¹ We are using “institution” and “organization” as synonymous terms; many of the scholars who consider themselves institutionalists use the term to refer to patterns of behavior in society and their associated values. Thus private property could, in that latter characterization, be considered an institution. For a perceptive discussion of the historical roots of institutionalism see Ross, Dorothy, The Origins of American Social Science (New York, 1991)Google Scholar.

² In recent years, however, a number of social science disciplines have begun to develop an interest in institutional change. This work was discussed by a distinguished panel at the 1993 meeting of the Social Science History Association. For the new institutionalism in political science, see the thoughtful discussion in Smith, Rodgers M., “If Politics Matters: Implications for a ‘New Institutionalism,’” Studies in American Political Development 6 (Spring 1992): 1–36CrossRefGoogle Scholar. That particular journal was launched in part to publish work on “institutional change in the United States.” For an indication of the changes taking place in economics see Teece, David, “The Dynamics of Industrial Capitalism: Perspectives on Alfred Chandler's Scale and Scope,” Journal of Economic Literature 31 (March 1993): 199–225Google Scholar. For sociology see Skocpol, Theda, Bringing the State Back In (New York, 1985)Google Scholar.

³ The International Bank for Reconstruction and Development became a bank group in 1956, when it spawned the first of its affiliated organizations, the International Finance Corporation.

⁴ See Alfred D. Chandler, Jr., with the assistance of Hikino, Takashi, Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge, Mass., 1990), especially 38–45, 168–233, 593–628Google Scholar; Chandler, Alfred D. Jr., Strategy and Structure: Chapters in the History of the Industrial Enterprise (Cambridge, Mass., 1962)Google Scholar; Chandler, Alfred D. Jr., and Daems, Herman, eds., Managerial Hierarchies: Comparative Perspectives on the Rise of the Modern Industrial Enterprise (Cambridge, Mass., 1980)Google Scholar. See also Channon, Derek F., The Strategy and Structure of British Enterprise (Boston, 1974)Google Scholar; Rumelt, Richard P., Strategy, Structure and Economic Performance (Boston, 1974)Google Scholar; Caves, Richard E., “Industrial Organization, Corporate Strategy and Structure,” Journal of Economic Literature 18 (March 1980): 64–92Google Scholar; and Williamson, Oliver E., “The Modem Corporation: Origins, Evolution, Attributes,” Journal of Economic Literature 19 (December 1981): 1537–68Google Scholar.

⁵ See, for instance, Downs, Anthony, Inside Bureaucracy (Boston, 1966)Google Scholar; Crozier, Michel, The Bureaucratic Phenomenon (Chicago, 1964)Google Scholar.

⁶ Throughout, we have made extensive use of Mason, Edward S. and Asher, Robert E., The World Bank Since Bretton Woods: The Origins, Policies, Operations, and Impact of The International Bank for Reconstruction and Development and the Other Members of the World Bank Group: The International Finance Corporation, the International Development Association, The International Centre for Settlement of Investment Disputes (Washington, D.C., 1973)Google Scholar, a volume published to mark The Bank's twenty-fifth anniversary. See especially 111–48.

⁷ Ibid., 21–35.

⁸ This in part explains the difficulties the administration experienced in getting someone with banking experience to accept the presidency of The Bank. In reality, the historical roots of The Bank go back much farther than the New Deal. They reach back to the Reconstruction Finance Corporation and, indeed, to the farm credit program of the Progressive Era.

⁹ The organization's name suggests that the founders first thought of “Reconstruction” and only later of “Development.” But as Emilio Collado, the first U.S. Executive Director (henceforth ED) later explained: “The Bank was sort of a stepchild at the beginning days of Bretton Woods.” Emilio Collando, Oral History, July 11, 1974, World Bank Group Archives; hereafter WBGA.

¹⁰ For Article V of the Articles of Agreement, see Mason and Asher, The World Bank Since Bretton Woods, 768–72.

¹¹ See Jochen Kraske, “Eugene R. Black” (Manuscript, WBGA).

¹² Mason and Asher, The World Bank, 51–54. On the importance of selling The Bank's bonds see D. Crena de Iongh to Robert L. Garner, August 4, 1947, WBGA.

