Steven Koltai is research affiliate of the Center for International Studies working with MIT International Science and Technology Initiatives (MISTI). He is also senior advisor for entrepreneurship at MIT D-Lab, non-resident senior fellow in Governance Studies at the Brookings Institution, and managing director of Koltai & Co, an entrepreneurship development consultancy that has worked in over three dozen countries, and for the past four years exclusively in Sub-Saharan Africa.
Multilateral institutions have had a hard go of it over the past four years, partly of their own doing, partly due to a White House bent on bi-, uni-, and no-lateral engagement. As the Biden-Harris administration re-introduces America to the world stage, it may discover the greatest opportunity for global leadership lies not in rapprochement with jilted bodies like the World Trade Organization or World Health Organization (or reaffirmation of NATO and Paris Climate Agreement solidarity), but in reinvigorating a different “world” institution: The World Bank. No global group is better positioned to tackle the US’s most pressing international conundrums and yet more in need of American-led strategic renewal.
The World Bank—that primordial symbol of globalization—somehow passed the Trump years relatively unscathed. While the Trump administration soiled NATO relationships, declared outright withdrawal from WHO over COVID-19 fumbles (and the Paris Agreement “just because,”), and injected gridlock into the WTO’s already-contentious struggle for direction and relevance, the World Bank merely got stuck with a skeptic as its president (a position traditionally nominated by the US). David Malpass, a veteran of Republican administrations, came to the role with anti-multilateralism credentials and an on-the-congressional-record quip that the World Bank’s work largely benefited “the people who fly in on a first-class ticket to give advice to governments."1
Yet Mr Malpass’s word choice deserves sympathy—and, as discussed below, attention. As an entrepreneur and long-time businessperson—and, later in a life, a contractor on several World Bank-sponsored projects—I too feel that, especially in its private sector approaches to development, the World Bank has wasted billions and misspent on a bloated bureaucracy, fancy offices, luxurious tax-free salaries, and lavish (by American standards) employee benefits. These overhead costs, sometimes more than half of project spending, are outrageous and do nothing to “end extreme poverty” and “promote shared prosperity.”
Nonetheless, the World Bank remains an ideal vehicle for, as President Biden has put it, a “foreign policy agenda [that] will place the United States back at the head of the table, in a position to work with its allies and partners to mobilize collective action on global threats.2 There are overlapping political and substantive reasons for this. For one, when it comes to multilaterals, the World Bank is both the elephant in the room (its core activities tally disbursements of some $50 billion each year,3 dwarfing the WHO and WTO budgets) and a bureaucratic beast over which the US should have few reservations cracking the whip. In addition to controlling the Bank’s presidency, the US is its largest and most powerful shareholder.
Flush, influential, and more or less hewn to America’s worldview, the Bank also engages hosts of issues traditionally subject to American leadership and, importantly, traditionally of bipartisan interest. Take China. The World Bank remains a key American bulwark against China’s various investment-cum-influence plays, from the Belt and Road Initiative to its Bank-rivaling Asian Infrastructure Investment Bank.
Then there are the global threats of which President Biden speaks: mass migration; extremism; cyber security; inequalities of income and welfare; climate change and infectious disease. And it is here I would propose the World Bank offers the US a special entrée—a special opportunity to return to “the head of the table” with a refreshing, new strategy that plays well internationally and on both sides of the American political divide. The Bank is where the US can leverage its all-American, world-famous, bipartisan special sauce: Entrepreneurship.
I have waved this flag before, pre-2016. Back then, inspired by President Obama’s 2009 foreign policy address on “A New Beginning” in Cairo, I joined Secretary Clinton’s State Department and helped launch programs aimed at supporting entrepreneurs in poor and fragile countries, starting with Muslim communities suffering from devastatingly high youth unemployment rates. The premise was simple: Joblessness begets economic despair, instability, extremism, and threats to America; Entrepreneurship begets jobs, hope, and peace.4
The ensuing years saw many efforts from many players along these lines—some successful, some not—and plenty of learning on what kinds of advisory services and investment schemes best help innovators and young ventures (not to mention further evidence that entrepreneurship=jobs=growth=stability). Governments, bilaterals, non-profits, and private firms alike championed the role of startups, SMEs (small and medium enterprises), and SGBs (small and growing businesses) in alleviating poverty, spreading opportunity, and improving social welfare.
