Ajay Banga should make public health top priority for the World Bank

Ajay Banga is USs choice to lead the World Bank. (Source: Bloomberg)

Ajay Banga, the former head of Mastercard Inc who is President Joe Biden’s choice to lead the World Bank, will be getting a lot of advice over the next few months as the nomination process unfolds. As the president himself says, the bank is at a “critical moment.” Here are my thoughts on how to restructure the institution for the better.

First, contrary to the prevailing wisdom, the World Bank should not make climate change more of a priority. Climate-change issues are more closely associated with rich and middle-income countries than with the poorest countries. The very poorest countries, because they have small economies, do not as a rule emit much carbon. Indoor air pollution, such as burning wood or fuel for heat or cooking, is usually more of a problem. Those emissions can be toxic, and the World Bank should try to help reduce them. But that won’t do much to cut carbon emissions.

The World Health Organization estimates that about seven million people die each year from the direct effects of air pollution. For poorer countries, alleviating that problem should be a greater priority than fighting global climate change.

The reality is that if the World Bank can help elevate some very poor countries into middle-income countries, climate-change problems will become somewhat worse — at least in the short to medium run. “We make climate-change problems worse” is not a marketable slogan. But it is selfish to try to get the World Bank to do more good for the wealthiest nations and less good for the poorest nations, which is essentially what prioritizing climate change would do. And of course the world’s wealthier nations are broadly coincidental with the major shareholders of the World Bank.

To be clear: The world as a whole needs to do a lot more to address climate change. But the burden should be on wealthy countries, particularly their R&D expenditures and the structure of their consumption choices. For the poorest countries, at current margins of subsistence, the fight against climate change is very much a luxury.

If there is any area where the World Bank should double down, it is in public-health interventions. Over the last several decades, the successes have been extraordinary. In Africa, for instance, child mortality rates have plummeted, and many public-health indicators haveimproved considerably, especially outside of major conflict zones. Why not invest more in what is working?

In contrast, global institutions have had much less success in pushing Africa toward solar power or small-scale nuclear plants. The most beneficial and sustainable approach in those areas would be to invest in R&D in wealthy countries, so those technologies are cheap enough for the world’s middle-income nations to adopt in a financially sustainable manner. Additional World Bank financing for some new solar-energy facilities won’t be enough to significantly move the needle.

Note also that public-health interventions, unlike large infrastructure projects, are usually done at smaller scale and often involve fewer opportunities for large-scale corruption and graft.

Finally, the World Bank should consider taking more risks. Since its inception, the bank has had a top credit rating, and it makes sense to maintain that. But is the bank really close to losing its AAA status? It hardly seems so. If the World Bank somehow found itself in financial difficulty, the wealthier nations could recapitalize it. That would be a political embarrassment, but it’s a risk worth taking, at current margins.

From its founding in 1944 to June 2021, capital contributions from the bank’s shareholder countries to the main lending arms of the bank have totaled $19.2 billion, and that has funded more than $750 billion in loans plus additional bank services. (Most of its loans are self-financing.) If that is a good investment, why not do more at the margin? There have been no major or even moderate-sized financial crises resulting from the World Bank’s portfolio decisions. The case for keeping the World Bank at its current size doesn’t make much sense; you should favor either abolishing the bank or expanding it.

A review commissioned by the G-20, conducted by independent experts, concluded that an expansion of lending activity would be a better use of the bank’s resources and privileged position. The general reaction from the bank itself was a kind of nervousness, mostly out of fear it would lose some of its status and reputation for financial rectitude. But it’s worth asking how these concerns measure against the urgency of the world’s problems.

Banga needs to face that question, and these issues, squarely and with courage.

Tyler Cowen is a Bloomberg Opinion columnist. Views are personal, and do not represent the stand of this publication.

Credit: Bloomberg