On the morning of June 9, 1980, Robert McNamara informed the World Bank’s Board of Executive Directors that he would be leaving the organization in one year’s time. The announcement came as a surprise given that he would still have two years left in his third five-year term as president. The Board asked McNamara to reconsider, but he declined.1 In a letter to staff, he explained that he had chosen to step down early because most “unresolved problems of the Bank’s future” had been settled.2 The previous months had seen a flurry of activity that had set the Bank up for continued growth. In late 1979, the organization’s members came to terms on an unprecedented $12 billion replenishment of IDA, and the following January they nearly doubled the Bank’s authorized capital stock to $85 billion. A month later, the Board approved McNamara’s proposal to begin structural adjustment lending, and shortly thereafter Willy Brandt’s Independent Commission on International Development Issues, which McNamara had organized in response to the impasse over the New International Economic Order (NIEO), released its report.3
Then, on May 15, the People’s Republic of China joined the Bank. China’s entry was the culmination of months of negotiations between Bank and Chinese officials, including a meeting between McNamara and Chinese leader Deng Xiaoping in Beijing on April 15, 1980.4 China’s membership immediately doubled the Bank’s developing country population.5 When McNamara announced his retirement a few weeks later, the organization appeared to have become the global institution he had envisioned twelve years earlier.
But these achievements masked significant problems. At the beginning of the 1980s, morale in the Bank was at a low point. Staff complained about the deteriorating quality of lending and management’s apparent lack of concern. For his part, McNamara was aware that for all he had done to increase the Bank’s power, the organization had made little headway in the fight against global poverty.6 The Bank’s new projects had largely failed to achieve their objectives, and developing country debs mounted. The Bank also struggled to convince borrowing governments to heed its policy advice. And U.S. support, which remained critical to the organization, continued to erode: in 1980 Congress failed to fill the Carter administration’s annual request for Bank funding.7 “The problems of providing finance to the third world,” McNamara complained to his aides, “were getting more and more difficult.”8
Things were about to get worse. That summer, Ronald Reagan, former governor of California, secured the Republican nomination for the upcoming U.S. presidential election. Like many conservatives, Reagan opposed both foreign aid and international organizations—a bad combination for the World Bank. In 1978, he dismissed aid as a “sieve” that drained taxpayer funds, and years earlier he had referred to the UN as a “moral[ly] bankrupt” institution.9 As the race for the presidency heated up, the U.S.-Bank relationship looked like it was about to deteriorate even further. The Republican Party platform called for greater reliance on bilateral funding in the provision of foreign aid, as well an increased focus on military, as opposed to development, assistance.10 Meanwhile, many on the left continued to criticize the Bank over its human rights and environmental record.
Because McNamara’s resignation would take place before the election, he sought to identify a successor who would be acceptable to both Carter and Reagan. He settled on A. W. “Tom” Clausen, the fifty-seven-year-old president of the Bank of America.11 McNamara had met Clausen, a moderate Republican, as the Bank forged closer ties with private banks during the 1970s, and the two discussed the Bank presidency in the months before McNamara’s departure.12 The Carter administration was impressed by Clausen’s “experience and stature,” and after running his name by Reagan’s camp offered him the position in October, one month before the election.13 In a private meeting, Carter told Clausen he wanted to proceed quickly, “before a movement develops among other key members [of the Bank] to nominate a non-American,” which Carter felt might further reduce congressional support of the organization.14 Clausen accepted. Carter informed other heads of state of his decision. And on November 25, 1980, the Bank’s Board formally appointed him to succeed McNamara.15
Clausen’s appointment lacked the drama of McNamara’s thirteen years earlier. Still, the choice fit the times. Clausen had been a key figure in the financial globalization of the 1970s. At the end of his ten years as head of the Bank of America, 40 percent of company profits came from overseas.16 Clausen was also, in the words of Carter officials, a “political and economic centrist” who believed the Bank could play a positive role in promoting market-oriented development.17
