The West’s industrial policy double standard

The World Bank’s new 2026 report, “Industrial Policy for Development”, does not announce a doctrinal shift — but reading between the lines, it quietly concedes one.

At first glance, it reads like a cautious update to refine, rather than overturn, decades of policy advice. Look more closely, however, and something more consequential is taking place. The World Bank is quietly retreating from one of its most enduring positions: industrial policy is, at best, unnecessary and, at worst, harmful.

Industrial policy is now described as widespread, even inevitable. Governments, the report conceded, may need to guide structural transformation, support new industries, and coordinate investment. This is a remarkable shift for an institution that, for much of the past decades, advised developing countries to do the opposite.

The more consequential question is not why this shift has occurred. Rather, it is why it has taken so long. The answer lies, perhaps unavoidably, in China.

China’s economic rise since its reform and opening up in 1978 is arguably the most important economic event of the last half century. It is also the most inconvenient for the World Bank’s earlier orthodoxy, as China has pursued an unapologetically interventionist strategy since 1978.

Some of its major policy moves include shielding industries, subsidising firms, directing credit and coordinating long-term industrial upgrading. By the standards once promoted by the World Bank, this approach should have induced stagnation. Instead, it produced structural transformation, one that has progressed at a pace and scale virtually unmatched in modern history.

China moved from low-value manufacturing to increasingly sophisticated industries, ranging from electric vehicles (EVs) to artificial intelligence. In effect, its economy has reshaped global supply chains and redefined what late development can achieve. It has done so while tolerating inefficiencies — i.e. overcapacity, state ownership and persistent intervention, among other things — that would once have been cited as proof of policy failure. 

Such contradictions present a problem that the World Bank’s 2026 report cannot fully reconcile. On the surface, the report acknowledges that industrial policy can work. It emphasises the importance of structural change, learning and productivity growth — outcomes that markets alone do not reliably and consistently deliver. It accepts that governments have a role in shaping economic outcomes.

Yet this acceptance is heavily qualified. Industrial policy, the report claimed, works only under certain conditions: strong institutions, fiscal discipline, export orientation and careful design. Most countries, it suggested, will achieve only modest results. Failures are common, and risks remain high.

China, in this framework, becomes something of an anomaly. It serves as evidence that industrial policy can work, but also a reminder that such success is difficult to replicate. Notably, the report tends to subsume China into a broader East Asian narrative, implicitly grouping it with Japan and South Korea. By placing China alongside earlier East Asian “developmental states”, the World Bank normalises its experience, while simultaneously downplaying the scale, speed and distinctiveness of China’s transformation.

This is analytically convenient, but ultimately unsatisfying for many China watchers. More importantly, what China demonstrates is not simply that industrial policy works under ideal conditions, but also that it can operate under far messier circumstances. China’s policies have not always been well designed. More often than not, they evolve through experimentation, trial and error, and political negotiation. Mistakes are also fairly frequent. But the overall trajectory has been one of sustained industrial upgrading. These nuances suggest a somewhat different lesson from the one emphasised in the report.

Development, in this view, is not about getting policy exactly right at all times. It is about persistence —intervening when necessary, learning from mistakes, and adjusting over time. It is also about accepting short-term inefficiencies in pursuit of long-term progress. This is a far more uncomfortable message for a technocratic institution like the World Bank.

The discomfort is compounded by geopolitics. The World Bank’s reassessment of industrial policy is taking place in a world where industrial policy has returned with force, not only in developing countries, but also in the most advanced economies.

Nations in the Global North now actively promote industrial policy to compete, especially against China. Some of the most cited examples include rare earths, EVs and semiconductors. The tools deployed are often at scales that rival, and in some domains exceed, what developing economies have historically been able to mobilise. For example, the US government alone committed over US$52 billion to targeted industrial intervention through the CHIPS Act. The implicit message here is difficult to ignore: industrial policy is acceptable when the rich use it, but problematic when the poor do.

The World Bank’s 2026 report attempts to navigate this contradiction by adopting a middle position. Industrial policy is permitted, but only if done carefully. Governments should intervene, but not excessively. They should support industries, but avoid distortions. This is reasonable advice. However, it is beside the point.

The history of development in post-World War Two Japan, South Korea and contemporary China does not suggest a model of cautious, perfectly calibrated intervention. Rather, it suggests a process of bold experimentation, strategic protection and sustained commitment. It also suggests that progress often involves doing things that, in the short term, appear inefficient or even misguided.

The deeper issue, then, is not whether the World Bank has changed its mind. It is whether it has changed its mind enough. By acknowledging the role of industrial policy, the World Bank has taken an important step. But by framing it as a conditional and technically demanding tool, it risks preserving the spirit of the old orthodoxy in a new form. The message may no longer be “do not intervene”, but it remains, in effect, “intervene only under very restrictive conditions”. For many developing countries, this is a familiar constraint.

China’s rise has already altered the global development landscape. It has demonstrated that alternative pathways are possible, and that state-led industrialisation can indeed deliver results. It has also reshaped the geopolitical environment, making industrial policy a central arena of strategic competition. The World Bank’s 2026 report is, in this sense, an adaptation to a new reality, one that China has done much to create. Nevertheless, adaptation is not the same as reckoning.

For policymakers in the developing world, the lesson is clear. Industrial policy is no longer taboo. It is once again part of the development toolkit. However, it will be pursued in a world where the rules are contested, the stakes are geopolitical, and the margins for error remain narrow. The danger is not that countries will misuse industrial policy. The greater danger is that they will hesitate, constrained by a legacy of advice that has only partially been revised.

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