We are at the dawn of a new age: the climate transition is upon us, the era of hyper-globalization is receding, middle classes worldwide are under strain, and poverty reduction in developing countries faces new headwinds. Even without the destabilizing shifts brought about by US President Donald Trump’s international trade and foreign aid policies, the world would be desperate for new solutions.

To devise them, governments need to reconsider the fundamental question of who our economies and markets are meant to serve, and they must re-examine the policies and institutions that have brought us to our current economic and political reckoning. While global cooperation and national resource mobilization will be necessary to address the challenges we now face, it is local action that offers the most promising path forward.

In the United States and other advanced economies, the political backlash against globalization and multilateral institutions is rooted in the adverse effects that globalization and technological change have had on former industrial regions and middle-skill workers. Support for protectionism, hostility to immigration, and openness to ideological extremism have emerged in an environment of economic distress and increasingly unequal access to opportunity. National governments’ inadequate policy responses underscore the need to address economic constraints locally through a portfolio of measures, including workforce development, support for small businesses, community reinvestment and promotion of research and development.

Stagnating opportunity for middle- and lower-wage workers is far from a rich-country problem. In fact, the types of challenges that developed and developing economies face are converging, which implies that reconsidering our approach to regional economic development requires us to broaden how we think about industrial policy. Conventional industrial policies need to be adapted to current technological and geopolitical realities, including premature de-industrialization, the challenge of productivity growth in service sectors, the uncertain impact of emerging technologies and AI, and more volatile global economic and geopolitical conditions.

This adaptation will require expanding what we regard as industrial strategies to encompass a broader range of public inputs and private interventions. To address challenges such as the green energy transition, we will need to find new ways to develop and commercialize emerging technologies, upgrade worker skills and help those who may lose jobs in traditional energy sectors.

Similarly, we cannot expect job creation in services, where most employment growth will occur, to follow naturally from standard manufacturing-first approaches. It will require interventions on both the demand and supply sides of the labour market, through supporting incumbent firms, enhancing supplier networks, targeting small enterprises with high growth potential, leveraging technology that raises workers’ earnings and updating workforce training.

Equally important, the new economic strategies will have to be context-specific. Much of the responsibility for their enactment will fall on local actors, including subnational governments, social enterprises and NGOs. Examples of such interventions ( and organizations ) abound globally, including the Harambee Youth Employment Accelerator in South Africa, Kuza ( a micro-learning platform targeted at rural areas ) in Kenya and Generation India, a foundation that aims to improve the country’s human capital.

While the locus of action will be decentralized, national governments and regulatory authorities still have crucial roles to play. They will need to articulate a vision for structural transformation and provide needed fiscal resources. They will also need to create an enabling environment for “good jobs” – such as banking, access to training and a baseline level of social insurance.

Moreover, governments will need to shepherd the direction and deployment of AI, lest a handful of large tech firms control emerging technology. And they will need to strengthen coordination and goal setting in a manner that accommodates the multitude of public and private players involved at various levels of governance.

National capacity for industrial policy does face fiscal constraints, particularly in developing economies ( where government spending is dwarfed by that of China and the United States ). Philanthropic and firm-led approaches will therefore have to be iterative and dynamic, and their funding will need to be more flexible to enable experimentation. Successful transformation policies need not require large subsidies. Better coordination across public agencies and deployment of public resources – including training, regulation and standard setting, and infrastructure – can also drive private investment and innovation.

The coming era will require that we revise our beliefs about how and where economic development happens. We will need to update our frameworks to measure the impact of new strategies. Similarities in national challenges and the policy tools they require suggest that there is no clear distinction between the needs of developed and developing economies. Helping lagging regions catch up in high-income economies and fostering economic development in low- and middle-income economies are increasingly similar.

Whether it is generating good jobs, navigating the climate transition, stimulating innovation or building economic resilience, structural transformation is now the name of the game. While the ends may differ, the means are the same: effective state action, led by local governments in collaboration with business, labour and other stakeholders, to channel resources into new areas with greater social, productive and environmental benefits.

Gordon Hanson is a professor in urban policy, academic dean for strategy and engagement, and co-director of the Reimagining the Economy initiative at Harvard Kennedy School; Dani Rodrik is a professor of international political economy at Harvard Kennedy School and is the past president of the International Economic Association; and Rohan Sandhu is co-founder and co-director of the Reimagining the Economy Initiative at the Harvard Kennedy School.

Copyright: Project Syndicate