¹³ Robert L. Garner, Oral History, July 19, 1961, Columbia University (copy in WBGA). One of Black's most important functions was to develop a market in the United States and abroad for The Bank's bonds. He accomplished this goal in part by persuading state legislatures in the United States to authorize pension funds, savings institutions, insurance companies, and fiduciary trusts to buy the organization's bonds; he also obtained federal legislation which allowed commercial banks to trade the bonds; meanwhile, he carried to the investment community the message that The Bank would operate as a fiscally reliable institution. One measure of his success and of The Bank's performance in this regard was the favorable response of the rating agencies. Kraske, “Eugene R. Black.”

¹⁴ Garner's control exceeded by a considerable measure the authority outlined in the formal description of his position. Compare McCloy, John J., “Executive Management: General Responsibility and Authority” (WBGA, June 1947)Google Scholar, with Robert L. Gamer, Oral History.

The influence apparently flowed both ways, from U.S. business to The Bank, and from The Bank to U.S. business. As Garner later indicated, The Bank had some influence on “A number of companies, big international companies,” which went to Washington “to study the system” The Bank used to supervise its loans. Ibid.

¹⁵ McCloy's independence from the executive director was apparently one of the conditions he established before accepting the post of president. His predecessor had struggled with the executive directors, who under the Articles of Agreement were “responsible for the conduct of the general operations of the Bank.” Mason and Asher, The World Bank Since Bretton Woods, 49–50, 769; Robert L. Garner, Oral History, July 19, 1961, Columbia University, WBGA. Initially there were twelve executive directors, five of whom were from the member counties with the largest number of shares in The Bank. See also William Diamond, Oral History, July 17 and 22, 1986; and “Report by the President to the Ad Hoc Committee on Organization and Revised Draft Report on Matters of Organization and Loan Procedure,” May 16, 1947, both in WBGA.

¹⁶ Mason and Asher, The World Bank Since Bretton Woods, 32, 58, 770. On the relationship to the UN, see “Administrative Organization and Policies of the Bank,” November 29, 1948, WBGA.

¹⁷ We use the term “fault line” to refer to an organizational boundary (either external or internal) along which significant amounts of tension develop over organization resources. Frequently, this tension is created by those within or outside the organization who have a legitimate, although contested, claim to those resources. The tension can also be created by the organization's need for resources it does not have. That was the case for The Bank's second major “fault line,” the one that existed between the American banking community and an organization which they viewed with suspicion grounded in an opposition to New Deal reform, whether it was national or international in scope. Eugene R. Black, the new U.S. executive director, personally handled transactions across this second fault line and gradually succeeded in eliminating most of the tension.

¹⁸ Garner later commented on these pressures and, indirectly, on the organization's priorities. The Bank initially refused to make a loan to Chile because that country was in default on its bonds and had refused to make “a sincere effort to settle with the bondholders.” Garner said, “There was a very strong attack by some of our directors, by some of the press, by others.…” The Bank explained that its “efforts to sell bonds of the World Bank would be hindered if we were trying to sell bonds to people that held defaulted Chilean bonds.… ” Robert L. Garner, Oral History, July 19, 1961, Columbia University, WBGA.

¹⁹ Garner did not attempt to organize The Bank along decentralized lines. He later said that “in the early years, management had to keep a closer eye, because of the lack of experience of all of us, than they do now, and we weren't able to decentralize responsibility and authority in the early days as much as I think it is now done.” Robert L. Garner, Oral History, August 16, 1961, Columbia University, WBGA.

²⁰ R. L. Garner, “Loan Department,” June 1947, WBGA.

²¹ Ibid. Robert L. Garner, Oral History, July 19, 1961, Columbia University; and William F. Howell to R. L. Garner, August 31, 1951, WBGA.

²² John A. King, “Reorganizing the World Bank,” Finance and Development (March 1974), 5. This department was initially named the Research Department, and it did not at that time have a substantial role in determining loan policy. Garner, R. L., “Research Department,” June 1947, WBGA. The World Bank, First Annual Report (Washington, D.C., 1946), 25–26Google Scholar. As the Economics Department it did have a significant influence on loan policy, and as Gamer later acknowledged: “The problem of how the loan and economic departments worked together presented some operational difficulties…. Well,” he said, “it was very difficult to draw the line of major responsibility, as between the economic department and the loan operations.…” Robert L. Gamer, Oral History, August 16, 1961, Columbia University (copy in WBGA).

