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View all search resultsA new economics for the 21st century
The World Bank’s latest work confirms that industrial policy is more replicable across income levels and institutional contexts than the old consensus admitted.
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A wind power turbine rotates its blades on May 23, 2025, near Constellation Energy's LaSalle Clean Energy Center nuclear power plant near Marseilles in Illinois, the United States. (AFP/Getty Images/Scott Olson)
I
n the run-up to this year’s International Monetary Fund (IMF) and World Bank Spring Meetings, the one story that cut through the noise was that the World Bank had embraced industrial policy after decades of advising against it. But while much of the ensuing debate focused on whether this “U-turn” is good or bad, overdue or dangerous, few pondered the fundamental question: What has actually changed?
The Bank has merely affirmed what many of us have long argued: the framework it has promoted since 1993, when its East Asian Miracle report cautioned against industrial-policy tools, has not served developing countries well. Such advice, World Bank Chief Economist Indermit Gill recently observed, “has the practical value of a floppy disk today”. Yet in his defense of the report, he also made clear how limited the shift remains. Industrial policy, he argued, should be “targeted and temporary,” an exception to a market-led model, rather than a tool for driving broader economic transformations.
The Bank’s latest work confirms that industrial policy is more replicable across income levels and institutional contexts than the old consensus admitted, with a toolkit that extends beyond tariffs and subsidies. Public support for private actors, the Bank now argues, should come with carrots and sticks, including withdrawal of finance from firms that underperform.
But new conclusions do not automatically produce new economics. The Bank still treats the state as a mere fixer of market failures, rather than as a market creator and shaper. The question is not whether governments should intervene after markets have failed. It is what kind of economy we want to build in the first place. Which public purposes should guide investment, and how can institutions govern the public-private bargain so that value is created collectively and shared fairly?
Viewed in these terms, the Bank still falls short, because it treats fiscal-policy space as a fixed constraint within which to optimize, rather than as a set of institutional capacities that can be developed. As a result, the Bank would still organize industrial policy only around specific sectors and considerations of comparative advantage. But the energy transition, water and food security, public health and economic resilience are not sectoral issues.
The World Bank is not an isolated case. The IMF’s own economists have similarly documented how austerity and liberalization fail to deliver. Yet these findings have yet to translate consistently into new operational practices.
That needs to change. The IMF and the World Bank sit at the center of an international order whose default advice still reflects an economics not supported by real-world evidence. What they model, measure and recommend shapes how development and macroeconomic policy are done around the world. They help determine who has access to liquidity, and on what terms; whose debt is treated as sustainable; whose public investment is seen as credible; and whose policy autonomy is constrained.
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