By Peter Reid
Industrial policy debates have tended to get struck between two misconceptions: governments should either “pick winners” by targeting companies or industries with subsidies or they should step aside to let markets allocate resources most efficiently. These arguments focus on who to support. But industrial policy involves a more fundamental consideration of what systems are needed for industrial policy to succeed.
Given modern supply-chain specialization, productive output is rarely controlled by a single company or sector. Instead, production depends on multiple contributing factors and supply chain sectors working together. Industrial policy is, therefore, a challenge of coordination rather than solely the success of a company.
A useful way to analyze industrial policy is using a multi-pillar framework. Industrial development depends on alignment of multiple components:
- Infrastructure (ports, energy, industrial zones)
- Skills (workforce capabilities)
- Research, development, and innovation (technology and upgrading)
- Production support (subsidies, finance, investment incentives)
- Demand support (export access, government procurement, standard setting and domestic market creation)
Industrial policy analysis often looks at single pillars, often governments’ allocation of large subsidies, but instead should look at the entire system of industrial support.
Case studies
The experiences of Morocco, India, and Vietnam demonstrate different approaches to systems-building for industrial policy.
Morocco created a strategy to develop its automobile, batteries, wind turbines, and solar PVs built on government-led public infrastructure and market-creation. In 2007, Morocco began investing heavily in port infrastructure at Tanger Med Port, which has become the Mediterranean’s busiest port, complemented by a freight railway and the creation of 119 industrial zones and 7 Special Economic Zones. Morocco leveraged its proximity to the EU by negotiating a trade agreement and aligning standards with the EU and currently has trade agreements with a total of 62 countries. It coordinated with the private sector to design workforce development programs, and offered production support through subsidies and incentives for large investments into manufacturing in targeted areas. It has further sought to build domestic supplier capabilities and local content use and has negotiated local integration of around 60% in the automotive sector, although there are challenges to achieving this consistently. The result has been a densely clustered domestic manufacturing system anchored by multinational businesses using Morocco as a base to export their manufactures.
India’s approach was built on large-scale production support through the Production-Linked Incentive Schemes. These provide subsidies tied to incremental increases in production. In sectors such as electronics and solar, this has attracted significant investment and output expansion, with electronics output growing from $20 billion in 2014-15 to $124 billion in 2025. The effectiveness of these incentives depends on how they interact with the rest of the system. India is also investing in infrastructure and workforce development, but unevenly. In some sectors, rapid production growth has outpaced the development of upstream capabilities, which limits future growth based on the Production Linked Incentive Schemes.
In addition, India demonstrates sub-national experimentation in its industrial policies, allowing additional evidence to emerge on what works by testing new policies in particular regions. It created master-planned industrial zones with plug-and-play infrastructure, shared utilities, logistics, and support infrastructure to allow businesses to operationalize quickly. The state of Karnataka fosters innovation through partnerships with research institutions and public support for 20 start-ups annually in the energy storage, solar, wind, green fuels, and emerging clean technologies sectors. Support at the sub-national level allows successful models to emerge and scale nationally.
Vietnam prioritized export-oriented market creation and public infrastructure as the foundation of its industrial policy. In 1992, Vietnam joined the ASEAN Free Trade Area and now has trade agreements with more than 50 countries. This was reinforced by the creation of industrial parks, competitive labor costs, and investment incentives, creating a highly effective platform for export-oriented manufacturing. It has used its trade openness to attract large multinationals, target manufacturing of specific components, and assemble final goods with inputs from other countries. This resulted in rapid growth of exports from around $70 billion in 2010 to over $370 billion in 2022, largely driven by manufacturing, particularly electronics. More challenging has been creating domestic research, development and innovation, with a lot of the technological upgrading coming from foreign businesses. Nonetheless, Vietnam’s system works because its demand, infrastructure, and production-support pillars are aligned around integration into global markets.
Takeaways
These examples show each country initially focusing its industrial policy on one or two pillars and then developing a broader system of support, suggesting the importance of sequencing and prioritization. Morocco prioritized public infrastructure to facilitate exports, and support for domestic industry integration; India used production incentives to increase the scale of business output; and Vietnam relied on global market access and deep integration into global supply chains. They have generated success from different starting points by coordinating across the industrial policy pillars. A key implication is that industrial policy needs a minimum viable level across multiple pillars to sustain industrial expansion.
This perspective is particularly relevant for green industrial policy. The transition to low-carbon technologies intensifies coordination challenges: new industries are infrastructure-heavy, technologically uncertain, and often lack established markets. Governments cannot rely on isolated interventions. They must design policies that align infrastructure, skills, innovation, production, and demand. Investors should also look beyond individual pillars to assess the upside potential of investment in a sector as well as the likely long-term growth of the industrial system in that country.
Industrial policy requires building the system that makes industrialization possible. Morocco, India, and Vietnam show that this can be done in different ways, but that success depends on how well the pieces fit together.
