the World Bank and major regional MDBs for the next decade, taking into account the ambitious commitments made by the world’s leaders in 2015: the Paris climate accord and the Sustainable Development Goals. It argues that the MDBs can certainly be part of the solution to today's global challenges.
“We see a unique moment for the MDBs to embrace ambition," the report says. "We strongly believe that the MDB model—combining technical and financial capacity in a politically-backed cooperative—remains the best available vehicle for tackling the critical new challenges facing the global community.”
The report recognizes the fundamental importance of addressing climate change to further progress on development, and the catastrophe that will unfold in the absence of truly global-level collective action in financing and deploying climate-friendly programs in the developing world. To this end, the Panel recommends a new mandate for the World Bank to focus on global public goods, enabled with $10 billion in new grant resources to research and deployment of new energy and health technologies, to foster the nascent “green” bonds market, and to issue loans and guarantees on terms that encourage borrowers to take on the upfront costs of climate mitigation. This would be as a complement to the traditional lending operations of the bank.
Sustainability should be at the heart of what the World Bank does. So, the panel further proposes that the name of the IBRD (the World Bank's main mechanism for lending to middle-income countries) be changed to IBRSD, the International Bank for Reconstruction and Sustainable Development.
Time for the World Bank to set the trend again
Over many decades the World Bank has set the trend, for example, taking leadership on lending to poor countries in the 1960s. Now the panel is calling on it to take leadership on raising grant money, setting priorities for collective action and deploying resources when appropriate to other institutions to address global public goods.
This proposed shift for the World Bank also highlights the need for clearer differentiation between its own role in infrastructure and that of the regional development banks. The World Bank’s role should be to do only what is truly “green.” The report suggests the regional banks take the lead in increasing MDB-supported infrastructure investment from $50 billion to $200 billion a year, with a view to crowding in much more in private capital, as well as sustaining traditional country operations in education, agriculture and other sectors.
The panel offers recommendations in five areas: global public goods, sustainable infrastructure, the role of “concessional” financing, crisis management, and a shareholder-led governance agenda. In each of these areas, CGD’s high level panel recognizes the tremendous potential of the MDBs, as well as the risks and missed opportunities associated with a business-as-usual approach.
We very much hope that the high level panel’s report will spur fresh thinking among the banks’ shareholders about the future roles and mandates of the different MDBs. Ultimately, it is the ministers gathered this weekend in Washington, and in future meetings, who have the power to set a strategic path for the MDB system as a whole. Today’s global challenges demand that they take up the charge.
The Birdsall House Conference Series on Women seeks to identify and bring attention to leading research and scholarly findings on women’s empowerment in the fields of development economics, behavioral economics, and political economy.
Last week the World Bank Board closed the three-week window, announced in late August, for member countries to nominate candidates for the presidency of the World Bank. Jim Kim, the US nominee and incumbent since his election in 2012, was formally nominated by the United States at 12:01 a.m. at the opening bell, so to speak. He is the sole candidate in what appears to have been a kind of insider coup by the United States (called a “charade” in a World Bank Staff Association letter to its members) of the procedures agreed by World Bank members in 2011. Those procedures were meant to make selection of presidents “open, transparent, and merit-based”—as called for by the G-20 in 2009. That sustains—well beyond its time—the 1944 deal brokered at the founding of the International Monetary Fund and the World Bank between the US and Europe in which the United States decides who runs the World Bank and the Europeans decide who runs the IMF.
Examples of the resulting outcry on the part of close watchers of the World Bank are here, here, here, here, here, and here .
Here are four comments and a modest suggestion for members of the World Bank Board.
First: as a US citizen, I’m chagrined. By short-circuiting the process the United States puts the long-term relevance, effectiveness, and most fundamental legitimacy of the world’s premier development institution at risk.
That the emerging markets and big borrowers are going along is not a surprise. Most smaller and poorer economies see little point in irritating the White House on whose support they count for trade, security, and aid matters. With their own growth success in the last 15 years, the big emerging markets increasingly see the World Bank as a relatively small matter, providing below-market loans but no longer an honest broker bringing top--quality advice along with its money; it’s easier (and quicker and less annoying) to self-finance investments, borrow on the private capital market, or turn in tough times to the regional development banks where they have greater ownership. China has created its own multilateral bank, and a second one together with the other BRICS (Brazil, Russia, India, South Africa), reflecting their eagerness for a bigger role in global governance and their frustration with the continuing grip of the traditional Western powers on the World Bank. Finally, the Europeans stay quiet to protect their own “right” to appoint the head of the IMF.
Second: selection of its leadership in a process that is opaque and non-competitive is not only a blow to the legitimacy and relevance of the World Bank.