By 1948, the other departments included: Marketing, to sell The Bank's securities; Treasurer; Legal; Secretary; Public Relations; and Administration. “Administrative Organization and Policies of The Bank,” November 29, 1948, WBGA.

²³ In 1946, General Foods had completely revamped its organization, grouping sixteen operating divisions under four general executives, along lines similar to those employed by General Motors and other multi-divisional (M-form) companies. Chandler, Strategy and Structure, 47, 347.

²⁴ This policy change had begun under McCloy, but under Black development became The Bank's primary activity.

The Soviet Union did not ratify the Articles of Agreement, and Poland and Czechoslovakia, which did, withdrew from The Bank in 1950 and 1955. Yugoslavia joined and remained a member. Mason and Asher, The World Bank Since Bretton Woods, 63–64, 564, 800–802.

²⁵ See Harold Graves “Notes from interviews of R. W. Cavanaugh, Nov.-Dec. 1968,” WBGA.

²⁶ John A. King, “Reorganizing the World Bank,” 5, stresses the increased work load of the Loan Director, the problems emerging in the division of work between the Economic and Loan Departments, and the internalization of the technical functions as the major factors leading to this reorganization.

²⁷ Robert L. Garner comments on the manner in which this developed, in particular where loans to Colombia were involved. See Robert L. Garner, Oral History, July 19, 1961, Columbia University, WBGA.

²⁸ Mason and Asher, The World Bank Since Bretton Woods, 72–74. In response to these developments, The Bank renamed its “Staff Office” the “Technical Assistance and Liaison Staff” in 1951. The Bank of course continued to use consultants; but meanwhile, it was building up its own staff and capabilities.

²⁹ King, “Reorganizing the World Bank,” 5–6.

³⁰ See William F. Howell to Robert L. Garner, August 31, 1951 (on the loan working parties); Howell to Garner, December 3, 1951 (on the same subject); “Administration Department,” July 27, 1951; and Howell to Garner, September 27, 1951 (on operational reorganization); all in WBGA.

³¹ Kraske, “Eugene R. Black.” William Diamond comments on the growth in the number of bank members and the necessity to divide the loan operations. See William Diamond, Oral History, July 17 and 22, 1986, WBGA.

³² Iliff chaired the interdepartmental committee which developed the specific plan and said he was “father” of the new order. Garner appears to have gone with the proposal grudgingly and Black enthusiastically. See William H[owell] to Francis R. Poore, January 23, 1952, WBGA.

³³ R. L. Gamer, “Bank Organization,” September 5, 1952. For the tensions that developed over the plan and the objections from within the organization see the following: R. L. Garner, Memorandum, January 28, 1952; Minutes of the Meetings of the Committee on Bank Organization, January 29, 30; February 5, 13, 15, 20, 26, 27, 28, 29; March 4, 11, 14, 1952. A. S. G. Hoar to R. L. Garner, March 28, 1952. The economists did not go down without a fight; see especially the Minutes, February 28, 1952. All of the above in WBGA.

³⁴ William Diamond and Michael Hoffman, Oral History, July 27, 1961, Columbia University, copy in WBGA. Robert L. Garner, Oral History, August 16, 1961, Columbia University, WBGA, discusses the origins of the engineering capability in the Bank.

³⁵ R. L. Garner, “Loan Department;” William F. Howell to R. L. Garner, August 31, 1951, both in WBGA. King, “Reorganizing the World Bank,” 6–7.

³⁶ There was a central organizational culture about which there was substantial consensus (see the following page); but the departments developed distinctive variations on that culture, as we indicated here.

³⁷ Mason and Asher, The World Bank Since Bretton Woods, pp. 76–77.

³⁸ William Diamond, Oral History, July 17 and 22, 1986.

³⁹ A. F. Johnston to William F. Howell, “Review of the Present Organization of The Bank,” March 31, 1954, WGBA. Mason and Asher, The World Bank Group, 75–77, 229-59. The engineers had effective leadership from General Raymond A. Wheeler, who had formerly been the chief of the U.S. Army Engineers. Robert L. Garner, Oral History, August 16, 1961.

