Rethinking Development
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Bibliographic details
- Authors: Gordon Hanson, Dani Rodrik, ROHAN SANDHU
- Published: August 27, 2026
Overview
- The future of economic development will be very different from its past.
- National security and geopolitical goals loom larger in government policy agendas; export-oriented industrialization has lost its luster as a trusted vehicle for economic growth and job creation.
- Climate change and the renewables revolution both threaten and create new possibilities for structural change.
- The central challenge: increase productivity in nontraded activity jobs—mostly services—that do not require a standard college education.
Patterns of employment
- Projections (based on current demographic, schooling, trade, and industrialization trends, excluding China) suggest:
- Most workers will not have a college education.
- More than three-quarters will be in occupations not directly exposed to the international economy (through trade or “offshorability”).
- About two-thirds of the developing world’s labor force will be in occupations that do not require a college education and are not tradable (currently very low productivity, predominantly informal jobs such as street vending, domestic and food service work, and subsistence farming).
- Implication: Conventional education investment and export-oriented industrialization cannot generate large numbers of good jobs for most workers in developing economies.
Nontraded services: why they matter
- Nontraded services employ the bulk of workers in developing economies and are dominated by smaller firms.
- Manufacturing remains important (productivity and learning spillovers, investment attraction, national security) but has become substantially more capital intensive and is no longer the employment generator it once was.
- Productivity growth concentrated in industrial enclaves does not produce broad-based development unless it creates jobs for the broader population.
- The policy focus should shift toward an updated form of industrial policy tailored to nontraded services.
Two-legged strategy: supply and demand of labor
- Supply-side (workforce development):
- For most workers, the transition into the labor market will be a direct move from secondary school to the world of work.
- Secondary education in many countries does little to raise individual earning power; classes are often not oriented toward occupational skills or soft skills employers want.
- Many developing economies are making or considering making upper secondary education (ages 15–18) mandatory—this opens a window for career and technical training.
- Evidence exists that sub-baccalaureate career and technical programs can train workers for good jobs in sectors like health care, construction, personal services, and IT support and infrastructure (Hanson 2026).
- Digitization of education and employment data enables design, testing, and implementation of programs tailored to regional labor market needs.
- Demand-side (productivity of local firms):
- Industrial policies should be adapted to the smaller firms that dominate services.
- Encourage large firms to invest in capabilities of suppliers and small enterprises (e.g., platform companies assisting retail and food service firms and gig workers with marketing and technical assistance).
- Governments can nudge large employers and work with exporters, mining operators, and large retailers to expand and productively upgrade local supplier networks.
- Provide micro and small enterprises with direct productivity-enhancing public resources (loans, management training, technology provision) targeted to productivity constraints.
- Evidence suggests carefully targeted management training, marketing assistance, and provision of technology can boost productivity and employment in smaller informal enterprises (Rodrik and Sandhu 2025).
Learning, experimentation, and program design
- Key messages:
- Productive jobs are central to economic development; technology, innovation, exports, and growth are inadequate if they benefit only a narrow workforce segment.
- Success depends largely on improving productivity in nontraded services; without it, development will stall.
- Governments cannot reliably pick winners ex ante; uncertainty should be built into program design.
- Favor collaborative, iterative approaches that are open to revision and focus on removing constraints through public support rather than top-down fiscal subsidies with fixed parameters.
- Emphasize culture of learning and experimentation in policy implementation.
Policy recommendations (summarized)
- Reorient development strategy toward productivity growth in nontraded services where most jobs exist.
- Reform secondary education to incorporate career and technical training aligned with employer needs and soft skills, leveraging mandatory upper secondary education (ages 15–18) where applicable.
- Use digitized education and employment data to design and test programs adapted to regional labor market demands.
- Design industrial policies for small service firms: incent large firms/platforms to upgrade suppliers and gig workers; provide targeted public resources (management training, marketing assistance, technology) to micro and small enterprises.
- Adopt iterative, evidence-driven policy frameworks that allow experimentation and revision instead of rigid, top-down programs.
GORDON HANSON, DANI RODRIK, ROHAN SANDHU — F&D Magazine, September 2026. Published on August 27, 2026.
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