It’s a blow to the international economic cooperation in the fight against global poverty that has, since the end of World War II helped bring prosperity to billions of people—as much through the bank’s role in the orderly extension of open, liberal markets (the liberal order invoked earlier this week by President Obama at the United Nations) as through its billions of dollars in lending. Moreover the gradual disaffection of developing countries makes it hard for any leader to bring its shareholders together on raising and deploying resources, not for loans to one country at a time, but for grants and loan subsidies to deal with this century’s most pressing global challenges to development and continued poverty reduction: climate change, pandemic controls, refugee resettlement, clean public transit in megacities (instead of resorting to cars), ending dangerous deforestation, investing in new medicines, and new agricultural technologies for global food security—all investments in and for developing countries with benefits for the entire world that no single borrower from the bank can fully capture.
Third: the US monopoly of leadership selection reflects and reinforces a deeper problem: structural flaws in corporate governance of the bank.
The presidency of the World Bank is a powerful position, with command over a huge budget, thousands of jobs, billions of dollars in annual lending—and if an effective leader, a virtual free hand on overall strategy and priorities. As a corporate governance body, the bank board is weak relative to the bank president; as a result, once elected, bank presidents are not in a practical sense accountable to the bank board—whether for policy or individual performance. That the president is the Chair of the Board is the least of it. The founders apparently imagined a useful tension between a corporate role for the Board members and a political role; its members are both international civil servants and political appointees of their own governments. They are two-hatted, representing the interests of the institution as a whole and representing the interests of their governments. For the institutional hat to be effective, geostrategic rivals need to collaborate with each other (raise interest rates or not; clamp down on corruption or not; call out the performance of the president or not). In their political role they represent their countries’ immediate interests, which for the borrowers makes challenging the chair/president potentially costly, and for rich country allies of the US, hardly worth the trouble.
It is too easy to dismiss the complaints of well-paid professionals as the usual grousing. The bank’s effectiveness is enabled by the work of thousands of committed, highly trained, hard-working (yes hard-working), civil servants dedicated to getting it done every day. It is too easy to dismiss them as faceless bureaucrats or coddled “elite” professionals. Maybe not all their concerns (“a crisis of leadership”) are warranted; maybe the controversial restructuring and personnel changes of Jim Kim’s first term will be redeemed in his second term—as has been the case with former bank presidents and former US presidents. But a failure to acknowledge those concerns and work with Jim Kim on how to deal with them, before he is confirmed for another term, is unfair to him and, more important, puts at risk his credibility and effectiveness going forward -- at a critical time when the bank’s relevance and legitimacy are under challenge.
My suggestion: that following its private discussion with the candidate on his past performance and future priorities, the board make public its performance assessment and any recommendations for strengthening performance.
The board could also build into its normal procedures annual performance assessments of future presidents. Jim Kim’s own credibility and effectiveness can only benefit in a second term; and in the medium term the bank’s waning legitimacy might be at least partly salvaged.
Join us for a discussion of the new report by CGD’s High Level Panel on the Future of Multilateral Development Banking, which offers a frank assessment of current MDB policies and practices, situating them in the context of new development challenges. For over five decades the multilateral development banks have combined financial heft and technical knowledge to support investments in post-conflict reconstruction, growth, and poverty reduction. However, the geo-economic landscape has changed dramatically in this century. There are new banks, and also new challenges that call for global collective action and financing of the sort the MDBs are well-suited to provide but have been handicapped in doing so effectively. How should the MDBs respond?
Why does poverty persist across so much of the world, despite billions of dollars in international aid and the efforts of development professionals? William Easterly’s answer, as proposed in his new book, The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor, is a lack of respect for liberty—not just on the part of governments of impoverished countries but also, more provocatively, on the part of the development experts. Owen Barder, director of CGD in Europe and a noted development expert himself, disagrees. A vote of the audience will determine who wins the debate, which will also be streamed live.
Despite being one of the fastest-growing economies, India has hit a turbulent patch in recent years with declining growth and increasing macro-economic instability. India's emphasis on skill-intensive manufacturing and services over unskilled manufacturing has left a large portion of the population under-employed. At the same time, India’s precocious democracy has uniquely shaped both its economic and institutional development.
In this lecture, Arvind Subramanian will reflect on India's unusual pattern of economic and political development, and look to its prospects for the future. How can India’s institutions develop to both create investment opportunities and provide essential services to its citizens? Can India overcome its reliance on skills-based industries and become a manufacturing powerhouse? With India’s elections wrapping up on May 16 and a new government assuming office, a major challenge will be to rehabilitate India's development model or search for an alternative.
In this speech delivered to
the UN General Assembly, Nancy Birdsall argues that in the absence of an activist global political
entity to address these issues, global citizens should press their
own governments to adopt policies that address these problems, domestically and internationally.
