The world stands at a pivotal economic juncture. The era of hyper-globalization is fading, the urgent climate transition is accelerating, and middle classes globally are under severe pressure. According to economists Gordon Hanson, Dani Rodrik, and Rohan Sandhu, writing on January 11, 2026, old economic models are failing. The most promising path forward now lies in local action and state-led initiatives, backed by adaptable industrial policies that reimagine how resources are allocated.
The Convergence of Global Challenges
Political backlash in the US and other advanced nations against globalization and multilateral bodies stems from tangible economic pain. Former industrial hubs and middle-skill workers have borne the brunt of globalization and technological shifts. This distress fuels protectionism, anti-immigration sentiment, and opens doors to ideological extremism. The issue, however, is not confined to wealthy nations. Stagnating opportunities for middle- and lower-wage workers is a universal crisis, with the challenges of developed and developing economies increasingly converging.
National governments have often responded inadequately, underscoring the critical need to tackle economic constraints at the local level. This requires a portfolio of targeted measures: workforce development, support for small businesses, community reinvestment, and the promotion of research and development.
Redefining Industrial Policy for a New Age
Conventional industrial policy is ill-suited for today's realities. Premature de-industrialization, sluggish productivity growth in services, the uncertain impact of AI, and volatile geopolitical conditions demand a fresh approach. Industrial strategies must expand to include a wider array of public inputs and private interventions.
For instance, managing the green energy transition necessitates novel methods to develop and commercialize emerging technologies, upgrade worker skills, and support those displaced from traditional energy sectors. Similarly, job creation—predominantly expected in services—won't automatically flow from old manufacturing-centric models. It requires dual interventions on labour market demand and supply: supporting incumbent firms, enhancing supplier networks, targeting high-potential small enterprises, leveraging worker-earnings technology, and modernizing training programs.
The Decentralized Locus of Action
The new economic strategies must be context-specific. Much of the responsibility for execution will fall on local actors—subnational governments, social enterprises, and NGOs. Successful examples are emerging worldwide: Harambee Youth Employment Accelerator in South Africa, Kenya's micro-learning platform Kuza for rural areas, and Generation India, a foundation focused on boosting the country's human capital.
While action is decentralized, national governments retain vital roles. They must articulate a vision for structural transformation, provide fiscal resources, and create an enabling environment for 'good jobs' through banking access, training, and social insurance. Crucially, they must guide the direction and deployment of AI to prevent control by a few tech giants and strengthen coordination among myriad public and private players.
Fiscal constraints, especially in developing economies, are real. Therefore, philanthropic and firm-led approaches must be iterative, dynamic, and flexibly funded to allow experimentation. Successful transformation doesn't always demand large subsidies; better coordination across public agencies and smart deployment of public resources in training, regulation, and infrastructure can also spur private investment and innovation.
The coming era compels a revision of long-held beliefs about where and how economic development occurs. Whether the goal is generating good jobs, navigating the climate transition, stimulating innovation, or building resilience, structural transformation is now the central objective. The means to achieve it are clear: effective state action, led locally in collaboration with business and labour, to channel resources into areas yielding greater social, productive, and environmental benefits.
