How New World Bank Chief Affects Global Economic Development

(In an interview with China Daily on 30 March, 2012, Professor Ning Zhu, talks about how the new president of the World Bank affects global economic development.)

The World Bank is about to elect a new president. If convention was to be respected, with little ado, another American would succeed Robert Zoellick. But recently finance ministers of the five-country BRICS group have spoken out, saying things need to change.

The finance ministers of Brazil, Russia, India, China and South Africa said the World Bank presidency should be open to candidates from anywhere. The Brazilian Finance Minister Guido Mantega said: "Candidates should be based on merit and not on nationality."

Since the bank was set up at the end of World War II it has been widely accepted that its president would be American. Apart from historical and political convention, one reason Western dominance of the bank and the International Monetary Fund is Western economic dominance after World War II. After all, the organizations were set up largely to fund and facilitate redevelopment of less developed countries.

But that has changed. After a large-scale capital increase with the World Bank from lower-income countries in 2010, emerging economies' voting shares increased from 44.06 percent to 47.19 percent. In particular, China's share of voting rights increased from 2.77 percent to 4.42 percent and became the third country after the United States and Japan.

The voting rights of many other emerging economies also increased. For example, leading emerging economies such as Brazil, India and South Korea increased their voting rights at varying levels. Correspondingly, the proportion of voting rights by several major Western economies was reduced.

Such change of voting rights between developed and emerging economies may seem to coincide with the demand of emerging economies for a more open and transparent mechanism for electing the next World Bank president. At the same time, it may reflect some deeper-level changes in the global economy and the call for change in the World Bank's main mission.

Over the past couple of decades, especially after the global financial crisis of 2007-08, economies in emerging markets have shown remarkable resilience under pressure and in regaining the momentum of growth. At the same time, the US, the eurozone and Japan have grappled with their own particular economic and social problems. The current model in which World Bank guidance and help has been one-directional looks set to change. More open exchange, one that runs two ways, and mutual help may prove to be a more suitable model for the bank to operate under.

To reflect such fundamental shifts in the global economy, changes in the leadership of the World Bank have to come, sooner or later. China's emergence as the world's second largest economy certainly warrants speculation that it may want its voice heard more.

Changes reflecting that wish have already taken place through the appointment of Chinese economists to leading positions at both the World Bank and the IMF.

However, what remains missing is how emerging economies, China included, can shape World Bank policy. The bank has already acknowledged the growth enjoyed by the emerging economies. Yet it has retained many of its reference points and criteria based on economies of the past, with suspicions of whether the economic development of some countries, notably China, can be sustained and replicated elsewhere.

In one way, it is understandable that outsiders remain puzzled and intrigued by Chinese economic growth over the past 30 years. After all, it has been phenomenal and can arguably only be compared to that of Japan, which eventually ran into obstacles and prolonged stagnation. On the other hand, China's economic success is not unique. Many emerging economies have enjoyed their own share of economic development to different degrees, something the World Bank ought to consider.

Robert Zoellick has been transformational to the bank in this regard. He has acknowledged the importance of the emerging economies and encouraged greater involvement by the emerging economies.

However, developing countries have voiced disappointment with how the World Bank has handled many issues. Consequently, those countries, the BRICS countries in particular, have called for sweeping changes to the bank, whose original aim was to pave the way to change and reform in the world economy.

Thankfully there has been progress. Nevertheless, it has become evident that for emerging countries that progress has been insufficient and more needs to be done now.

So would having a World Bank president from an emerging economy make a lot of difference? After all, in such a global organization the role of an individual must surely be limited. In that sense, whether the next president comes from the US or from, say, an emerging economy, may well be immaterial. The most important thing is how the world and the bank facilitate economic exchange and development between developed and emerging markets in coming years. Only in this spirit can the World Bank maintain its critical relevance.