Globalization is under attack in the West. The debate among pundits is no longer about whether globalization is to blame or not. It is about why globalization is now the bugaboo it has become. A common thread are changes, for the worse, in the economic and social standing of the Western middle class.
The two economic developments that have garnered the most attention in recent years are the concentration of massive wealth in the richest one percent of the world’s population and the tremendous, growth-driven decline in extreme poverty in the developing world, especially in China. But just as important has been the emergence of large middle classes in developing countries around the planet. This phenomenon—the result of more than two decades of nearly continuous fast-paced global economic growth—has been good not only for economies but also for governance. After all, history suggests that a large and secure middle class is a solid foundation on which to build and sustain an effective, democratic state. Middle classes not only have the wherewithal to finance vital services such as roads and public education through taxes; they also demand regulations, the fair enforcement of contracts, and the rule of law more generally—public goods that create a level social and economic playing field on which all can prosper.
On the afternoon of Wednesday, November 5, 2014, the Center for Global Development will honor the Open Government Partnership with the 2014 Commitment to Development "Ideas in Action" Award.
The Open Government Partnership (OGP) aims to secure concrete commitments from governments to promote transparency and accountability, empower citizens, fight corruption, and harness new technologies to strengthen governance. Since its inception in 2011, OGP has grown from eight founding governments to 65 countries, representing one-third of the world’s population, and secured more than 2,000 commitments from participating governments to be more open and accountable to their citizens. Many of those commitments have already brought real changes for citizens in both developing and developed countries.
CGD's Commitment to Development Award, given annually since 2003, honors an individual or organization for making a significant contribution to changing attitudes and policies of the rich and powerful toward the developing world. Previous recipients include Unilever chief executive officer Paul Polman (2013), US Senator Richard Lugar (2012), the ONE Campaign (2008), and Gordon Brown (2005). More information about the Award and a full list of previous winners is available here.
This new report is one of several reports prepared under the auspices of the international Social Impact Investment Taskforce, a group made up of G8 government and private sector representatives which was established under the UK’s presidency of the G8 last year. Nancy was a member of the Taskforce’s International Development Working Group chaired by former CGDer Sonal Shah (along with friends of CGD including OPIC President Elizabeth Littlefield, former DfID official Michael Anderson, and Toby Eccles, co-founder of Social Finance UK), and Rita was the report’s co-author with Sonal.
The overall report, Impact Investment: The Invisible Heart of Markets, summarizes the results of the entirety of the Taskforce’s work, the objective of which was to catalyze a market for impact investment worldwide. The Taskforce launched a series of reports to take a closer look at what governments, businesses, and the social sector can do, including a report from each G7 country and four thematic Working Group reports, including the one on international development. (For more on the Taskforce and the US-focused report, which was released back in June, go here).
The Social Impact Investment Taskforce’s Overall Report
The report Impact Investment: The Invisible Heart of Markets (read more about it in the Economist and Financial Times) calls for the unleashing of $1 trillion of new investments to tackle social problems. It draws a distinction between “responsible investment” and “impact investment”– the latter directly targets social and financial returns and requires the measurement of both. We were pleased to see the report giving a good bump to Development Impact Bonds, as one way to use development financing differently to tackle seemingly intractable problems and potentially even change how development is done. Ronald Cohen, chair of the international Taskforce, was instrumental in setting up the first Social Impact Bond in the UK and, like us, would like to see more experimentation with this kind of approach – a quintessential model of impact investment which directly aligns financial returns with social outcomes – in new contexts including in a range of developing countries.
An underlying premise of the Taskforce’s work, as Ronald Cohen discusses here, is that it is possible to do for organizations who want to “do good” what’s been done for business and private equity, by giving them access to capital markets and relaxing constraints for investors who want their investments to have a social impact as well as a financial return. These ideas are reflected in our work on the International Development Working Group, which was convened by the Taskforce to shed some light on what impact investment means for development –potentially one of the biggest opportunities for the growth of the market.
The International Development Report: Identifying Opportunities for Impact Investment in International Development
Some of the takeaways from the international development report are:
Impact investing is neither totally new nor the ‘same old business’ in the development industry. The report applauds the efforts of development finance institutions over the decades through their investments to boost growth, job creation, and economic development in poor countries, but it points out that not all investments which might have a development impact are “impact investments.” The two key parts of the definition of impact investing are intentionality of targeting both social impact and financial returns and the measurement of both. Development finance institutions like the US Overseas Private Investment Corporation (OPIC) and the Inter-American Development Bank are now starting to distinguish impact investments from other types of investments to make it easier to assess what the magnitude and outcomes of income investments have been. While, to date, impact investment is a relatively small piece of development funding and hard to assess overall, there are a flourishing number of examples of organizations who are doing it, including private and public, and many which have been doing it for some time. Acumen, Aavishkaar, Grassroots Business Fund, and the UK DFID Impact Fund are among many examples highlighted in the report.
