A former World Bank Vice President on why organizations mistake activity for scale, what the post-Soviet transition teaches about leading transformation, and why a go-it-alone America should be on every board’s radar.
Johannes Linn is a nonresident senior fellow at the Brookings Institution and a former Vice President of the World Bank, where he led the Bank’s operations across Europe and Central Asia from 1996 to 2003, through the post-Soviet transition. A leading authority on scaling up development impact, he directed the Wolfensohn Center for Development at Brookings and has advised international financial institutions, foundations, and NGOs on turning successful pilots into lasting, large-scale change.
C-Suite: Under the current administration, international development has fallen off the radar, including the dismantling of USAID. Why should the CEO of a multinational in, say, the automotive or industrial sector pay attention?
The decline in development aid goes well beyond the United States. Germany, the United Kingdom, and other European countries have also cut aid. The U.K. went from 0.7 percent of GDP to 0.3 percent. Since 2023, official development assistance has declined on the order of 20 to 30 percent. That is only part of total financial flows from north to south, but it is very significant, with major impact in Africa and elsewhere, particularly on health, where USAID played such a large role.
Growth in the global South will slow, with indirect effects on global growth everywhere. Indebtedness will rise, because these countries must borrow more to cover public services, and that will affect financial stability. And the cuts come just when climate action is urgent. They are unwise and short-sighted. But as usual in a crisis, there is opportunity. Here, it is the chance to change the paradigm for development assistance, whether from governments or private philanthropy.
C-Suite: For many multinationals, developing countries are a major growth market. Are certain sectors more exposed to the aid cuts than others?
Health care, education, and other social services are directly affected. But beyond that, it is energy. Renewable energy had caught on in the global South, with both USAID and China playing important supporting roles. China will benefit from USAID’s exit, and there will be feedback loops hurting U.S. and European companies. Another area is food. Cutting food aid hurts U.S. farmers directly, and it lowers stability and purchasing power, particularly in Africa, the fastest-growing continent and the market of the future.
C-Suite: You have called the project-based, donor-funded model of development broken: short, one-off engagements that may hit their targets but leave nothing self-sustaining behind. Why does it fail?
Let me give you an example that touched me personally. My president at the World Bank was Jim Wolfensohn, who, by the way, came from the private sector. He visited a wonderful project in Georgia that had helped 5,000 farmers through rural credit, and he asked the country director how many farmers could benefit from a project like this. Maybe 50,000, she said. So, thinking like the investment banker he was, he asked what we were doing to reach the 50,000. And she said: oh, it is such a good project, somebody else will pick it up.
That is how many institutions still operate. The main incentive for the project team is to get the project to the board. That is when the champagne is broken out. Yes, you want the project rated satisfactory at the end. But satisfactory means reaching narrow project targets during implementation. It does not mean creating a platform that sustains itself after the project ends, let alone the conditions for somebody to take the next step and scale it up. Nobody pays attention to that.
Projects will always be with us; they are an organizing frame. But what are you asking the project to do? Just to reach some number of people with water standpipes? Or to create a water supply system that the government or other funders will keep building on after the project is finished?
C-Suite: You draw a distinction between transactional scaling, simply doing more of something, and transformational scaling, building something that sustains itself after the money or the mandate goes away. Can you explain?
Transactional is the idea that doing more projects and pushing more money into a sector will solve the problem. The World Bank under Ajay Banga is very interested in impact at scale, but mostly, as I understand it, through replication: if a project works in country A, repeat it in country B. Replication is good, but not good enough. You have to ask whether the idea will work in the new context at all. And this is where the transformational aspect comes in. When we are done, have we changed the policies, the institutions, the financing system, so that the assets we created are sustainable? Have we put in place the capacity and the political incentives to keep scaling, so the intervention reaches more people over time?
The real challenge is that institutions need to change their vision, their operational policies, and, most importantly, the incentives for their frontline staff. Interestingly, some large international NGOs are further ahead here. We have been working with Catholic Relief Services and CARE, and they have begun to focus seriously on transformational scaling.
