World Bank urges shift from tariffs and subsidies to skills and industry

The World Bank has changed its long held view on industrial policy after more than thirty years, moving away from its earlier criticism of government led economic intervention. In the past the institution argued that the industrial strategies used by East Asian countries were costly failures, but a new report revisits that position and reaches a different conclusion. It now suggests that many of those same approaches played an important role in supporting steady economic growth over time in several countries.

The report draws on evidence from countries such as South Korea, where a strong push into heavy industry during the 1970s is linked to economic growth of about 3% per year over the long term. It also points out that industrial policy is no longer unusual, as many governments across the world are now using it in some form. In fact, 183 countries are actively trying to support specific industries as part of their economic strategies.

Indermit Gill, the World Bank’s Chief Economist, said that the institution’s earlier advice no longer has much practical use in today’s world. He compared it to outdated technology, suggesting that it does not match the realities of modern economies. This marks a clear shift in thinking, as the Bank now recognises that government involvement can play a constructive role when it is applied carefully and in the right areas.

The report recommends that governments focus on more practical tools, such as building industrial parks and investing in skills development, instead of relying on broad tariffs or very large subsidies. It also finds that about 80% of the Bank’s economists say that governments they work with are actively asking for guidance on industrial policy. This shows that there is growing interest in strategies where the state plays a supportive role in shaping economic development.