World Bank Reverses Position on Industrial Policy
The World Bank has shifted its stance on industrial policy, a move that has sparked debate about the effectiveness of this approach in driving economic growth. According to the World Bank’s Chief Economist, Indermit Gill, the old framework promoted since 1993 has not served developing countries well, with its advice having “the practical value of a floppy disk today.”
The World Bank’s latest work confirms that industrial policy can be more replicable across income levels and institutional contexts than previously thought, with a toolkit that extends beyond tariffs and subsidies. This new position aligns with arguments made in the ‘Entrepreneurial State’ and recent work on the role of missions and conditionalities.
Industrial Policy and Economic Transformations
They still treat the state as a mere fixer of market failures, rather than as a market creator and shaper. It is a fact that governments should intervene to shape the economy, rather than simply fixing market failures after they occur. The key issue is what kind of economy they want to build, and which public purposes should guide investment. Additionally, institutions must govern the public–private bargain so that value is created collectively and shared fairly.
The bank’s approach to industrial policy is limited, with a focus on specific sectors and considerations of comparative advantage. However, issues like the energy transition, water and food security, public health, and economic resilience require economy-wide missions.
From Market Fixer to Market Shaper
The IMF’s own economists have documented how austerity and liberalisation fail to deliver, yet these findings have yet to translate into new operational practices. The IMF and the World Bank sit at the centre of an international order whose default advice still reflects an economics not supported by real-world evidence.
Wealthy countries that fund and control these institutions are not exempt from the consequences of the same economics. For decades, flawed assumptions shaped policy in Europe and the US, suppressing public investment, weakening public services, and treating wages as costs rather than as fuel for aggregate demand.
A New Economic Framework
Europe’s response to the 2022 energy shock shows what is at stake. From 2022 to 2025, EU member states and the UK incurred $1.8 trillion in additional costs, much of it absorbed by households and public budgets. Spain, however, points to an alternative, having invested in energy security as a mission, rather than as a subsidy category, and now generates more than half of its electricity from renewables.
Making such resilience the default requires an economic framework that governments can apply consistently. The Global Progressive Mobilisation, convened by Spanish Prime Minister Pedro Sánchez, recently brought together progressive governments from around the world to start shaping a new economic consensus.
Its foundations are clear: public institutions with the capacity to invest, coordinate, and govern markets in the public interest; finance designed around missions, not leverage ratios; and policy frameworks that treat fiscal space not as a market-determined ceiling, but as something built by productive investment. Measures of value should be orientated around the common good, rather than solely focused on economic growth.
As the World Bank and IMF continue to evolve their approaches to industrial policy and economic development, it is essential that they prioritize the needs of developing countries and the global community, rather than solely focusing on the interests of wealthy nations.