C-Suite: We see the same pattern in large companies, portfolios of individually sensible initiatives that never cohere into a strategy. With AI right now there are pilots everywhere but, like Solow’s famous quip about computers, you see them everywhere except in the productivity statistics.
In the private sector, at least the basic incentives are aligned: the greater the scale, the greater the profit. The public sector has no equivalent driver. Every incoming director or politician arrives with their own idea and tries to implement it in the limited time they have. But large organizations of every kind share what I would call bureaucratic misalignments of incentives. You get a lot of payoff for pushing a new idea. You get very little for persisting with what is by then an old idea, even a proven one, and carrying it to full impact. So the question becomes: what metrics tell you whether you are creating the conditions under which an idea, if it works, can persist and keep growing? That is the really interesting question, and it applies equally to the private and public sectors.
C-Suite: You ran World Bank operations in Europe and Central Asia through the post-Soviet transition, a genuinely transformational moment. What did you learn about leading through that kind of change?
Two things. First, we knew roughly where these countries needed to end up, a market system. But transformation is not a matter of having a step-by-step blueprint. It is crossing the river by feeling the stones. You need clear goals for the medium and long term, but the next step often becomes apparent only as you take the current one. The key is that at each step you look beyond its end to the step that follows, preferably two or three steps ahead, because at the beginning of the journey you do not know enough about the conditions you will confront along the way.
The second lesson is more self-critical. My own actions were governed by short-term incentives: get as many projects to the board as possible, as quickly and as cheaply as possible. I rarely thought beyond the end of a project. And I did not think deliberately about partnerships, without which, I now know, you cannot achieve what you want on your own. Co-financing slowed you down, complicated things, consumed staff time. There were no incentives to do it. A colleague once asked me why we all work one way inside these institutions, then come out and say it should be done differently. Simple. Inside, you operate under a certain incentive system. Outside, you suddenly realize the way we ran this show was not terribly great.
C-Suite: With the benefit of hindsight, what did the West get right, and what did it get wrong, as those economies made the transition?
There is a sharp contrast between China and Russia. China was still a largely agricultural economy, and it liberalized agriculture first, which created the surplus and the momentum that allowed liberalization in the other sectors. It kept the party intact, and the party could steer a gradual transition. Russia was different. It was a highly industrialized, centrally planned economy, and geographically it was extraordinarily specialized. One plant in the Kyrgyz Republic might supply a single tractor part for the entire Soviet Union. When the party disappeared and the country broke apart, there was no longer any mechanism for a gradual transition. People like Jeff Sachs argued for the big-bang approach. From my perspective it was often preferable to go more gradually, though that did not always lead to the right answer either.
The great tragedy of Russia is that around 2000 to 2002 it could have turned the corner, and for a while it was turning it, but it did not open up to the West or integrate with Europe the way it could have. Central Europe is the counterexample. Those countries turned around much faster, and grew faster, than Russia or Ukraine or Central Asia, for two reasons. They never had the extreme central planning the Soviet Union had, and they integrated quickly with Western Europe.
What was most underappreciated at the time, and I wrote this up in 2008, is how much of the damage in the former Soviet Union was simply geographic disintegration. As borders went up and the common currency disappeared, supply chains that had been built across a single integrated space came apart, and the dislocation was severe. We always worry about that kind of disintegration, whether it is the breakup of the Habsburg empire or Brexit. In the former Soviet Union it was extreme, and it is a large part of why those economies did so badly in the first six, seven, eight years, exactly when Central Europe was already recovering.
C-Suite: Fast-forward to today. The unipolar order established in the early 1990s appears to be fraying. Where does it end up?
