After years in economic exile, industrial policies are back in a big way. Industrial policy interventions increased 20-fold in the past decade, as governments seek to rebuild competitiveness, support emerging technologies and shore up supply chains. This is true in OECD countries, but also in developing countries which use it more intensively.
Many of these are adopting a place-based approach: between 2019-22, regional industrial policy support rose by over 50% as a share of GDP in 11 OECD countries. But why?
Is this time different?
History doesn’t repeat itself, but it does rhyme: today’s return of industrial policy echoes earlier waves, but also with some important differences.
First, the new breed of industrial policies tends to focus on specific technologies or “missions” rather than broad sectors. Mission-oriented industrial strategies aim more strongly to combine economic and social goals, such as investing in technologies to accelerate the green transition.
A second shift is geopolitical. Rising tensions and protectionism, trade disruptions and security concerns have pushed many countries to rethink where and how they produce key goods. As a result, industrial policy is increasingly being used to bring production closer to home or to trusted partners.
A third difference is now becoming clearer: a keener focus on place. By 2022, roughly 10% of industrial policy support was specifically place-based. That may still sound modest, but it signals an important change in mindset.
Policymakers are recognising that where investment lands can shape both whether it succeeds and who benefits from it.
Places are paramount
There are good reasons for this growing attention to place.
The first reason is a growing recognition that “place” shapes whether strategic innovations take off. Priority sectors and supply chains tend to be tightly spatially concentrated in clusters, supported by local infrastructure, skills, firms and research assets.
That is why many countries are now designing policies around these local ecosystems. Korea’s earlier push to build a photonics cluster in Gwangju showed how national priorities can be tied to local capabilities and supply chains.
Second, industrial policy can widen regional divides if place is ignored. High-growth sectors are often concentrated in places that are already doing well. That creates a risk that public support will flow towards the strongest regions, leaving weaker ones further behind. This is a serious concern in OECD countries, where the richest 20% of regions already produce around twice as much output per capita as the poorest 20%.
When place-based industrial policies can be targeted at the revival of lagging regions, they can also help reduce the risks they pose in terms of welfare dependency, pressures on public services, and political discontent, while unlocking unrealised potential. Addressing persistent regional disparities is not only a redistribution objective but also a foundation for long-term national competitiveness, as two sides of the same coin.
Third, national ambitions need local partners. Across the OECD, subnational governments are responsible for 55% of public investment. That gives regions, cities and local authorities a central role in shaping whether national industrial strategies succeed on the ground.
This calls for national investments to be accompanied by sharper incentives for subnational governments to develop – and invest in – plans that nurture their own unique strengths. In federal countries such as Germany and the United States, this role is well established. But the same logic applies elsewhere. In the European Union, smart specialisation strategies have encouraged regions to build on their own economic strengths and comparative advantages. In the United Kingdom, local growth plans reflect a similar ambition to ensure subnational governments play their part in boosting growth.
When place-based industrial policy works
Place-based industrial policy works best when it strengthens local ecosystems rather than simply handing out support to individual firms. Instead, it builds local ecosystems that make investment stick, and it does so in ways that fit local conditions. Evidence from practice points to five lessons.
First, place-based policies need strong evidence, not wishful thinking. The European Union’s Smart Specialisation Strategies are built around an “entrepreneurial discovery process”, where businesses, universities and government work together to identify realistic areas to grow from existing strengths.
Where regions have used this approach selectively – rather than a wish-list of everything – strategies have been more coherent and less risky. In this context, it is important to recognise that for regions, industrial policy is often also about helping places transition out of declining activities. In this context, work of the OECD’s Spatial Productivity Lab on mass layoffs has shown the importance of transitioning early to avoid self-reinforcing downward spirals.
Second, invest in shared strengths. One reason place-based industrial policy can outperform support aimed at individual firms is that it can address shared bottlenecks: skills, supplier development, testing facilities, transport links, and business services, and co-ordinate action to support a clear mission.
