WASHINGTON — In the wake of the second consecutive early departure of a World Bank chief economist, experts — including people who formerly held the position — have counseled against diminishing a role that provides an important link between development research and policy.
“The bank needs to bring people in who have a longer time horizon, are interested in the institution, what it does, and how it goes about shaping development.”— Masood Ahmed, president, Center for Global Development
Bank staff were taken by surprise when Penny Goldberg, who had been the bank’s top economic adviser for only 15 months, announced she would be leaving at the beginning of March, eight months before the end of her two-year secondment. In a resignation email to staff, Goldberg said that she had decided it was the “right time” to return to her job at Yale University.
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She is the second chief economist to quit in three years amid speculation of rifts with bank management and turf wars, prompting questions about the future of the role.
Created by the bank in 1972, the prestigious job is meant to combine rigorous research and intellectual leadership to inform the bank’s operations strategy, alongside managing the bank’s large research division.
Famous alumni include Nobel Prize winner Joseph Stiglitz, who is credited with fundamentally shifting thinking at Bretton Woods institutions away from “Washington consensus” economic policies of structural adjustment in his time as chief economist during the Asian financial crisis in the late 1990s.
But the job has proved problematic in recent years. Goldberg’s predecessor, U.S. economist Paul Romer, quit in 2018 after publicly questioning the integrity of the bank’s flagship “Doing Business” report. He was also reported to have struggled with the job’s management duties. Since leaving, Romer has called on the bank to outsource its research work, arguing that “diplomacy and science cannot both thrive under the same roof.”
Meanwhile, Goldberg’s abrupt departure — and her silence about the reasons behind it — has fueled rumors of power struggles at the top, with Goldberg supposedly unhappy about the decision to hire a new managing director to oversee her office’s work, effectively demoting her and severing the direct link between the chief economist and the bank’s president, bank sources told Devex.
Meanwhile, The Economist reported that she left in protest over an alleged attempt by bank officials to block the publication of a working paper suggesting that large chunks of aid money end up in tax havens. The bank has since published the paper. Goldberg has not publicly commented on the claims.
Whatever Goldberg’s reasons for quitting, some experts and former senior bank employees said they are concerned that her resignation — and the stir it has created — may prompt the bank’s president, David Malpass, to reduce the scope and influence of the chief economist position. Such a move would be bad news for the bank’s research and operations as well as development economics more broadly, they warned.
A dual role
The World Bank’s chief economist holds a “very important position ... developing new concepts and ideas” about tackling the problems facing low-income countries, advising senior management on the bank’s strategy, and “managing a large and very important development research complex” made up of hundreds of economists, according to Homi Kharas, former senior economist at the bank and fellow at the Brookings Institution.
And while past post holders may have focused more on either the intellectual or managerial side of the job, the “best chief economists … were able to combine both the intellectual and the managerial side together,” Kharas said.
Former acting Chief Economist Shantayanan Devarajan, who was brought in to run the development economics team for Romer, said the chief economist’s broad job description can provoke “tensions” between the bank's knowledge and lending functions, especially if research findings call into question aspects of the institution’s lending programs.
“Usually, this is a healthy tension, and the debate results in better-quality lending and knowledge. But at times, my colleagues and I have found that the lending program supersedes the knowledge findings,” Devarajan told Devex.
Masood Ahmed, president of the Center for Global Development and a vetern World Bank economist, said this tension between knowledge and operations meant the chief economist was increasingly “disconnected” from the work of the bank’s operations. This trend predates Romer, he said, and has been exacerbated by the practice of bringing on academics for secondments lasting two years — which is not enough time to understand and influence the institution.
But while Ahmed acknowledges that a chief economist needs to be independent, they must also have a close understanding of the bank’s lending business since shaping it is part of their role. That means being involved as a manager and working closely with operations staff, he said.
“The bank needs to bring people in who have a longer time horizon, are interested in the institution, what it does, and how it goes about shaping development. ... It strikes me as absurd to have research delinked from the operational side,” he said.
A genuine adviser
The role of chief economist has been “eroded” in recent years, according to Kaushik Basu, who held the post from 2012 to 2016.
In Basu’s time, the position was at the senior vice president level, and while Romer had the same job title, he was later stripped of his managerial duties. Goldberg, however, was only made a vice president. The incoming chief economist will also be at the vice president level, according to the job description posted online.
In another change, the new appointee will no longer report directly to the president but to a managing director — the newly appointed head of development policy and partnerships, Mari Pangestu. Cutting off the direct link between the chief economist and the president will reduce his or her influence, Basu said.
Basu also said that these demotions will make it harder for the incoming chief economist to fulfill what he described as one of the appointee’s most important jobs: to act as an alternative, more genuine source of advice for developing country leaders.
“As chief economist you ... realize how lonely some of the [national] leaders are. … They cannot open up with the operations division with whom they are negotiating for money, but some of them will open up with the chief economist where the interaction is more advisorial,” Basu said, adding that “if that advice can be given not in the supercilious tone of the Washington consensus but with genuineness, that can be immensely helpful.”
A critical juncture
Little is known about who could take over the top economist job, for which applications close on March 11. But some insiders said they expect Malpass to break with recent precedent and opt for an insider over a high-flying academic.
The next chief economist will have an important role to play given the “difficult juncture” facing development economics as thinkers struggle to understand what drives growth, Kharas and Ahmed said.
At the same time, the bank is being told by its shareholders to lend more — thanks to a $13 billion capital increase and record IDA replenishment — but has no clear strategy about how the money should be spent, according to Ahmed. Addressing these knowledge gaps by researching how to boost economic growth should therefore be at the top of the next chief economist’s agenda, Ahmed said.