Clausen’s bona fides did little to mollify American conservatives. After Reagan defeated Carter in November, the incoming administration voiced plans for significant cutbacks in U.S. funding of the Bank. David Stockman, the brash director of the Office of Management and Budget, led this charge. Stockman was determined to use his position as chief author of the Reagan budget to put an end to what he called “permanent government.” In January 1981, he leaked a memo outlining a 50 percent reduction in the U.S. contribution to IDA. Stockman also proposed that instead of providing capital to the Bank, the U.S. government use that money to guarantee private loans to developing countries.18 In justifying this functional withdrawal from the Bank, Stockman reiterated conservative charges that the organization had failed to advance U.S. interests. He claimed the Bank had not sufficiently pressured borrowing governments to liberalize and criticized the organization for lending to socialist governments.19
As we have seen, this was not the first time U.S. conservatives had chided the Bank on these grounds. But Stockman’s ability to make good on his threats, combined with the rise of conservative governments in other wealthy nations, alarmed McNamara. Shortly after Reagan’s election, he complained to his aides about the “very strong movement in the U.S., the UK, and Japan toward selfishness.”20 Other leaders of international agencies echoed McNamara’s concerns. A few days after Stockman’s memo became public, the heads of the UN Children’s Fund and the UNDP, which were also on Reagan’s chopping block, expressed “their gravest concern” to McNamara about the possibility of significant reductions in U.S. contributions to their organizations.21
Fortunately for the Bank, Stockman’s position was too radical for his colleagues. Concerned about the international uproar that would ensue if the proposed cuts went through, Secretary of State Alexander Haig proposed more modest reductions in U.S. contributions to the Bank.22 A Treasury Department report released in the fall of 1981 that argued that the Bank in fact did serve U.S. interests bolstered Haig’s position.23 The report noted that Bank loans and policy advice facilitated private investment in developing countries and, as such, the organization had been “effective in contributing to the achievement of [U.S.] global economic objectives.”24 The report also found that, while McNamara had failed to respond to some U.S. directives, the Bank had “contributed significantly to the achievement of U.S. long and medium term political/strategic interests” by financing anticommunist governments in the Philippines, Indonesia, and Brazil.25
Accordingly, the Reagan administration decided that rather than withdraw support from the Bank, it would seek to increase its power within the organization. Stockman’s plan was discarded, and the administration requested that Congress increase U.S. funding of the Bank.26 In so doing, however, Reagan officials made it clear that they wanted the Bank to more aggressively push developing countries to reduce the level of government intervention in their economies, an approach they felt “represented the best approach to poverty alleviation.”27
Robert McNamara left the World Bank on June 30, 1981, just as these events were taking place. A few days before his retirement, the Bank’s Board and senior management gathered for a farewell reception at the Kennedy Center. After praising McNamara for his “dynamic” leadership and “outstanding work” at the Bank, the Board presented him with a clock to signify the precision with which he ran their meetings and announced the publication of a book of his major speeches as Bank president to demonstrate his role as a “serious development thinker.”28 The participants credited McNamara with having “redefined” the concept of development during his tenure and for turning the Bank into “one of the most effective instruments ever devised to fulfill the human aspiration for progress.”29
Despite the rhetoric, sadness permeated the proceedings. A few months earlier, McNamara’s wife Margaret had died of cancer. The loss was a tremendous personal blow and a factor in his decision to leave the Bank. Margaret had repeatedly encouraged her husband to direct the Bank’s resources to the fight against global poverty. In this way, her influence recalled the activist vision of the 1960s, when many Americans believed in the power of government to promote economic progress and social welfare. By the time of Margaret’s death, however, a growing number of people—including the new president of the United States—had come to view government as the cause, rather than the solution, to such problems.
The radicalness of the new approach emerged shortly after McNamara’s retirement, when the Reagan administration nixed one of his last major proposals for the Bank. Concerned about the vulnerability of oil-importing developing countries to continued fluctuations in oil prices, in January 1979 McNamara convinced the Bank’s Board to approve the creation of an “energy affiliate” that would use contributions from wealthy countries to support domestic energy production in oil-importing developing nations.30 The effects of the second oil crisis made the importance of such a program evident, and in 1980 Bank members encouraged management to proceed with the plan.31 Right before the program was to launch, however, the Reagan administration voiced its opposition on the grounds that some funds would go to state-owned energy companies. In leading the effort to overturn the Board’s decision, U.S. officials demanded that the Bank instead focus its efforts on “foster[ing] private sector involvement in energy development.”32 The Bank’s management was unable to overcome U.S. resistance, and the proposal died.
