Dennis Robertson was not only one of the finest economic minds of the 20th century, but also an elegant writer who was known for his witticisms. In an essay written in 1956, Robertson quipped: “High-brow opinion is like a hunted hare; if you stand in the same place, or nearly the same place, it can be relied upon to come round to you in a circle.”
Those words resonate while reading a new report by the World Bank on industrial policy, or targeted government intervention to shape the economic structure of a country by promoting, protecting or developing specific industries deemed vital to economic growth, export competitiveness, import substitution or geopolitical strategy.
In simpler terms, the government has a say in what is produced within a country. The multilateral lender had famously released a report in 1993 on the miracle economies of East Asia, where it had said that the main reasons for success stories in the region were sound macroeconomic management, investment in human capital and productivity growth driven by export industries. Industrial policy to aid specific sectors or companies was less important in comparison.
Cut to 2026. World Bank chief economist Indermit Gill wrote in the foreword to its new report that the earlier injunction against industrial policy “has not aged well—it has the practical value of a floppy disk today.”
In 2019, economists at the International Monetary Fund had a witty title for a paper that described industrial policy as ‘the policy that shall not be named.’ Be it the analogy of the hunted hare, the floppy disk or Lord Voldemort of Harry Potter novels, it is clear that the pendulum has swung back towards industrial policy.
At the heart of the new framework is a set of three country characteristics that the report argues are decisive in determining what kind of industrial policy is feasible. These are: government capacity for sustained interaction with multiple businesses and industries; local market size to achieve economies of scale; and fiscal space to bear the costs of business subsidies without sacrificing spending on social services.
Interestingly, the World Bank says that India scores well on all three, which implicitly means it has the requisite means to pursue industrial policy.
This is a useful taxonomy. It does what good policy frameworks are supposed to do: it converts an ideological debate into a diagnostic one. The question is no longer whether industrial policy is virtuous or vicious in the abstract, but whether a particular government in a particular country at a particular moment has the three things it needs to make a particular tool work.
These three traits determine which of 15 possible industrial policy tools will work best—ranging from industrial parks and job-skills training all the way to import tariffs, production subsidies and competitive exchange-rate devaluations. These tools are a mix of sharp and blunt instruments, and their effectiveness depends on progressively higher levels of market size, government capacity and fiscal space.
In the case of India, there is a lot of attention paid to industrial policy at the sub-national level, especially in Tamil Nadu. The World Bank has paid special attention to how the state succeeded in attracting production of Apple’s iPhone 16 through a combination of what it describes as a top-down and bottom-up approach.
The former includes subsidies for specific industries, while the latter covers specific coordination failures such as lack of housing for workers. It built housing for 18,000 workers near the factory site even before the production facility came up, something that a private builder may not have invested in without guarantees of adequate rental returns.
One salient fact about industrial policy in our times is that most governments seem to have some variant of it. The World Bank reports that all 183 member countries target at least one industry. There are some noteworthy patterns here. For example, poor countries often depend on blunt instruments such as higher tariffs to promote domestic production, while upper-middle-income countries are big spenders on business subsidies.
However, Gill warns in a recent blog on the World Bank website: “By itself, industrial policy has seldom been a game-changer: the record shows that, even under ideal conditions (emphasis added), it results in an average gain of just 1% of [gross domestic product]. Still, in an era of persistently sluggish growth, every option to boost growth ought to be considered.”
The report’s most important omission is this: Can all 183 countries pursue an industrial policy simultaneously?
It is akin to a mutual depreciation problem in foreign-exchange markets. It is logically impossible for all countries to depreciate their currencies together. Just as all countries cannot run trade surpluses. Does something similar apply to industrial policy?
The East Asian success stories had something that no framework can manufacture on demand: they were exporting into a global economy that was broadly open and not itself engaged in the same game.
South Korea’s shipbuilding and semiconductor industries were subsidized at home and targeted markets overseas that, whatever their imperfections, were not simultaneously running competing subsidy programmes of comparable scale. It is hard to believe, for example, that all major economies can achieve economies of scale—and hence efficiency—in semiconductors for domestic use.
In other words, is the very ubiquity of industrial policy in our times also a barrier to its eventual success?
The author is executive director at Artha India Research Advisors.