So did the World Bank, but it mostly just talked the talk and rarely walked the walk.
The Bank has done precious little on this score. It has “studied” and “strategized” and “reorganized” countless times, but spent hardly any of its own money. Project spending on entrepreneurship amounts to a fraction of other, more conventional World Bank budgets and often winds through ad hoc, indirect arrangements sometimes called “Trust Funds” and raised outside of member state core contributions. Worse, the Bank’s top-heavy bureaucracy ensures that of the funding that does arrive, very little finds its way into meaningful programs and venture investments, which surveys agree is the single biggest impediment to spurring startups in the usually brutal investment environment of the poorest countries.
At the same time, global threats remain, as always, rooted in economic despair and unemployment—and/or require the innovative and disruptive solutions that entrepreneurship seeds in markets and economies. From refugees and migration to extremism to misinformation to climate distress to the COVID-19 pandemic, what the world needs now—what the World Bank needs to support now—is entrepreneurs.
Such a strategy involves more money and more expertise from real practitioners focused on job creation through entrepreneurship. It builds on what Silicon Valley and the $500 billion impact investing industry has learned about bolstering entrepreneurship. It would include grants and “at risk” investment funds—managed by expert fund managers outside the Bank—significantly backing early-stage investment funds. It is a strategy of tailoring due diligence and documentation processes to the circumstances of African, Latin American, and Asian innovators; developing concessionary lending products; and laying claim as the investor of first resort.
For Mr Malpass, who saw in multilaterals the threat of “global government in which elites would instruct people around the world in how to set up their economies” and thought “there were too many conferences and not enough focus on people doing well in developing countries,5 entrepreneurship just might be multilateralism at its most palatable. Indeed, putting entrepreneurship at the center of American policy efforts at the World Bank satisfies a Biden-Harris Administration priority—bipartisanship. Both Republicans and Democrats should be able to agree on the power of entrepreneurship, which has created more wealth and more jobs in American economic history than any other single force.
Global economic development as means to further US foreign interests is not new. (The Brookings Institution’s George Ingram recently made the case for President Biden to revitalize US development tools like USAID and the Foreign Assistance Act.6) But the Biden-Harris Administration should take this moment of American global reentry to refresh the US’s “point of view” vis-à-vis the World Bank and do so with a strategic emphasis on entrepreneurship, a field of unquestioned American know-how and pride. Indeed, entrepreneurship made America great. Now, at the World Bank, it could fast track the US to respected global stature and simultaneously meet its most serious global challenges head on.
1 Baker, Peter, “Trump to Nominate David Malpass to Lead the World Bank,” The New York Times, 4 February 2019, https://www.nytimes.com/2019/02/04/business/world-bank-david-malpass.html.
2 Biden Jr., Joseph R., “Why America Must Lead Again,” Foreign Affairs, March/April 2020, https://www.foreignaffairs.com/articles/united-states/2020-01-23/why-america-must-lead-again.
3 Fiscal Year Data, The World Bank, https://www.worldbank.org/en/about/annual-report/fiscal-year-data.
4 See, e.g., Koltai, Steven R., and Matthew Muspratt, Peace Through Entrepreneurship: Investing in a Startup Culture for Security and Development, Brookings Institution Press, 2016, peacethroughentrepreneurship.com.
5 “Can the World Bank prevent a pandemic of poverty?” The Economist, 2 July 2020, https://www.economist.com/podcasts/2020/07/02/can-the-world-bank-prevent-a-pandemic-of-poverty.
6 Ingram, George, “How President Biden can reinvigorate global development and diplomacy,” Brookings Institution Future Development Blog, 9 November 2020, https://www.brookings.edu/blog/future-development/2020/11/09/how-president-biden-can-reinvigorate-global-development-and-diplomacy/.