The demise of the energy affiliate represented a repudiation of the Bank’s basic approach under McNamara. Although the organization continued to support the expansion of capitalism in the developing world, the Bank demonstrated a considerable degree of openness to government interventionism throughout the 1970s. McNamara never focused on whether a country followed a public or private-led development strategy.33 Instead, he considered the main issue whether local officials appeared serious about development. This may have been one of the things that attracted him to governments, like those in Indonesia and the Philippines, which pursued authoritarian development strategies. It was also why, despite repeated setbacks, he tried to foster public solutions to challenges like the oil crisis. McNamara’s belief that progress could be engineered owed a great deal to his personal sensibilities. He was a quintessential technocrat and had a natural affinity for planning. Yet the focus on working with and through governments was also in line with development orthodoxy. Since its emergence as an intellectual and policy domain, development had been synonymous with state-led efforts to accelerate economic expansion. Indeed, the very idea that development needed to be planned constituted a rejection of the belief that market forces, left to their own devices, would lead to progress.
This understanding had changed significantly by the early 1980s. Economists increasingly argued that economic growth was the surest route to growth. At the same time, the prospect that developing countries could catch up to developed ones and create robust social welfare states, a widely shared goal during the postwar decades, seemed dimmer than ever.
McNamara’s retirement from the Bank came at the precise time that this change was taking place. As such, his presidency marked a moment of transition in the history of development. As we have seen, the Bank began to embrace a more neoliberal conception of development during the 1970s. The organization’s policy and research documents increasingly stressed the need for developing countries to reduce trade barriers, price controls, and government spending, as well as to privatize state-owned enterprises. The onset of structural adjustment lending in 1980 gave these ideas teeth.
McNamara’s successor accelerated this shift. A few months after taking office, Clausen gave a speech in which he stated that the Bank “was not in the business of redistributing wealth from one set of countries to another.” Under his leadership, the organization also reduced its poverty-oriented lending while expanding structural adjustment.34 Clausen’s appointment of Anne Krueger, a leading critic of state-led development efforts, as the Bank’s chief economist in 1982 further entrenched the Bank’s move to the right.
At the same time, the Reagan administration adopted an increasingly confrontational posture toward the developing world. Speaking at the World Bank-IMF annual meetings in Washington, D.C. in September 1981, Reagan argued strongly against state-led development efforts. “The societies which have achieved the most spectacular broad-based economic progress in the shortest period of time are not the most tightly controlled, not necessarily the biggest in size, or the wealthiest in natural resources,” he declared. “What unites them all is their willingness to believe in the magic of the marketplace.”35 The following month, Reagan squashed any remaining hopes for the NIEO by informing developing country leaders at a summit in Cancún, Mexico, that the United States was firmly opposed to Southern demands.36
World events soon brought the Bank and the United States even closer. When the government of Mexico suspended payments on its external debt and touched off an international debt crisis in 1982, the Reagan administration looked to the Bank to help manage the aftermath.37 Although American officials were primarily concerned about ensuring the stability of the U.S. financial system, they saw the crisis as an opportunity to promote free market reforms in developing countries. Consequently, they pushed the Bank to expand its structural adjustment activities. Bank management obliged, and an organization that had demonstrated considerable independence from the U.S. government during the 1970s soon emerged as a tool in the Reagan administration’s efforts to roll back the state in the developing world.38
The Bank’s response to the debt crisis, which proceeded in parallel with the IMF’s stabilization and adjustment efforts, was a disaster. Over the course of the 1980s, the adoption of adjustment measures became a condition for bailout funds.39 Instead of debt relief or growth, the period was marked by economic stagnation. According to Bank researchers, in Latin America, the epicenter of the crisis, per capita income declined by an average of 0.5 percent per year during the 1980s, down from a yearly average of 2.5 to 3 percent between 1940 and 1980.40 Latin America’s “Lost Decade” extended well into the 1990s; not until 1994 did the region’s per capita income recover to its pre-crisis level.41 Adjustment was painful in other parts of the world, as well. Beginning in 1980, per capita growth in sub-Saharan Africa fell to nearly 1 percent per year, and by the end of the century most countries on the continent were poorer than they had been at the start of the crisis.42 Yet growth was not the only thing that was lost during this time. Although they were rarely implemented fully, structural adjustment measures marked a repudiation of development approaches that envisioned a role for government as a guarantor of social welfare, which had long a central goal of development.43
The structural adjustment era was a fitting postscript to Robert McNamara’s presidency of the World Bank. In establishing a program of conditional lending, he entrenched the view that policy advising was the critical component of the organization’s work. Although the Bank may have evolved in a similar way under a different president, McNamara accelerated the Bank’s transformation into a more interventionist institution.
