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World Development Report Calls for New Risk Culture and Creation of Risk Boards

11.10.2013 In his Foreword to the World Development Report 2014, World Bank Group President Jim Yong Kim concludes that the Group is itself ‘currently undergoing a transformation, which calls for shifting the institutional culture regarding risk from one of extreme risk aversion to one of informed risk taking’. The newly published Report goes on to propose a broad, systematic approach to the issue of risk, its central message being that development-management is itself ripe for change in this area, at all levels, and can set an example with a shift from risk-avoidance and retrospective crisis-management to more proactive approaches. ‘The solution’, as it says in the Report’s Overview,’ is not to reject change in order to avoid risk but to prepare for the opportunities and risks that change entails.’ Focusing on institutional reform as the key to enhanced efficiency and coordination in the future development-agenda, the Report calls for the establishment of ‘risk boards’ at national level. The Report also envisages the creation of an ‘international panel on global systemic risks’ and, in this connection, makes explicit reference to a Briefing Paper co-authored by Professor Dirk Messner, Co-director of the Centre for Global Cooperation Research, and Professor Enrique Saravia, Alumni Fellow at the Centre.


One major risk-related issue is the way in which large-scale crises—financial, environmental, health-related, or military—impact upon vulnerable groups, dragging them below the poverty line or otherwise harming their social or economic status: ‘Poor people’, says the Report, ‘may stick with technologies and livelihoods that appear relatively safe but are also stagnant.’ Safety and security thus have two sides to them in the Report. Precisely where there is a promise of stability and sustainability, the risks associated with taking no action may result in missed opportunities for development or—even more dramatically—an inability to make active provision for potential future crises.

A related bias is observable at nation-state and market level. It is only very recently, following various institutional improvements, that larger numbers of developing countries have begun to be able to conduct countercyclical fiscal policies of a kind that makes them more resilient to downturns.

The Report also deals with insurance issues and the creation of social-security nets. These are major tasks when it comes to enhancing the resilience of people in developing countries. Where individuals move to work in different countries, the mobility of pensions and other entitlements is vital in ensuring their resilience in the context of the increasing transnational mobility of labour-markets.

The ‘risk’ involved in creating an efficient and proactively capable institutional framework at global level emerges as one of the major challenges in this Report. In an interconnected world, the likelihood of ‘risk-risk trade-offs’—where the reduction of one risk may aggravate another—increases and the input required to find ‘risk-superior solutions’, capable of reducing multiple risks, is immense.

‘Global risks’, says Professor Messner, ‘are becoming increasingly important—in financial markets, in the area of climate, and in cyberspace. The world community has to learn to deal with these systemic risks from a global standpoint, so that nation-states and international organization can act promptly to counter them. Without these kinds of worldwide early-warning systems, crises such as the recent global financial crisis will keep happening. One hundred and ninety-three national financial monitoring systems simply failed to see the global risks to the system because they didn’t feel responsible for them.’

World Bank. 2013. World Development Report 2014: Risk and Opportunity—Managing Risk for Development. Washington, DC: World Bank.

Messner, Dirk / Enrique Saravia / Elisabeth Sidiropoulos / Yizhou Wang (2009)
Globalisation at the crossroad: an “International Panel on Systemic Risks in the Global Economy” is needed. Bonn: Deutsches Institut für Entwicklungspolitik / German Development Institute
(Briefing Paper 6/2009)

 

Martin Wolf
Head of Public Relations
Tel: +49 (0)203 379 5238