Project Syndicate - Neglected Solutions to Our Biggest Problems Oct 29, 2025 Dani Rodrik

 Project Syndicate 

Neglected Solutions to Our Biggest Problems

Oct 29, 2025

Dani Rodrik

To rebuild the middle class, reduce global poverty, and address climate change simultaneously, we need to depart from established ways of thinking and consider new approaches. Fortunately, many of these approaches already exist at the local level, where they have proved themselves and need only to be recognized.

CAMBRIDGE – We need new ideas to address the three greatest economic challenges of our time: climate change, the erosion of the middle class, and poverty. The first is an existential threat to our physical environment; the second drives polarization and undermines democracy; and the third is a moral scourge for all of us. Yet with authoritarianism and economic nationalism on the rise, there seems to be little reason for optimism on any of these fronts.

In my new book, Shared Prosperity in a Fractured World, I point out that solutions to these problems already exist in prevailing practices around the world. They often remain below the radar, though, or they are disregarded because they depart from conventional approaches.

To be sure, on their face, our three big challenges are vastly different, and efforts to address them often seem to be in tension with each other. Many view the green transition as incompatible with economic growth, and shoring up the middle class in advanced economies as inimical to the interests of developing countries. But they all entail a common, global task: driving a structural transformation of our economies to boost activities that are green and conducive to better, more productive jobs.

Traditionally, industrial policies played a critical role in the process of economic transformation, first in the advanced economies and then in successful East Asian countries. Today, we need an updated version of the same strategy, taking into account the requirements of the green transition and the reality that manufacturing is no longer a source of job creation (even in developing countries).

We have had significant success already in renewable energy. While economists have long advocated carbon taxes or equivalent cap-and-trade schemes as the most efficient way to reduce emissions, the real, spectacular gains in this domain have come through China’s green industrial policies. Oriented around national goals but implemented largely at the local level by municipal authorities, these policies have reduced the costs of solar, wind, and electric batteries to levels that now make renewable energy cheaper than fossil fuels. The green transition has accelerated rapidly as a result, leading even some of the most pessimistic observers to believe climate disaster may be averted.

China’s approach is emblematic of a new style of industrial policy that differs significantly from the conventional image. It entails significant collaboration among the national government, subnational governments, and business interests. While subsidies played a significant role, they were only one tool among many others, including procurement policies and public venture capital. China’s approach is better characterized as experimental and iterative than as top-down with strict conditionality.

Can a similar approach also help deliver the good jobs and the productive transformation that preserving the middle class and reducing poverty require? Unfortunately, in developed and developing countries alike, industrial policies have continued to focus on manufacturing sectors, even when the goal has been to generate or maintain employment. To be sure, manufacturing remains relevant and important for the green transition, to ensure supply-chain resilience, and for national security. But automation and global competition have made it a labor-shedding sector – even in China, which remains the world’s manufacturing superpower. We have little choice but to rely on services for the kinds of productive jobs that serve as a pathway to the middle class.