McNamara’s impact extended in other directions, as well. The former Harvard Business School professor, Ford executive, and secretary of defense helped change the way the Bank thought about its work. Like a growing number of people in the late 1960s, McNamara recognized that economic growth did not inexorably result in improved living standards, and he used the Bank presidency to provide rhetorical, financial, and institutional support to those advocating for greater attention to the human aspects of development. Reducing poverty had always been an implicit goal of the Bank’s, and others had tried to get the organization to expand in this direction. But it was not until McNamara that the Bank started speaking about the centrality of poverty to development, funding projects that sought to reduce poverty, and channeling a significant share of its resources to the world’s poorest countries. Since McNamara, every World Bank president has spoken extensively about poverty alleviation. Today, it is the organization’s main goal.
The poverty focus not only put the Bank at the forefront of the international development field but also served as an umbrella under which the organization justified its growth. At the same time that McNamara was having the Bank embark on new forms of rural and urban development, the organization initiated and broadened its work in education, nutrition, technical assistance, and tourism, among other fields. McNamara also used the Bank’s resources to coordinate multiparty initiatives, such as the Consultative Group on International Agricultural Research and the Onchocerciasis Control Program. He entrenched the idea that the Bank could best understand complex phenomena like poverty through economic analysis. And he presided over a tremendous expansion of the organization’s research and publications program, including the creation of the World Development Report.
In expanding the Bank’s work in these ways, McNamara set the organization on a path in which its activities proliferated. Although the Bank had expanded significantly before McNamara—transitioning from European reconstruction to Latin American development in the late 1940s, beginning to lend significantly to South Asia in the 1950s, and starting to branch out from infrastructure lending in the 1960s—it was a minor player in the world stage before McNamara arrived. In large part, this was because it tended to behave as a conservative financial institution focused on maintaining its reputation as a sound investment in the capital markets in which it raised money. Mc-Namara felt that development challenges could result in global conflagration if left unaddressed, and upon assuming the Bank presidency he sought to shed the organization’s conservatism. Under his direction, the Bank increased and diversified its lending and borrowing programs and emerged as a center of development research. Coming at the same time that the foreign aid budgets of major Western nations were shrinking, McNamara’s active management thrust the organization into a leadership position in development. Nevertheless, the Bank’s growth came at a price. Most notably, the establishment of country lending targets incentivized staff to move money out the door. This marked a shift from the restrained style in which Bank previously operated and placed a significant strain on both the organization and its borrowers.
For all McNamara did to increase the Bank’s reach, it is worth considering some of the things that the organization did not do during his tenure. Despite the fact that many people inside and outside the organization had become aware of the adverse ecological impacts of some of its projects, the Bank under McNamara never incorporated environmental concerns into its lending practices. The Bank also failed to respond to concerns about human rights. Many countries wanted the organization to avoid the issue, and Mc-Namara was happy to oblige. These experiences demonstrated a major constraint under which the Bank operated: governments still had to approve major decisions. Indeed, even though Bank staff and management were aware of corruption, tax evasion, and other forms of illicit behavior in borrowing countries, they had a difficult time addressing such issues. The limits on the Bank’s behavior were perhaps most evident in McNamara’s failure to make lending for population control a significant part of the Bank’s work. Despite his concerns about global population growth, his efforts to have the organization support population control efforts ran into opposition from developing country officials who saw it as a form of neocolonialism, as well as from Bank staff who felt that proposed loans were too inexpensive to justify their attention.
