The postwar international order was built on a bargain. The United States would underwrite a system of rules, institutions, and shared governance, and in return, it would shape that system in its own image. The Bretton Woods architecture—the International Monetary Fund (IMF), the World Bank, and the trading regime that followed—was never neutral. But it was at least nominally multilateral, with U.S. power exercised through institutions, not against them.

That bargain is now over. The closure of the Strait of Hormuz—the consequence of a war launched by the United States and its ally Israel against the objections of most of the world—has triggered the largest energy supply disruption on record. But the deeper rupture is not the oil price. It is that the dominant power in the global economy now wields its position unconstrained by the very system it created and that system has no mechanism to respond. What is needed is not another emergency package. It is a shared set of governing principles for a global economy whose architect has abandoned the blueprints.

I would propose four governing principles, developed as part of my work advising President Cyril Ramaphosa for South Africa’s G-20 presidency: shaping economies through industrial strategy rather than correcting them at the margins; aligning finance with public purpose rather than treating it as an end in itself; rebuilding the state capacity needed to deliver; and grounding global cooperation in equity rather than charity. These are not abstractions. They are already being put into practice, from Spain’s energy transition to Brazil’s state transformation, and they offer the foundation for a new progressive multilateralism.

---

The consequences of Washington’s war fall hardest on those with the least voice in the institutions meant to address them. Sri Lanka has moved to a four-day working week to conserve fuel. Pakistan closed schools. The Philippines declared a national energy emergency. Developing countries already pay 5 to 8 percentage points more than wealthy economies to borrow on international markets, with 54 of them spending more than 10 percent of public revenue servicing external debt. Pope Francis’s Jubilee Commission, on which I served, reminded us that 3.3 billion people live in countries spending more on interest payments than on health. The global financial system, as the commission concluded, is “not designed to serve the needs of people and the planet.”

The current energy shock will only deepen these fault lines. The dangers are structural, and they operate at two levels. At the national level, economies remain organized around the extraction of value rather than its creation. The 2022 oil shock generated $377 billion in U.S. fossil fuel profits, half flowing to the wealthiest 1 percent and just 1 percent to the bottom half. Firms did not become more productive; they simply owned scarce assets and raised prices.

At the global level, the governance architecture is designed for a world in which the hegemon operated through multilateral constraint. Now it is confronting a hegemon that operates through unilateral force. The country that just attacked Iran also holds the G-20 presidency—and has stripped it to four working groups, dropping climate, debt, development, and health entirely. A growing number of progressive governments recognize that the old order cannot hold. But political solidarity alone is not an economic framework.

There are signs of movement within the old Bretton Woods institutions. The World Bank’s chief economist, Indermit Gill, recently acknowledged that three decades of its advice against industrial policy “has the practical value of a floppy disk today.”

The bank’s latest flagship report on industrial policy marks a clear and welcome departure from earlier skepticism about any state intervention by recognizing that governments play a central role in directing investment and shaping structural transformation. At the same time, the bank has begun to adopt missions as an organizing framework. Through Mission 300, it aims to connect 300 million people in Africa to electricity by 2030. Through Mission Water, it has set out to advance water security for 400 million people by linking investment across water access, food systems, ecosystems, and resilience. Taken together, these shifts suggest an institution trying to move toward a more directional approach organized around concrete societal goals. That is important progress, and it should be recognized.

But the shift is still incomplete. The key issue is not whether the bank has adopted more ambitious goals—it has. The question is whether its operational architecture is changing in ways that can actually deliver on that ambition. While the bank is articulating mission-oriented objectives, the instruments through which they are pursued still too often reflect an older model centered on sectoral programming, private capital mobilization, and market-enabling governance.

Even the bank’s new industrial policy report, for all its significance, remains grounded in a framework that treats markets as allocation mechanisms to be corrected rather than outcomes to be shaped. The difference matters: Fixing a market failure means patching a flaw in an otherwise efficient system; shaping a market means actively directing investment, innovation, and institutional design toward goals that markets would otherwise not pursue.

What the world needs is a fundamentally different model predicated on a new economic framework. For decades, the dominant approach to development constrained the policy space available to countries. Now there is an opportunity to build a framework that expands this space.

---

What would that framework look like?

First, governments must actively shape economies, not passively correct them. Growth has both a rate and a direction. Mission-oriented industrial strategy—organizing public investment around challenges such as the energy transition, food security, or health for all—sets that direction, catalyzing cross-sectoral innovation. Jobs and growth follow as outcomes of this investment, not as targets to be optimized in isolation. An economy organized around missions creates employment because solving complex challenges requires people, skills, and productive capacity across multiple sectors. This is not about picking winners. It is about picking the willing—and making public support conditional on contributing to shared goals.

