Economic policy is no longer enough

In 2023, the citizens of Argentina elected Javier Milei as the country’s President, who ran on the most ambitious austerity and deregulation agenda the country had ever seen. In 2024, South African voters judged the ruling party by its ability to deliver electricity, jobs, and basic services, exposing how weakened state capacity had become a question of national sovereignty. In 2025, Zohran Mamdani became the first Democratic Socialist Mayor of New York City, with a programme focusing on affordability. Three wildly different outcomes, with vastly different ideologies, all evidence of the same profound cry: our current economic policy toolboxes cannot sustain a life of dignity. 

Governments — and especially newly elected ones — cannot ignore this. Sadly, as they enter office, they soon discover insurmountable constraints. Budgets are tight, fiscal rules collide, bureaucracies are slow, plans are incoherent, a scandal erupts, bankers want to get richer, a new trade policy changes everything, an energy shock, a supply failure, war. Economic policy turns into a hose. Wellbeing becomes ungovernable, unprofitable, even unfathomable.

Domestically, governments have inherited an uninspiring set of economic policies. The toolbox combines a mix of the usual suspects: cut spending here, deregulate there, borrow more, boost demand, build stuff, make stuff. Complex policy mixes, informed by sophisticated models, are intended to preserve a happy electorate. But severe time lags — and outright analytical failure — undermine the material impact of these policies. Even more unexpectedly, as we’ve seen in recent history, citizens’ anxieties go unaddressed, even when the economy is doing well. What happens if voter expectations and economic performance start to become only occasionally adjacent lines and more frequently parallel, or even divergent? 

Internationally, things are even more concerning. Western national governments are coming out of decades of practising economic policy according to a global order whose equilibrium largely favoured them. They could exert some control over domestic growth by free-riding on an international system that sustains it. As Demos Helsinki noted in a research paper in 2023, a transition from free trade to strategic economic competition that demands active coordination of public and private investments, the growing importance of infrastructure as a source of sovereignty and dependence, and intensifying geopolitical tensions are all constraining states’ ability to govern the economy in ways that they could before. Worse, they need to exercise leadership in a way that is foreign to them.

To close the triple whammy, states have hollowed out their own capacity to lead with conviction, even against this dire backdrop. Over recent decades, policymaking has adapted to shrinking administrative and political capacity through delegation to independent agencies, binding fiscal and monetary rules, and extensive outsourcing of delivery to private and quasi-public actors. Central banks gained autonomy, fiscal policy was constrained by numerical targets, and core public functions, from infrastructure to welfare administration, were contracted out. An eloquent case was made at the right time: that smaller government can catapult societies into an era of ever-expanding wellbeing. And, thus, economics filled the gap of governance: cost-benefit analysis, market testing, and credibility doctrines substituted for political judgment, offering predictability while the capacity to govern shrank.

With a war now evolving in the Middle East, another oil crisis will certainly hit households, but the anxiety of living on a planet where wars surge will not be pacified by any economic tool. Our current predicament could provide a platform for a public policy renaissance, yet it seems to invite far too many calls to return to what we know: catch up in the AI race to boost growth, cut welfare spending, and spend on defence instead. This, we tell ourselves, will make us “competitive”. 

Competitive for what? The assumption that the state is a neutral player no longer holds. Continuing to operate with this assumption risks driving citizens even further away from the virtues of public life, leaving the ground fertile for oligarchy. Without a legitimate, citizen-backed vision for progress, we will always be stuck putting out the next fire.

The combination of the above forces is why the world urgently needs the political class and state bureaucracy to rise above themselves. Governments must now focus on building legitimacy through long-term coordination that credibly benefits citizens. All of these forces call for one thing of governments: a capable “orchestrating state” must emerge. 

This means that economic growth cannot be the only way to build trust; economic policy cannot be a replacement for good governance. In this part of human history, it is understanding what is at stake — profoundly human wishes for a dignified and meaningful life — that will have to shape all policy, including economic policy. Only so will governments break through their self-imposed constraints and use their citizen-granted power to drive human and technological progress. And, why not, actually have a good day at work, for once.

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