My generation, I was born in 1945, saw roughly seventy years of what we considered, probably wrongly, linear progress: globalization, technological advance, relative freedom from war, global poverty reduction. I remember the ruins of Munich. But since 2008, and the 1998 Asian crisis was the canary in the coal mine, we have learned that the global financial system, the trading system, and the geopolitical institutions do not work very well. I was deeply engaged in the effort to move from the G8, which no longer reflected the world’s economic balance, to the G20. I still think it was a good idea. The problem is that it was not good enough.
And let us be clear: for roughly the last ten years, it is we, the United States, who have contributed most to the deconstruction of the post-war system of international cooperation. Moving from a unipolar to a multipolar world was always going to be troublesome, and some instability was programmed into that transition. But we Americans have made things a lot worse, deconstructing the system in many different ways without any clear notion of what will replace it. That is the big question mark: what replaces a system that was reasonably predictable and reasonably stable?
C-Suite: So twenty or thirty years out, is it bipolar, multipolar, Ian Bremmer’s G-Zero world?
My fear is that if America continues on its current path, not isolationist in the narrow sense but going it alone, acting in a short-term, transactional, and frankly often irrational manner, nobody will be able to rely on us: as a partner, as an ally, even as a predictable competitor. I see Europe and Asia becoming a highly integrated supercontinent, a vast Eurasian market. How it deals with Africa is a big question mark. But unless the United States changes the way it does business, and changes it dramatically, we will be isolated and marginalized sooner rather than later.
That, by the way, is a message to CEOs: if we continue what we are doing economically and technologically, we are going to be at the margin, no longer the center, twenty or thirty years from now. We had better change our geopolitics, and our geoeconomics too: the trading system, the monetary and financial system, and sooner or later some way of funding global public goods, whether climate, public health, or responses to famine and disaster.
C-Suite: Given that outlook, how can multinational companies play a more constructive role, in both north and south?
Many already do. Some of the major food companies work very effectively with local farmers in the developing world, building supply chains with real positive impact on farming communities. When I was at the World Bank, we helped finance the pipeline from Azerbaijan through Georgia to Turkey. With our involvement, the oil companies brought far more community engagement into the project than they likely would have on their own. And that was not altruism. The motivation was pipeline security. When local communities have a stake in the pipeline, they protect it rather than sabotage it. Business that is cognizant of its impact on local communities is better business: more lasting supplier relationships and better security.
So my advice is: look at where you are already doing it right, and replicate that systematically across the business. Think about how the next project builds on the first. Incorporate local communities and local supply chains as effectively as you can. There may be short-term costs, but the long-term benefits will be huge. Incidentally, that is a lesson the Chinese are learning. In the Belt and Road Initiative, and in their commercial engagement abroad generally, they have been very short-term and transactional, in contrast to what they do at home. I think they now realize that reaping the long-term political and commercial benefits requires investing up front.
C-Suite: What does that mean for Western companies competing in markets where the Belt and Road Initiative is active?
Our gut reaction is to view Chinese engagement in these countries as a problem. I think that is a mistake. The railways China built in East Africa create opportunities for everybody: local investors, local communities, improved access, more integrated East African economies. Yes, Chinese companies will also compete in local markets. But look for the opportunities Chinese investment creates. And lobby Washington, because by cutting back American engagement in these countries, the United States is not helping its own industry or its own suppliers.
C-Suite: What is the one takeaway you would want a CEO reading this to come away with?
That as a private business you never operate in isolation from what the public sector does, whether in your own country, as America is learning the hard way, or overseas. Take a larger view of what government is likely to do in your sector. Partner with the agencies that can facilitate your business or make your life difficult, and find like-minded local partners to help you navigate the inevitable confusion of operating in a foreign environment. Rely on local staff and local knowledge, which is unavoidable if you want to succeed. And build for the long term.
Ultimately it comes back to where we started: moving from thinking transactionally to thinking about transformation. What happens beyond the current project? What will constrain, or help, building on what we are doing today? That shift requires a change in mindset. But more than that, it requires every kind of organization to think hard about the incentives that we, as top managers, impose on our frontline staff. We think far too little about those incentives, and there are always ways to improve them.