I think the World Bank should close down.

Ok, not really but that was kind of what I suggested some time ago at the End Poverty in South Asia blog run by Shanta Devrajan, WB's chief economist for the South Asian region. Devrajan was addressing questions raised by various anti-worldbank groups. The usual criticism about "pressurizing governments" so on. His answers to those questions were quite comprehensive, but my was quite the opposite of the usual lefty-criticism.

To summarize, the comment went something like this, (the original comment was a bit um. drunk, hence a summary)

The World Bank funds governments with economic policies which (by their own assertions) are just wrong. By subsidizing wrong policies, the World Bank and other droner agencies encourage more of it. It also messes up governance structures and democracy. Governments are now able to have relatively low taxes, and huge expenditure and other fiscal irrationality because they have external sources of income. Perhaps if the massive government spending is to be financed by the tax payer there will be a backlash against spending and room for political capital to build under the question of "where the money is going to come from" for all those government programs (agricultural subsidies, hand-out schemes, massive state-sector employees, failed state enterprises, etc.)

The last claim is probably only partly true. Like the present Sri Lankan administration has skillfully demonstrated, when even AID money dries up, governments will resort to costly commercial borrowing and excessive money printing. Although the recent HSBC loan did generate of antagonism from the opposition, it was short-lived and not deterministic enough to stop the practice.

I argued since the kind of reforms the World Bank advocate has only historically occurred through a crisis (e.g. reforms in India in the early 1990s, Sri Lanka in late 70s or anywhere else) the best the World Bank can do is to put a stop to aid altogether which would lead to a form of crisis. Helping in perhaps only infrastructure projects and doing more research and policy advocacy stuff. I asked the world bank not to give "lollipops to thieving kids".

Devrajan responded through a separate post. Agreeing with the problem, but arguing that the role of foreign aid in the the situations which I described (he refers to them as government failure) is to build "climate for reform" by supporting public debate on these issues.

I maintain since these occasions of government failure are all too frequent, in fact permanent - the best possible way is to indeed cut down on aid given to government and encourage civil society actors to engage in advocacy programs for reform.

More recently, Devesh Kapur expressed much of the sentiments in an article on Yale Global Online,

The failings of the Indian state to deliver basic goods and services are a specter that haunts the country – ignored by the hoopla of India’s high growth rates.

The World Bank’s well-intentioned efforts – and it’s by no means alone – exacerbate the problem [..]

The abject failure of the Indian state to improve the quality of life of hundreds of millions of its citizens is as unconscionable as it is deeply rooted in the country’s political economy. Any solution squarely lies there. Perhaps the biggest error the bank has made in India has been not to walk away earlier and realize that non-lending might serve the country – especially its poor – better. [link]

Devrajan has responded here to the article, again agreeing with diagnosis, but arguing "there is no guarantee that public services will improve if the Bank stops lending money", Kapur responding, disagrees.

I'm with Kapur here (obviously, or is it Kapur who's with me? ), sure there is no guarantee that public services will improve, but like I said in the comment there's ample evidence that market-friendly reforms, the kind that the Bank is after - will happen through a financial crisis. So perhaps, the WB shouldn't try and delay this inevitability, our present-day economic policies stand deserving of one.