⁴⁰ A. F. Johnston to William F. Howell, “Review of the Present Organization of the Bank;” Mason and Asher, The World Bank Since Bretton Woods, 75–76.

⁴¹ The International Finance Corporation (IFC) had to be an affiliate because under the Articles of Agreement, The Bank could not provide equity; its mission was to extend loans to governments and to undertakings whose loans were guaranteed by their governments. Gamer became the first president (1956–1961) of the IFC. He later said that he was the intellectual father of the organization and that he had worked on the proposal for seven or eight years before it was introduced. Robert L. Garner, Oral History, July 19, 1961.

The International Development Association (IDA) had to be semi-autonomous to protect the bond rating of The Bank; IDA was financed by government appropriations from so-called Part I (that is, high income) counties. Part II countries were middle-and lowincome.

⁴² IDA was not a separate organization as such; it was a legally separate, hence affiliated, function of The Bank.

⁴³ Mason and Asher, The World Bank Since Bretton Woods, 324–31. William Diamond, Oral History, July 17 and 22, 1986. As Garner later explained, The Bank initially did not want “in economic fields, men oriented towards highly technical and academic research type of work. The Bank as an operating institution has never felt that it should try to engage in research in developing economic theories.” They needed, he said, economists “able to come out with practical economic answers, not academic ones.” Robert L. Garner, Oral History, July 19, 1961.

⁴⁴ The EDI invited outsiders to participate in its seminars, and the second EDI publication, The Design of Development, was written by the distinguished economist Jan Tinbergen. See Tinbergen, Jan, The Design of Development (Baltimore, Md., 1958), 330–331Google Scholar. William Diamond and Michael Hoffman, Oral History, July 27, 1961.

⁴⁵ The prohibition against IFC direct investment in equity was dropped in 1962. On the political setting in which the IFC was established see Catherine Gwin, “U.S. Relations with the World Bank (1945–1992),” copy in WBGA, especially 17–18.

⁴⁶ Pearson Commission, Partners in Development, 223. Quoted in Mason and Asher, The World Bank Since Bretton Woods, 415.

⁴⁷ For the growth in Bank and IDA staff from 180 in 1950 to 1,348 in 1971, see Mason and Asher, The World Bank Since Bretton Woods, 880.

⁴⁸ The Bank's board did not function like a corporate board of directors. The ED's performed some of the functions of the corporate executive committee in a U-form organizational structure; these included ratifying expenditures, establishing institutional policies, and giving final approval to projects.

⁴⁹ The tension between Part I and Part II countries became most influential during and after the expansion of IDA credits in the 1960s and 1970s. Between 1961 and 1971, for instance, Bank loans tripled while IDA credits increased almost six-fold.

⁵⁰ Davidson Sommers, Oral History, May 5, 1960, WBGA, 17–19. Black also aborted his predecessor's proposal for radical changes in the Board's operating procedures; these changes would have greatly diminished the Board's de facto powers and responsibilities.

⁵¹ At this time there was already tension between the donor and recipient countries and the latter nations wanted control of the institution changed. In particular, they wanted to change The Bank's weighted voting arrangement, which kept control in the hands of the advanced, industrialized donor nations. See Reid, Escott, Strengthening the World Bank (Chicago, 1973), 14–17Google Scholar; Reddy, Y. Venugopal, World Bank Borrowers' Perspectives (New Delhi, 1985)Google Scholar; and Mason and Asher, The World Bank Since Bretton Woods, 79–82.

⁵² This was accomplished through its direct contacts with scholars and through its publications.

⁵³ The organization of IDA had increased the importance of a third environment, one from which political (as opposed to market) signals were transmitted to The Bank through the executive director of both the Part I and Part II countries. This produced another fault line along which the organization could experience major tensions. Initially, however, that appears not to have been the case. On the bond and loan sales see the review in Harold Graves, “Notes from Interviews of R. W. Cavanaugh, Nov.-Dec. 1968.”

⁵⁴ See for instance the records of the Committee on Staff Utilizations; especially M. L. Lejeune to Messrs. Howell, Hoar, and Sommers, March 25, April 11, and 12, 1955, WBGA.

