financial markets and to make loans at self-financing interest rates, preferably without calling on its paidup capital.

It is interesting to note that both institutions have outlived their original purposes. The fixed exchange rate system the Fund was supposed to guarantee collapsed in 1971. The Bank’s reconstruction function, which provided the rationale for its first loans (to countries such as the Netherlands, France and Denmark), was “soon recognized to be far beyond the financial capacity of the young Bank” (Kapur et al. 1997, p.10), and was taken on bilaterally by the United States, through the Marshall Plan. The development function remained, of course, but almost no one today would argue that the main constraint to the economic development of poorer nations is a shortage of foreign savings (see, e.g., Ravallion, 2016).

Nonetheless, the two institutions proved adept at reinventing themselves. The end of the Bretton Woods fixed exchange rate system (as it was widely known) was very soon followed by the first oil price shock of 1973, which represented a major global terms-of-trade shock. This was followed by a second shock in 1979 and, partly as a consequence, by the US interest rate rises of 1980-81 and the ensuing developing country debt crisis of the 1980s. Payments imbalances had not only not gone away with the adoption of flexible exchange rates; if anything they became sharper and more turbulent in the 1970s and 1980s. The Fund adapted to the new circumstances and remained relevant and globally active.

The World Bank’s early pivot from reconstruction to development loans was facilitated by the consolidation of the Cold War mindset of the late 1940s and 1950s. As reconstruction loans were first replaced by the US’s bilateral Marshall Plan and eventually became less needed as Europe recovered, the Bank turned its growing lending towards poorer countries. With Western countries firmly in control of the institution, the Bank provided a useful conduit for Western finance and influence in the context of the geopolitical struggle between the two post-war superpowers for allegiance and alignment in the ‘Third World’. Under its third (and first long-tenure) president, Eugene Black, the Bank created the International Finance Corporation (IFC, through which it could lend to the private sector) in 1956; attained its muchdesired AAA credit rating in 1959; and launched the International Development Association (IDA, which raised additional capital from shareholders to subsidize concessional loans to poorer countries) in 1960.<sup>6</sup> Having lent an annual average of $1.19 billion US dollars (in 1995 prices)<sup>7</sup> during its first years (1946-49), the Bank had net commitments of $54.4 billion in fiscal year 2020<sup>8</sup> (World Bank, 2021).

Having briefly introduced the two main actors in our story, it is worthwhile briefly considering the meaning of the principal object of interest, namely inequality. Although many might say that they know intuitively what inequality is, it turns out that it is a multifaceted concept, that can mean very different things to different people. Meanings can vary, for example, along the following dimensions:

- i. _Inequality of what?_<sup>_9_</sup> Most economists think of inequality as one feature of a distribution. More specifically, they think of it as relating to the _dispersion_ of that distribution. But a distribution is always a distribution of _something_ , among a population or set of “recipient units”.  The

> 6 The current World Bank Group is made up of the World Bank (which comprises IDA as well as the original IBRD), the IFC and two smaller bodies, the International Centre for the Settlement of Investment Disputes (ICSID), created in 1966, and the Multilateral Investment Guarantee Agency (MIGA), set up in 1988.

> 7 Kapur et al. (1997).

> 8 <u>https://www.worldbank.org/en/about/annual-report/fiscal-year-data.</u>

> 9 This question is the title of an influential Tanner lecture by Nobel laureate Amartya Sen (1980).

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