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.
But new conclusions do not automatically produce new economics. The World 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 optimise, rather than as a set of institutional capacities that can be developed. As a result, the bank would still organise 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. They call for economy-wide missions.
This matters now that the World Bank itself is adopting “mission” language. Mission 300, focused on African electricity access, and Water Forward, launched at the Spring Meetings to address water security and tackle major systemic, cross-sectoral challenges. But our assessment of 30 African national energy compacts finds a gap: the ambition is systemic, but the architecture remains sectoral.
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Nor is the World Bank an isolated case. The IMF’s own economists have similarly documented how austerity and liberalisation fail to deliver. Yet these findings have not consistently translated into new operational practices.
That needs to change. The IMF and the World Bank sit at the centre of an international order whose default advice still reflects an economic model unsupported by real-world evidence. What they model, measure and recommend shape how development and macroeconomic policy are carried out 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.
The wealthy countries that fund and control these institutions are not exempt from the consequences of the same economics. For decades, the same flawed assumptions shaped policy in Europe and the US, suppressing public investment, weakening public services, treating wages as costs rather than as fuel for aggregate demand, and leaving households exposed to shocks that markets failed to manage.
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The resulting affordability crisis has now become a political one. The economic constraints on development policy abroad — hollowing out public capacity and narrowing what governments can do — helped fuel the far right at home.
Europe’s response to the 2022 energy shock shows what is at stake. From 2022 to 2025, EU member states and the UK incurred US$1.8 trillion ($2.3 trillion) in additional costs, much of which was absorbed by households and public budgets, while shareholders of firms charging higher prices benefited. Spain points to an alternative. Having invested in energy security as a mission rather than a subsidy category, it now generates more than half of its electricity from renewables, leaving it better insulated than its neighbours from the latest energy shock.
Making such resilience the default rather than the exception requires an economic framework that governments can consistently apply. 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. We need public institutions with the capacity to invest, coordinate and govern markets in the public interest. We need 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. And we need measures of value oriented around the common good.
A Global Council on New Economics for the 21st Century, co-chaired by one of us (Mazzucato) and by Carlos Cuerpo, first vice-president of the government of Spain, will bring these elements together. Our goal is to translate the new economics into operational principles organised around justice, equality, sustainability, and global solidarity. The argument for a new economics is being won. Now we must show what comes next. — © Project Syndicate
Mariana Mazzucato, a professor at University College London, is the founding director of the UCL Institute for Innovation and Public Purpose. Lara Merling is a research fellow on industrial strategy at the UCL Institute for Innovation and Public Purpose.