⁵⁵ An exception to this rule was the creation in 1965–1966 of the International Centre for Settlement of Investment Disputes; see Mason and Asher, The World Bank Since Bretton Woods, 336–41.

⁵⁶ Ibid. 3–4; Appendix C., 800–02, lists all of the members in 1947, 1951, 1961, and 1971. The major changes in the 1950s involved an influx of Asian members and in the 1960s a sharp increase (from 7 in 1958 to 34 in 1967) of African members.

⁵⁷ The Bank directed more loans into agriculture and education, while creating a social as well as an economic program that gave increased emphasis to modifying the underlying causes of slow development. Reid, Strengthening The World Bank, 20–21. Robert Oliver, Manuscript biography of George Woods, chapter 7, 4–37, WBGA.

⁵⁸ Ibid., chapter 7, 4–5, quoting Simon Alderwereld (Vice President for Finance under Woods), and Roger Chaufournier (who was a Bank director for West Africa and then for Europe, the Middle East and North Africa), respectively.

⁵⁹ Ibid., chapter 7, 9–10. Thus, the Bank was more inclined not to sit “on both sides of the table” (9).

⁶⁰ The development banks (or development finance institutions or development corporations) are government-sponsored/supported institutions that encourage economic growth by providing either capital or “enterprise” or both to a developing country. Some are government-owned; some are privately owned; some are both. The development banks involved here borrowed from The Bank (and in some instances from their local governments and from private sources) and loaned money to private undertakings. Diamond, William, Development Banks (Baltimore, Md., 1957)Google Scholar.

⁶¹ Mason and Asher, The World Bank Since Bretton Woods, 192, 359–62. Bank loans had pushed past $1 billion in 1965; see table 1 in this article.

⁶² Ibid., 192, 354. This performance was consistent with the new president's announced goals. See Robert S. McNamara, “To the Board of Governors,” September 30, 1968, in The McNamara Years at the World Bank: Major Policy Addresses of Robert S. McNamara, 1968–1981 (Baltimore, 1981), 3–15Google Scholar, where he said, “I believe that globally the Bank Group should during the next five years lend twice as much as during the past five years. This means that between now and 1973 the Bank Group would lend in total nearly as much as it has lent since it began operations 22 years ago.”

⁶³ See Andrew M. Kamarck, “The Economics Complex and Economic Research in the Bank,” May 10, 1993, WBGA. For five years, Kamarck was director of the Economics Department, which from 1965 on, had to approve loans before they went to the Loan Committee and the Board. Between 1965 and 1970, the economics staff grew from around 20 to about 120.

⁶⁴ Hollis B. Chenery to Robert S. McNamara, December 17, 1971, WBGA.

⁶⁵ The Exchange lemon shippers founded the Lemon By-Products Company in 1915, joined in 1922 by the Orange By-Products Company. See Heritage of Gold: The First 100 Years of Sunkist Growers, Inc., 1893–1993 (Van Nuys, Calif., 1993), 37–72Google Scholar, and the Annual Report, 1922.

⁶⁶ Mr. Rohrbacher to Messrs. Shoaib, et al, February 4, 1972; Hollis B. Chenery to Robert S. McNamara, December 17, 1971; and M. Shoaib to Robert S. McNamara, December 22, 1971. As Simon Alderwereld pointed out to McNamara, in a very short period of time The Bank had “moved into new fields of lending (tourism, family planning, rural development, aviation, sites and services, agricultural research);” it had simultaneously “added new dimensions to its project work (environment, employment, training, income distribution, stimulus of local industry).” Simon Alderwereld to Robert S. McNamara, April 20, 1972. All in WGBA.

⁶⁷ One indicator that a crisis existed is the insistence of those leading the reorganization effort that there was no crisis. See, for instance, McKinsey & Company, Inc., to Robert S. McNamara, January 10, 1972: “Your decision to undertake a major study of The Bank's organization does not grow out of any immediate crisis.” See also M. Shoaib to Robert S. McNamara, December 22, 1971: “there is today no single specific crisis requiring immediate large-scale reorganization.…” See also J. E. Twining, Jr., to M. Shoaib, July 15, 1971. All in WBGA.