Despite such difficulties, the McNamara years demonstrate the critical role that Bank presidents have played in the organization’s history. During his brief tenure as the Bank’s second president, John J. McCloy managed to convince the U.S. government to vest significant power in the hands of the Bank’s president. Eugene Black established the organization’s creditworthiness, and George Woods took the first steps in moving the Bank beyond infrastructure lending. McNamara built upon these efforts in a number of ways—and not surprisingly, his departure left a void. Although Tom Clausen initially enjoyed close relations with the U.S. government, he ran into problems with the Reagan administration and decided to step down after just one term. Barber Conable, a Republican congressman from New York, replaced Clausen in 1986. Conable’s tenure was also rocky. While he oversaw a significant increase in the activities of the International Finance Corporation, the Bank’s private sector investment arm, the Bank faced significant criticism over structural adjustment lending during his watch. Things went poorly inside the Bank as well. Like many U.S. conservatives, Conable thought the Bank was too large, and he pushed through a poorly executed reorganization in which 400 members of the Bank’s staff were fired.44 The effects of Conable’s reorganization were still being felt when Lewis Preston, a long-time executive at J.P. Morgan who took over from Conable in 1991, passed away four years into his term.
James Wolfensohn, an Australian-born financier who had become a naturalized U.S. citizen in 1980, took over shortly after Preston’s death. Even as he was making a fortune in the burgeoning Eurobond market in the 1970s, Wolfensohn eyed the Bank presidency (hence his obtaining U.S. citizenship). Inspired by McNamara, during his ten years at the helm of the Bank he pushed the organization to refocus its efforts on poverty reduction.45 Under Wolfensohn, the Bank started to speak openly about the challenges of corruption in developing nations, forgave some of the debt that continued to plague many of its borrowers, and began to incorporate gender and environmental concerns into its work. Wolfensohn’s active response to the bevy of global challenges during the time, from the street protests that greeted the yearly IMF-Word Bank meetings to the outbreak of the HIV/AIDs crisis, endeared him to many observers and provided some relief to an institution that had stagnated for more than a decade. Even so, Wolfensohn’s tenure had its downsides. His volatile management style, in which he punished internal dissent and threatened to resign when things did not go as planned, rubbed many people the wrong way, and his efforts to expand the Bank’s activities enlarged its bureaucracy.46
Wolfensohn resembled McNamara in his missionary zeal, his success in pushing the Bank in new directions, and the mix of enmity and admiration that he inspired inside and outside the organization. For other reasons, his successor also drew comparisons to McNamara. In 2005, U.S. President George W. Bush tapped Paul Wolfowitz to take over from Wolfensohn. Wolfowitz had been a zealous advocate of the Iraq War as U.S. deputy secretary of defense, and his appointment to the Bank presidency—just as it was becoming clear that the war was turning into a disaster—evoked memories of McNamara’s transition from the Pentagon to the Bank four decades earlier. But while both McNamara and Wolfowitz came to the Bank from failed wars, the comparisons ended there. Whereas McNamara went on to an eventful thirteen-year tenure, Wolfowitz, who lacked management experience, became embroiled in a conflict-of-interest scandal and resigned from the Bank after just two years.
The Wolfowitz debacle ignited calls to reform the process for selecting the Bank president. Remarkably, the organization’s Articles of Agreement do not specify how the organization’s president is to be chosen. Instead, under an informal agreement by which European countries select the IMF managing director, the United States chooses the Bank president. As a result, each president has been a U.S. citizen (and, it should be added, a man). Although this situation helps ensure congressional support for the Bank, the process is anachronistic. The lack of a more equitable and transparent means of selecting the Bank’s head also deprives developing countries of a say over the organization’s most important position, which contributes to the Bank’s democratic deficit.47
The absence of meaningful governance reforms makes understanding the internal workings of the Bank all the more important. Although focusing on leadership is only one way of analyzing an institution as large and complex as the World Bank, McNamara’s presidency offers a window into top-level decision-making in international organizations, an approach that remains lacking in global governance scholarship.48 Similarly, it makes sense to consider the role of staff. In the case of McNamara’s Bank, staff was instrumental, at points even derailing managerial decisions. We have also seen how the Bank’s organizational dynamics can exert a strong influence on its operations. During McNamara’s tenure, the impetus for growth shaped the way in which the organization defined and addressed development. Early in McNamara’s presidency, this manifested itself in the creation of capital-intensive rural and urban development projects. Later, the need to create lending instruments that could rapidly channel large amounts of funds to developing countries drove the creation of structural adjustment lending.
