The World 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 World Bank now argues, should come with carrots and sticks, including withdrawal of finance from firms that underperform. This new position aligns with arguments we made in The Entrepreneurial State and through more recent work on the role of missions and conditionalities.
In the run-up to this year’s International Monetary Fund 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 World 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 defence 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.