⁶⁸ McKinsey, which was already conducting a compensation study for The Bank, was able to draw upon its “experience in serving other large-scale organizations with similar types of problems. The World Bank Group is of course unique,” the firm said, “but relevant experience can be brought to bear on various aspects of its operations from studies of governmental organizations, large-scale private enterprises, and other international bodies.” McKinsey's study team was headed by Marvin Bower, who had directed “a world-wide organizational study of the Royal Dutch/Shell Group which provides significant relevant experience.” McKinsey & Company, Inc., to Robert S. McNamara, January 10, 1972.

⁶⁹ The report and cover letter are in WBGA. Davidson Sommers, Chairman of Equitable Life Assurance Society of the United States and a former Bank General Counsel, served as an advisor to the Steering Committee.

⁷⁰ Instead of divisions, The Bank's plan used departments, so that technically it should be called a multi-departmental form; the principle of decentralization was, however, the same. This was the same type of structure that the Ford Motor Company had introduced in the 1940s when McNamara was joining the firm as part of its post-WWII reorganization program. Nevins, Allan and Hill, Frank Ernest, Ford: Decline and Rebirth, 1933–1962 (New York, 1962), 317–45Google Scholar.

⁷¹ Even those Bank officials who opposed a radical restructuring agreed that greater decentralization was needed. See, for instance, William Diamond to Robert S. McNamara, April 20, 1972, where the author observes that they were “drowning in paper.” See also John A. King to Mohamed Shoaib, June 21, 1972. Both in WBGA.

⁷² The regions were: West Africa; East Africa; Asia; Europe, the Middle East, and North Africa; and Latin America.

⁷³ The executive vice president heading IFC would work with the senior vice president of operations, thus introducing an element of what came to be called “matrix management”; in the matrix, a manager has a “direct report” to a superior officer and one or more “dotted line” reports to other officers.

⁷⁴ Ibid. Also see Robert S. McNamara, to all staff members, August 10, 1972; and “The World Bank Reorganization: A Preliminary Guide to Changes in Structure, Process, Management Style,” October 1, 1972; both in WBGA.

⁷⁵ Reddy, World Bank Borrowers' Perspectives. Hurni, Bettina S., The Lending Policy of the World Bank in the 1970s: Analysis and Evaluation (Boulder, 1980), especially 91–98, 104–10Google Scholar.

⁷⁶ See the comments on control of policy formulation in Davidson Sommers to M. Shoaib, September 19, 1972; and in W. Messenger to M. Shoaib, September 21, 1972. See also the Steering Committee's “Report To the President on McKinsey & Company's Recommendations For Strengthening the World Bank's Policy Formulation Functions,” September 22, 1972. All in WBGA.

⁷⁷ The World Bank Reorganization: A Preliminary Guide, October 1, 1972, WBGA.

⁷⁸ See, for instance, Murphy, Craig N., International Organization and Industrial Change: Global Governance since 1850 (Cambridge, 1994), especially 187, 212–16, 220–21Google Scholar.

⁷⁹ See, for example, Kaufman, Johan, United Nations Decision Making (Alphen aan den Rijn, 1980), especially 55, 63–64, 77–80, 179–194, 197, 207Google Scholar.

⁸⁰ For a discussion of long cycles of innovation in the private sector see Galambos, Louis, “The Innovative Organization: Viewed from the Shoulders of Schumpeter, Chandler, Lazonick, et al.,” Business and Economic History 22, (Fall 1993): 79–91Google Scholar.

⁸¹ Our comparison between private and public sector organizations may thus provide some insight into the problems that many U.S. M-form corporations began to experience in the 1970s and 1980s. If, like The Bank, their leadership and mode of operations worked counter to their decentralized structure, we may need to look again at the way the private organizations actually functioned on a day-to-day basis. De facto centralization may have changed radically the signals the organizations were receiving and their processes of innovation.

⁸² Haas, Ernst B., When Knowledge Is Power: Three Models of Change in International Organizations (Berkeley, 1990)Google Scholar.

⁸³ Ibid., 97–108, 127–54.

⁸⁴ Ibid., 142–45.

⁸⁵ See the excellent analysis in Asher, William, “New Development Approaches and the Adaptability of International Agencies: The Case of the World Bank.” International Organization 37, (Summer 1983): 415–39CrossRefGoogle Scholar.