World Bank Shifts Industrial Policy Stance

The World Bank’s recent adoption of industrial policy marks a significant shift after decades of advising against it. This change dominated discussions ahead of the IMF and World Bank Spring Meetings. While many debated whether this ‘U-turn’ was beneficial or overdue, a more fundamental question remains: what has actually changed?

The framework it has promoted since 1993, highlighted in its East Asian Miracle report, has not served developing countries effectively. World Bank Chief Economist Indermit Gill recently described the old advice as having “the practical value of a floppy disk today.”

However, Gill’s defense of the report also shows how limited this new position is. He argued industrial policy should be “targeted and temporary,” an exception to a market-led model, rather than a tool for broader economic transformation. The bank still views the state as a fixer of market failures, not a market creator and shaper.

The core question, therefore, is not whether governments should intervene after markets fail. It is what kind of economy we want to build. Which public purposes should guide investment, and how can institutions govern the public-private bargain to ensure value is created and shared fairly?

A New Approach to Industrial Policy

The World Bank’s latest work confirms industrial policy is more replicable across different income levels and institutions than the old consensus allowed. The toolkit now extends beyond tariffs and subsidies. Public support for private actors should include both incentives and consequences, such as withdrawing finance from underperforming firms.

This new position aligns with arguments made in works like ‘The Entrepreneurial State’ and research on the role of missions and conditionalities. The bank now sees a need for carrots and sticks in its approach to industrial policy.

From Market Fixer to Market Shaper

The World Bank is not alone in this reconsideration. The IMF’s own economists have documented how austerity and liberalization fail to deliver consistent results. Yet these findings have not yet translated into new operational practices. This needs to change.

The IMF and World Bank sit at the center of an international order whose default advice still reflects an economics not supported by real-world evidence. They influence who has access to liquidity, whose debt is seen as sustainable, and whose policy autonomy is constrained.

Wealthy countries that fund and control these institutions are also subject to the consequences of the same economics. For decades, similar flawed assumptions shaped policy in Europe and the US. They suppressed public investment, weakened public services, and treated wages as costs rather than fuel for demand, leaving households exposed to market failures.

This approach helped create an affordability crisis that has now become a political one. The economics that constrained development policy abroad also helped fuel the far right at home by hollowing out public capacity.

Building Economic Resilience

Europe’s response to the 2022 energy shock illustrates the stakes. From 2022 to 2025, EU member states and the UK incurred $1.8 trillion in additional costs, much absorbed by households and public budgets, while shareholders of firms charging higher prices benefited.

Spain points to an alternative. By investing in energy security as a mission, not a subsidy category, it now generates more than half its electricity from renewables. This has left it more insulated from recent energy shocks than its neighbors. Making such resilience the default requires a consistent economic framework.

The Global Progressive Mobilisation, convened by Spanish Prime Minister Pedro Sánchez, brought together progressive governments to shape a new economic consensus. Its foundations are clear: public institutions capable of investing, coordinating, and governing markets in the public interest; finance designed around missions, not leverage ratios; and measures of value oriented around the common good.

The argument for a new economics is gaining traction. The challenge now is to demonstrate what comes next and build institutions capable of implementing it.