Through strategic investments and innovations, industrial policy will play a key role in the upcoming global power games
Industrial policy refers to the set of measures that a government undertakes to encourage the development of specific sectors of the economy, especially industry. Throughout history, approaches to industrial policy have changed in accordance with economic circumstances, ideological directions, and technological achievements. From mercantilism to modern digital strategies, industrial policy remains one of the key tools of economic policy for every country.
The origins of industrial policy date back to the time of mercantilism (16th–18th century), when European monarchies, primarily England and France, promoted exports and protected domestic production through tariffs and import bans. The goal was to strengthen national power through the accumulation of gold and the development of domestic industry, often with state support for manufactories. French finance minister under Louis XIV, Jean-Baptiste Colbert (1619–1683), was known for his organized approach to promoting domestic production.
In the 19th century, with the development of the Industrial Revolution in Great Britain, the dominant economic doctrine became classical liberalism. The state largely withdrew from the economy, promoting free trade and market competition. However, some countries, like Germany and the United States, implemented active industrial policies, including protective tariffs, investments in railroads, and support for heavy industry to catch up with technologically advanced competitors, primarily England.
After World War I, due to global economic crises and political changes, many countries began to adopt interventionist policies. The Great Depression of 1929 marked the end of absolute trust in the free market. In the United States, Franklin D. Roosevelt’s New Deal included investments in infrastructure and industrial support, while in Europe, many countries increased state ownership and control over key industrial sectors.
The post-war period from 1945 to 1970 was the golden age of industrial policy. It became a systematic part of economic development, especially in Western Europe and Japan. Governments actively participated in the reconstruction of industry, economic development planning, and the modernization of economies. In France, an indicative planning system was used, while in Japan, the Ministry of International Trade and Industry (MITI) played a key role in guiding industrial growth. This era is often called the “golden age” of industrial policy because it brought stable growth, technological progress, and increased employment.
With the rise of Margaret Thatcher in the UK and Ronald Reagan in the US, the neoliberal era began. From 1980 to 2008, the prevailing belief became that the market allocates resources most efficiently, while government intervention often leads to inefficiency. Privatization, deregulation, and reduced public spending became dominant approaches. Industrial policy was often reduced to measures such as support for education and research and development, instead of directing specific sectors.
However, the global financial crisis of 2008, China’s rise as an industrial power, and challenges such as climate change and digital transformation led to a significant return of industrial policy to the global stage.
One key reason for the return of industrial policy is the COVID-19 pandemic. It exposed the vulnerability of global supply chains and dependence on imports of strategically important products—from medical equipment to electronic components. Many countries faced shortages of basic goods because they relied on production abroad. This sparked the idea of “reindustrialization” and bringing production back within national borders, particularly in areas vital for public health and security.
Another reason lies in the need to accelerate the green transition and the fight against climate change. Decarbonizing the economy requires huge investments in renewable energy sources, electric vehicles, energy-efficient technologies, and new infrastructure. Such changes cannot be achieved solely through market mechanisms; they require state support through subsidies, public investments, and regulatory frameworks. Industrial policy becomes a key tool for shaping a sustainable future.
A third reason is the digital revolution, which demands a strong government presence in the development and protection of new technologies such as artificial intelligence, quantum computing, 5G networks, and advanced robotics. In an increasingly complex world of technological competition, many countries aim to ensure their own technological autonomy and reduce dependence on global IT giants. Industrial policy becomes a tool for developing domestic innovation capacities and protecting national interests.
Additionally, there are social and regional aspects to the return of industrial policy. Deindustrialization over the past decades has hit numerous working-class areas, leaving them without jobs and prospects. Today, industrial policy has the task of stimulating the creation of new jobs, reducing regional disparities, and increasing social cohesion. Government investments in certain sectors and regions can contribute to more balanced development and greater economic stability.
Furthermore, the return of industrial policy is also a result of disillusionment with the neoliberal model, which often neglected the social consequences of market deregulation and encouraged the growth of inequality. In the modern world, where crises are more frequent and markets more uncertain, governments are once again playing an active role in managing the economy and protecting strategic interests.
Finally, perhaps the most crucial factor in the return of industrial policy is China’s rise as a global industrial and technological power. The Chinese development model is based on a strong and active role of the state in planning, subsidizing, and protecting domestic industry. This model has led to a technological and export boom but has also raised concerns in the United States and the European Union (EU). In response, many developed countries are beginning to develop their own industrial strategies to maintain competitiveness and reduce dependence on Chinese supply chains.
It is crystal clear for Europe that without a strategic industrial policy, it cannot ensure technological independence, economic development, and security. In this context, the most significant European industrial policies today are the European Chips Act and a mechanism known as Important Projects of Common European Interest (IPCEI), which together form the key pillars of Europe’s strategy for technological sovereignty.
The European Chips Act, adopted in 2023, is the EU’s response to the global microchip shortage and growing dependence on Asia, particularly Taiwan and China. The law foresees investments of more than €43 billion in the development and production of advanced semiconductors within Europe. The goal is to double Europe’s share of the global microchip market by 2030, from the current 10% to over 20%. This law covers not only support for industry but also investments in research, education, and the creation of a whole ecosystem around chips—including startups, laboratories, universities, and large companies. The law is of strategic importance because chips are the foundation of almost all digital devices—from phones and computers to cars and military systems.
IPCEI is a special mechanism that allows EU countries to invest in large technological projects even if they would, in principle, distort market competition. Through IPCEI, the EU and national governments are investing in sectors like artificial intelligence, quantum technologies, next-generation batteries, cloud infrastructure, advanced materials, and biotechnology. The goal is to develop technological capacity within Europe and reduce dependence on external players such as China and the United States. These projects involve collaboration between companies, universities, and research centers and have a long-term goal of strengthening European innovation and industrial leadership.
Equally important, the European Commission has also adopted a broader strategic framework known as the “Digital Decade,” which sets goals for 2030. Among these goals are: 75% of European companies should use cloud computing and AI; all strategic supply chains should rely on domestic technological capacities; and the development of European digital infrastructure—data centers, supercomputers, 5G, and quantum networks.
As for the United States, its goal is to maintain its position as the global leader in technological innovations, a position seriously challenged in recent years by China. Therefore, the most significant industrial policies in the U.S. in recent years revolve around three key laws that shape the development of advanced technologies: the Inflation Reduction Act (IRA), the CHIPS and Science Act, and the National Artificial Intelligence Initiative Act (NAIIA).
These laws aim to stimulate the development of key sectors, reduce dependence on foreign suppliers, and ensure technological sovereignty for the U.S. For example, the CHIPS and Science Act, passed in 2022, is America’s response to the global microchip shortage and the threat of becoming dependent on foreign sources.
The law includes an investment of $52 billion in the development and production of semiconductors in the U.S., including subsidies for semiconductor factories and research centers. Chip production has become critical for the digital economy, including autonomous vehicles, mobile phones, computers, and military systems.
This law also includes provisions for investment in new technologies such as quantum computing, artificial intelligence, and biotechnology, which will shape the future of technology. The CHIPS and Science Act is important because it enables America’s technological autonomy and reduces dependence on foreign suppliers, especially from China.
Overall, modern industrial policy is focused on sustainable development, digital transformation, geopolitical autonomy, and technological innovation. To address the challenges of climate change, global competition, geopolitical shifts, and technological transformation, the primary goal of modern industrial policy is to lay the foundation for green growth, advance technologies, and strengthen domestic production.
Through strategic investments and innovations, industrial policy will play a key role in the upcoming global power games, as well as in shaping a sustainable and competitive world economy.
About the Author
