Re-imagining industrial policy

In the intricate dance of global progress, economic growth and innovation have long choreographed the steps of industrial policy. As the music shifts towards the urgent beats of sustainability and equitable development, there is a compelling need to re-imagine global industrial policy.

I had the privilege of speaking on a panel at the launch of the United Nations Industrial Development Organization (Unido) Report 2024, focusing on this new era of industrial policy. The report serves as a clarion call for this transformation and offers a roadmap to align industrial policy with the Sustainable Development Goals (SDGs) in a quest for fair globalisation.

Given its strong impact on societal and environmental goals, the industrial sector will be pivotal in delivering sustainable development solutions. Industrialisation does not happen independently, it requires investments, coordinated efforts and carefully designed policies.

Industrial policy has long been regarded as a strategy to encourage sector, industry, or economy-wide development by the State improving the business environment or altering the structure of economic activity towards sectors, technologies or tasks that are expected to offer better prospects for economic growth or societal welfare.

In recent years we have witnessed the renaissance of industrial policy globally. According to Unido, highly industrialised economies have implemented five times more industrial policies over the last 10 years compared to the previous decade.

As industrial policy becomes increasingly important again, it is necessary to re-imagine its design in alignment with global trends and the SDGs. Globally, we stand on the brink of monumental shifts due to the energy transition, digitalisation, global rebalancing, and demographic changes.

These megatrends pose a twofold challenge to countries: avoiding being blindsided by the rapid pace of change and harnessing these global trends as catalysts for sustainable development. This requires an anticipatory approach to policymaking, which is agile, adaptive, and ready to leverage innovations in renewable energy, artificial intelligence, and digital technologies.

This also means massive investments with suitable strategies and policies to direct investment into the most beneficial sectors, such as the growing demand for food and health products.

Mariana Mazzucato, author of The Mission Economy, hypothesises that we have not been able to achieve the SDGs because they are not embedded in our industrial strategies and innovation policies.

Therefore, future industrial policies should not only be adjusted to be less harmful to the environment or more socially inclusive; they should be fundamentally restructured to drive the change envisioned by the SDGs. It means that the policies that once prioritised economic growth at any cost must now weigh every decision against its impact on sustainable development targets.

We need a new deal which places sustainability and equity at its core to ensure that the fruits of globalisation are more evenly distributed. Creating a level playing field where developing countries can compete fairly and have adequate resources and capacity for industrial policy design and implementation directed at sectors with the greatest potential for sustainable impact.

This means protectionist barriers should not hinder technological transfers and that global finance should serve sustainable development needs.

The report concludes by advocating for a new era of modern industrial policies with four important elements. First, modern industrial policies should align with the SDGs, starting with a clear assessment of where countries and regions are with their progress towards achieving the SDGs. The assessment of developing countries in the International Yearbook on Industrial Statistics 2022 includes three areas that need special attention: innovation, clean energy, and employment.

Accelerating progress in these areas through industrial policy means supporting industrial digitalisation, decarbonisation, and job creation. Second, industrial policies should be future-ready and must consider the four megatrends reshaping the world. While the megatrends present significant challenges for developing countries, they also open new opportunities to accelerate progress through well-crafted industrial policies.

Third, modern industrial policies should be collaborative as governments cannot solve today’s challenges independently. Industry and business must jointly contribute to policy design and ensure effective implementation in public-private dialogue and private-sector development.

Finally, such policies should be regionally coordinated to mitigate tensions and unlock the full potential for cooperation amongst neighbours.

The writer is the senior advisor, Global Lead, Industry and Commerce at the Tony Blair Institute for Global Change.