recurrence of warfare in the case of Western Europe. There is also considerable heterogeneity across countries in initial conditions, with the need to develop idiosyncratic approaches to state construction. As a consequence, recipes are missing, and innovation is necessary. But is the Bank, which claims to be a “knowledge Bank,” organized to innovate in assisting state construction?

Through academic research, we know quite a lot about the role of the state in development. The state has roles to play in compensating for market failures (originating in monopoly power, externalities, public goods, and high transaction costs), achieving coordination among actors when there are multiple equilibria, and correcting for social outcomes that may not be desirable. However, where knowledge is lacking is in the process, not the product: How to transform an under-performing developing country state into a developmental state? This is not theory but practice, something that is more in the domain of applied research and experimentation, and is for this reason potentially better done at the World Bank rather than in universities.

This type of research requires close linkages with project implementation and feedbacks from implementation to design. World Bank research, including experimentation and piloting, is thus needed on the subject of state transformation into a developmental state, starting from the conditions of governance in a developing country context with all the market failures and institutional gaps that characterize it. This requires new designs and experimenting with alternative options. Bank investment in research has been low and research has not provided specific guidance for lending, in part because of a poor understanding by Bank management of the role of research, in part because of low effectiveness in guiding research toward addressing the relevant questions and in using research results for innovative program design. This requires a rethinking of how research is motivated, supported, guided, and used at the Bank. The reality is that Bank research, however often outstanding in academic quality, has not been effectively directed and used for the purpose of defining innovative state construction initiatives. This has contributed to weak outcomes in the implementation of the Bank’s recent governance strategy, as assessed by IEG. (Supportive evidence: There is little research in DECRG on state construction, and insufficient linkages between Bank research and Bank strategies and initiatives.) _Consensus on the Role of the State in Development_ Bank leadership has been generally unable to build a consensus among stakeholders about the role of the state in support of its development programs. A plausible interpretation is political. There is no agreement in Bank membership about the role of the state in development; there are opposing sides in particular between those who view the state as an instrument to compensate for market failures and make markets work better, versus those who view it as a proactive coordinating instrument with direct engagement in some economic activities and extensive public-private partnership initiatives. There is more of a consensus on the role of the state in compensating for undesirable social outcomes, as seen by the Bank’s strong performance in the field of social assistance programs. This was, for example, the hallmark of the 1990 World Development Report on poverty that advocated labor-intensive growth and social safety nets. But there is almost no consensus on issues such as industrial policy, intervention in financial markets, climate change or alternative forms of energy, etc. Bank leadership has almost always looked at the role of the state as a divisive issue to be carefully handled, in part by neglecting it.

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