Development finance institutions (DFIs) have long resisted the idea that they ought to support coordinated national development strategies in the countries that they invest in, but if conversations around private roundtables at the recent World Bank/IMF meetings are anything to go by, that’s where they may be heading. And if so, it may be the private sector itself that leads them there.

The buzzword of this year’s meetings was “transformative.” The new IFC 3.0 strategy of “making markets” reflects criticism of its traditional transactional model, with each deal seen in isolation. One shareholder at the meetings asked: If we are not being transformative, what’s the point?

Hopes of achieving the Sustainable Development Goals (SDGs) rest on diverting some of the trillions of wealth held in rich countries towards investments in poor countries, but DFIs know that simply increasing their deal volumes will not be enough. DFIs have set themselves the goal of being transformative, because they know that unless they can set investment booms in motion that go way beyond their own projects, the SDGs will not be achieved.

This is true. So is the observation that if I jump out the office window, I will die unless I learn to fly. But let’s not dwell on the realism of the ambition, and look instead at where it may take DFIs.

Some transformative ideas are on the supply side. Most DFIs operate a buy-and-hold business model, and ask the private sector to participate in their investments. But the perception is that most private investors too often find co-investing with DFIs more trouble than it’s worth. One much-discussed proposal is for DFIs to move towards an originate-to-distribute model, and to see their job as creating a diversified pool of assets, packaged in a way that a larger set of private investors find easy to buy. That would increase the supply of money looking for projects, but not the supply of projects looking for money. Development finance is already experiencing something of a supply shock, with many governments allocating more money to DFIs, and complaints about the lack of bankable projects are commonplace. One thing is certain: transforming the supply side will have a greater impact if complemented by something equally dramatic on the demand side. And this is what may take DFIs in some surprising directions.

Civil society has long urged DFIs to follow the principle of country ownership and to collaborate with host governments’ national development strategies. DFIs have always shied away from that suggestion, emphasizing the (ideally) decentralized and entrepreneurial nature of the private sector, and the risks of getting investment tangled up in politics, particularly in countries prone to clientelism. But around private roundtables at the recent World Bank and IMF annual meetings, private investors were heard calling for more “programmatic” investments, by which they meant coordinated investment plans. To give a simple example, a private investor can build a hospital but they want somebody else to build the reliable power supply it needs.

The Blended Finance Breakthrough Taskforce, convened to approach the problem from the perspective of the private sector, also presented some emerging findings at the meetings, including the desirability of projects “ideally linked to sectoral development plans and policy frameworks.” A star of the meetings was the Colombian development bank FDN, which is majority owned by the government but also has the World Bank’s IFC as a shareholder. FDN is governed like a private actor but has benefited from being connected to government for matters such as land acquisition and licensing in the construction of a national highways network. This combination of public and private has attracted investments from bulge bracket Wall Street banks. The idea that national development banks may have a more important role to play was subject of much discussion at the fall meetings.

Programmatic investments also have the potential for a bigger bang for each blended finance buck. That can happen if there are complementarities in production—the hospital is more likely to succeed if the power plant exists, and vice versa. If the success of one project relies on the success of others, private actors may not undertake investments unless they know that all the required complementary inputs will be created. Kaushik Basu, former World Bank chief economist, has written about how generous state guarantees can induce private investors to undertake projects they would not otherwise, and if these are coordinated then the likelihood of the guarantees being called falls.

Such ideas are not new. If this is the future, it is a return to the past of big push theories of development that dominated thinking in the 1950s and 1960s. These ideas fell out of favour because they were observed not to work. The evidence still suggests that surges in public investment tend not to create sustainable growth (although public investment remains one of the most effective ways of crowding-in the private sector. World Bank economists Maya Eden and Aaart Kraay have shown that on average across 39 low-income countries, “an extra dollar of government investment raises private investment by roughly two dollars, and output by 1.5 dollars”).

Optimists will say we have learnt from history and need not repeat it. Scholars such as Dani Rodrik have articulated a vision of Industrial Policy for the Twenty-First Century, with more emphasis on experimentation and less on top-down planning. We have learnt more about how to build markets starting from an unpromising institutional environment (and one might also say that China is showing the way with more programmatic investments around the developing world). None of this sits well with DFI’s traditional, demand-led business model. Of course, much of what DFIs do involves smaller businesses where these ideas are less relevant, and some of the smaller bilateral DFIs may be more effective in other niches. But to my mind, greater cooperation with host governments and national development banks is where the ambition to be transformative is likely to lead DFIs. There are hard questions to answer about the conditions under which attempts at coordinated investment in collaboration with government are likely to succeed, and what the alternatives are in other cases, but in the face of demand from the very private investors DFIs want to attract, they must rediscover the art of activist industrial policy.