Spain shows what this looks like in practice—and its preparedness for the current crisis is the proof. During the 2022 energy shock, rather than subsidizing incumbent energy companies, Prime Minister Pedro Sánchez’s government designed and implemented a price cap on gas used in power generation. This was a direct act of market-shaping by the state that produced wholesale electricity prices roughly 40 percent below the European average. The government then used its National Energy and Climate Plan to set binding renewables targets. It streamlined permitting and deployed public auction mechanisms to accelerate deployment. The result: 56 percent of electricity from renewable sources in 2024, wholesale prices 32 percent below the European Union average, and an economy that is structurally less exposed to the Hormuz shock than its European peers.

The government’s actions, combined with a pro-migration strategy and a 66 percent increase in the minimum wage, made Spain Europe’s fastest-growing major economy. While others scramble from the Hormuz fallout, Spain is better insulated—because its government shaped the market rather than leaving it alone.

Second, finance must be aligned with public purpose. Debt sustainability frameworks that fail to distinguish between consumption and productive investment push governments toward spending cuts and away from much-needed investment. Oxfam International found in 2023 that the structure of IMF programs has meant that for every dollar channeled toward public goods, four were directed toward cuts. More broadly, the conditionality attached to multilateral lending has historically reduced the fiscal space available to borrowing countries, constraining their ability to invest in the productive capacity and public institutions that long-term development requires. In the global north, a similar dynamic plays out through domestic fiscal rules that often treat public investment as indistinguishable from current spending. This penalizes the very expenditure that builds productive capacity and long-term resilience.

This same underlying approach to the role of the public has meant that public development banks remain underutilized. They are treated as lenders of last resort rather than investors of first resort. Multilateral development banks, which collectively hold more than $2.2 trillion in assets, must work with—not around—national development banks, which hold in excess of $23 trillion, to anchor mission-oriented investment at the country level. The dominant model of using public finance to de-risk private investment has not delivered: 74 percent of mobilized private capital has gone to middle-income countries—and just 6 percent to the least developed. The issue is not how to mobilize more finance but how to govern it. The questions to ask are finance for what and on whose terms?

Third, states must be rebuilt as capable, entrepreneurial institutions. In Brazil, the government’s mission-oriented industrial strategy is accompanied by a parallel agenda of state transformation. This involves reforming procurement to shape markets, aligning state-owned enterprises with national priorities, and investing in digital public infrastructure designed around common good principles.

The best strategy in the world cannot be delivered by a state that lacks the capacity to implement it. The erosion of state capacity has two origins: Externally, structural adjustment programs and lending conditionality pressed governments to shrink their role in the economy. Internally, the rise of in theory from the 1980s onward led governments to outsource core functions to consultancies and contractors, hollowing out the expertise and institutional memory that effective governance requires. Rebuilding means investing in the civil service, retaining strategic capabilities in-house, and creating the conditions for public institutions to take risks, learn, and adapt.

Fourth, global cooperation must be grounded in equity. The current multilateral system was designed in 1944 when one country held most of the cards. Emerging economies now account for 60 percent of global GDP but hold just 40 percent of IMF voting power.

But the equity deficit is not only about governance. It is embedded in the policies themselves. Eighty-seven percent of industrial policies aimed at decarbonization have been introduced by high-income economies. The EU’s Carbon Border Adjustment Mechanism, while a valuable climate tool, risks penalizing the exports and growth prospects of the very countries that have contributed least to the emissions it targets. The U.S. Inflation Reduction Act has driven significant clean energy investment domestically, but without mechanisms to share its benefits across borders, it risks drawing capital and productive capacity away from the economies that need green industrialization most. Climate action designed without regard for its global impact is not climate leadership. It is a new form of protectionism.

---

Demands and efforts for a reformed international architecture are gaining traction. The Bridgetown Initiative, led by Barbados, has put reform of the global financial system on the international agenda. The Jubilee Commission has proposed concrete mechanisms for faster and fairer sovereign debt restructuring. South Africa’s G-20 presidency advanced a comprehensive agenda on solidarity, equality, and sustainability. And the U.K.-Brazil Strategic Partnership signed in March signals a new generation of bilateral cooperation grounded in shared climate and development commitments. Together, these efforts point toward a financial and trade architecture that enables countries to invest in their own transformation, rather than punishing them for trying.

Economist Milton Friedman observed that when a crisis occurs, “the actions that are taken depend on the ideas that are lying around.” Advocates of free market orthodoxy understood this—they spent decades building the intellectual infrastructure so that when the 1970s stagflation struck, their prescriptions were ready to be implemented. Today, the ideas for an alternative are being put into practice: in Spain’s energy transition, in Brazil’s state transformation, in the principles South Africa advanced at the G-20. But these are just seeds. Without finance, state capacity, and global equity they, will struggle to sprout.

This week in Barcelona, Sánchez will convene the Global Progressive Mobilisation—a gathering of leaders and thinkers seeking to build a better world out of the wreckage that U.S. President Donald Trump is creating. The ambition is admirable, but it needs the right economic framework to flourish. This framework must be designed, constructed, and governed—principle by principle, institution by institution. The global economy cannot run on floppy disk economics any longer. Capitalism needs a new operating system, and building it begins now.