Impact investing is complementary to other forms of development financing and potentially can help different sources of capital work together to a greater effect. The report highlights the ways in which the landscape for development financing has been changing, including much greater private flows relative to official flows. Official aid and philanthropy won´t be sufficient to address the scale and complexity of today’s global development challenges, and impact investing is one way to bring in more private capital that can benefit the public good, by putting “social impact” into investors´ decision-making frameworks. As international aid agencies look to new tools and forms of public-private partnerships to increase their effectiveness, supporting an ecosystem for impact investment is one way to align different sources of capital better and drive faster progress.
A number of challenges are keeping the impact investing market from realizing its potential. In order for this to be a functioning market that will reach more people with the products and services that they need, a number of challenges need to be addressed. Chief among these are (a) lack of common definitions and standardized metrics; there are ongoing efforts to improve these dimensions, but it has generally been unclear what qualifies as an impact investment and how these assessments can be evaluated and compared; (b) an asymmetry between demand for investment and supply; although there is a growing interest in this type of investment, early stage businesses and social ventures in developing countries are too often not able to attract funding because they are perceived to be too high-risk; and (c) lack of a market infrastructure or “ecosystem”; greater involvement at the policy level, more training at the local level, and tools for sharing lessons and experiences are needed for this market to reach its potential.
The Working Group makes four recommendations meant to catalyze this market and maximize its potential impact in developing countries. The recommendations are geared towards G7 governments and DFIs but governments of developing countries and business and social sector leaders will be necessary partners:
Create a new Impact Finance Facility. To get capital where it is most needed and stimulate a market will require some risky investments in social enterprises in developing countries, particularly at the early stage. A new facility would operate as a ‘fund of funds’, investing in funds that are able to make investments that are smaller and perceived to be riskier than the kinds of investments DFIs typically make. DFIs could contribute to the start-up of the Facility, to help stimulate a pipeline of impact investment deals. The initial proposal in the report is for a $500 million facility including DFI and private contributions. The proposed Facility would likely need private grant capital to get off the ground, including to support a technical assistance arm that would match investments with business support services that investee companies need, and a platform for sharing lessons and best practices.
Create a Development Impact Bond (DIB) Outcomes Fund.DIBs are just one tool for impact investment and a small part of this overall market, but as we said before, a quintessential model: investors fund social interventions - giving providers more space to innovate and adapt their approaches - and governments and development agencies pay them back only for successful results. The model directly links financial returns to social outcomes - but we don't yet have a clear sense of how it will work. To facilitate experimentation with and learning from this new model, the Working Group encourages development agencies, perhaps in partnership with foundations, to contribute to an Outcomes Fund that would make resources available to pay for the results of successful DIB-financed programs. This ready pool of capital would reduce the transaction costs of individual projects and stimulate the development of transactions.
Improve metrics and increase transparency. In the International Development Working Group, we left a lot of the discussion under this topic to the Taskforce’s Impact Measurement Working Group but we did spend some time in the report highlighting the importance of clear definitions and comparable, accessible data to the development of this market. In particular, the report emphasizes the need for transparency by the DFIs on the intentionality and results of their investments, and the need for all players in the market to use international guidelines and common definitions for impact measurement as they are developed.
Provide additional resources for “ecosystem-building”. Throughout the course of the discussions, Working Group members emphasized that developing a market will require more than a flow of transactions. There is a need for resources that will be dedicated to supporting the broader environment for impact investing. This includes direct support to local governments and local intermediaries to build their capacity to advance the market; resources to develop improved metrics; support for research on new business models, exit strategies, or evaluations of new tools and funds; the development of mechanisms for sharing knowledge and best practices; and finally policy considerations - including for example ensuring that DFIs have the incentives and tools that they need to support this market (the US National Advisory Report discuss tools that OPIC needs to better support this market, as one example).
The new and growing market for impact investment recognizes that governments are cash-constrained and aims to attract more private capital to social issues – but governments will have an important role in creating an enabling framework. For development, this includes a role for DFIs and development agencies in finding new ways to support riskier, potentially high-impact investments and increasing efforts to build a wider ecosystem across developing countries with tools and mechanisms for sharing information and learning.
The Social Impact Investment Taskforce and its International Development Working Group are clear that this work does not end with the publication of a report or series of reports. Now comes the hard work of educating policy makers and their partners in the business and social sectors and trying to get the recommendations implemented.