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Economic Growth · Government Intervention · Industrial Policy · World Bank
The World Bank has dramatically reversed its three-decade-old stance, now embracing industrial policy as a legitimate tool for economic growth, a significant departure from its 1993 conclusion that government interventions were a "costly failure." Chief Economist Indermit Gill noted that previous market-centric advice "has not aged well." A new report highlights South Korea's 1970s "big push" into heavy industry, which contributed to 3% annual economic growth, refuting the earlier assessment.
This shift acknowledges that many economies, including China during its rapid expansion and now the U.S. and other rich nations, have successfully employed industrial policies. The bank cited Romania's tax breaks for computer engineers as a modern success, transforming the country into a software development hub.
Despite its historical animosity, 80% of client governments sought advice on industrial policy last year. The World Bank now offers guidance on 15 policy tools, cautioning against "blunt instruments" like sweeping tariffs and subsidies in favor of targeted approaches such as industrial parks and skills development.
While advanced economies are deemed better equipped due to administrative capacity and larger markets, developing economies, particularly those with per capita incomes between $5,000 and $14,000, are the most active, with business subsidies averaging 4.2% of GDP. Globally, 183 countries target at least one industry, with poorer nations targeting an average of 13.
Critics like the European Bank for Reconstruction and Development, however, warn that industrial policies can foster corruption and distort markets. This policy pivot signals a fundamental re-evaluation of global economic development strategies.
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