More broadly, McNamara’s presidency of the Bank demonstrates the important role that international organizations can play in world affairs. The belief that multilateral bodies are passive agents of major countries is pervasive. Yet McNamara’s experience at the Bank provides an example of an international organization that occasionally acted against the wishes of its most powerful member. This history upends views of the Bank as a monolithic tool of U.S. foreign policy. The belief that international organizations have little real world influence is also common. Yet in addition to the thousands of projects that it carries out, the Bank has been instrumental in shaping the meaning of development. It is hard to imagine a more impactful institution.
McNamara’s presidency of the Bank further challenges our understanding of the history of development. For well over a decade, scholars have devoted considerable attention to documenting how development emerged and evolved as a domestic and international policy goal, practice, and discourse. This work has provided much-needed context for current development approaches and enriched our understanding of the past.49 Nevertheless, historians have largely failed to explore the institutions that have formulated and executed development, as well as to consider how the field evolved after the 1960s.50 McNamara’s presidency of the Bank shows that the transition away from state-centric development was rooted in the economic, political, and intellectual upheavals of the 1970s. It also demonstrates how organizational dynamics shaped the specific mechanisms of post-1980s development, such as structural adjustment.
As the Whiz Kid architect of the Vietnam War, Robert McNamara has long personified some of the contradictions of modern American history. McNamara is the straight-laced bureaucrat who lied through his teeth, the corporate manager emboldened and constrained by his systems of analysis, the quantifier whose numbers failed to add up.51 To some, McNamara even embodies the demise of postwar American liberalism. However, because his presidency of the World Bank has escaped scholarly and popular attention, our understanding of the man has remained incomplete.
These pages have shown that McNamara’s attempt to tackle global poverty should not be viewed as a break with Vietnam. Instead, there were clear continuities between his approach at the Bank and his tenure at the Defense Department. These include not just the specific techniques he used to manage each institution but also his interventionist logic. At the Pentagon, Mc-Namara was an early proponent of escalation in Vietnam. When he realized that intervention was failing, he refused to speak out. At the Bank, Mc-Namara sought to lend more money, to more countries, and for more projects than ever before. Yet he kept quiet even after realizing that there were limits to how much the Bank could lend and developing countries could borrow. On a more personal level, McNamara could never escape the ghosts of Vietnam. Even when at the Bank, those close to him described him as “a deeply wounded” man.52 Compounding his grief was the fact that he was aware that, for all his success in remaking the Bank, the organization made little headway in reducing global poverty. This failure is perhaps one reason why McNamara rarely spoke about his time at the Bank after leaving in 1981.53
Nevertheless, McNamara’s presidency continues to shape the organization. The Bank’s focus on maximizing lending is one of his more prominent legacies. Contemporary observers have detailed how the Bank is often more focused on making loans than ensuring that its funds are used productively. In detailing this “culture of disbursement,” critics are identifying a phenomenon that can be traced to McNamara.54 McNamara’s ability to expand Bank lending without sacrificing its ability to borrow also created a situation in which Bank presidents have felt comfortable placing an ever wider range of initiatives onto the organization’s agenda This tendency toward “mission creep” had been evident since the Bank’s first days and characterizes many organizations.55 Still, McNamara helped lay the groundwork by which the Bank’s agenda—which now encompasses climate change, corruption, biodiversity, tax reform, money laundering, disaster management, technology transfer, cultural preservation, and many other important issues—has continued to expand. In sum, McNamara was instrumental in turning the World Bank into the the vexed institution that it is today: an organization supreme in the development field but which remains unable to solve the increasing number of problems it puts on its plate.