France’s Territoires d’Industrie, for instance, puts weight on tailored technical support to help industrial areas modernise, backed by local public-private partnerships that can steer investment into key employment zones.
Third, timing. Places cannot jump straight to frontier innovation if basic conditions are missing. Timing implies sequencing, which is about building capacities step by step.
The Basque Country’s long shift from traditional manufacturing towards higher value, innovation-driven activity combined interventions over time and, more recently, smart specialisation to align skills, research and business support with priority sectors.
Fourth, governance can make or break delivery. A striking example comes from Pittsburgh and Cleveland in the 1980s. Both faced similar circumstances, but Pittsburgh pulled ahead, in part because universities became active agents of change and the state set conditions that encouraged local partners to co-invest around a shared vision.
Finally, monitor, learn and be willing to stop. Industrial policy always carries risks, including backing projects that would have happened anyway, or concentrating benefits among a narrow set of interests. Place-based approaches add further risks, like displacement between regions or over-specialising in a single sector. The antidote is not paralysis, but prudence: ensuring that policies are consulted on and reviewed regularly to assess who benefits and shift support away from what is not working.
A better place to be
Industrial policy is back, driven by global shocks, geopolitical tensions, green goals and technological change. This provides an opportunity to harness the power of local ecosystems in scaling key industries and boosting national competitiveness – through smart strategies that support co-ordination and complementarity rather than competition between places.
Industrial policy may sometimes involve supporting places that are not most in need of an economic boost. Yet there may also be cases where industrial policy and regional development objectives align.
Policymakers should therefore look for such opportunities to support less developed regions without diminishing their chances of success. Where this is possible, industrial policy initiatives could help more places share in growth rather than deepening divides, contributing to more balanced and resilient economies.
Learn more about our work on Transforming Places, Measuring industrial restructuring pressure in regions and Leading local change.
Dorothée Allain-Dupré is Head of the Regional Development and Multi-level Governance Division within the Centre for Entrepreneurship, SMEs, Regions and Cities of the OECD. She oversees a team of 35 experts providing governments with evidence, data, analysis, policy advice and recommendations to strengthen the competitiveness and resilience of regions, mitigate regional disparities, and improve multi-level governance and subnational finance. She oversees OECD programmes on regional development, rural development and regional attractiveness, multi-level governance, decentralisation, and subnational finance and investment, among other areas. In her position, Dorothée is driving the work of the OECD’s Regional Development Policy Committee.
A French national, Ms Allain-Dupré holds a master’s degree in Public Policy from École Doctorale Sciences-Po (France), a master’s degree in European Studies from the University of Sussex (UK), and a bachelor’s degree in Public Affairs from Institut d'Etudes Politiques, Sciences-Po (France).
Rudiger Ahrend is Head of the Economic Analysis, Data and Statistics Division in the OECD Centre for Entrepreneurship, SMEs, Regions and Cities. In addition, he also oversees the activities of the OECD Laboratory for Geospatial Analysis. In these capacities, and in his previous role as Head of the Urban Programme, he has been supervising numerous projects in a wide area of subjects, including on industrial transition, regional and urban innovation and development, subnational finance, spatial productivity, metropolitan governance, land use, land value capture, housing, green growth, climate change, transport, metropolitan governance, and national urban policies. He has also supervised numerous reviews and case studies of regions and major metropolitan agglomerations, and is the main author of “The Metropolitan Century: Understanding Urbanisation and its Consequences”. During his time as Head of the Urban Programme, Dr Ahrend was also in charge of the OECD Working Party on Urban Policies, as well as the OECD Roundtable of Mayors and Ministers.
Andrew Paterson is Senior Counsellor at the OECD Centre for Entrepreneurship, SMEs, Regions and Cities and editor-in-chief of the COGITO blog site. Prior to joining the OECD, he was a senior civil servant in the UK Government where he led the UK Business Productivity Review, identified new emerging technological strengths as a focus for the Government’s Industrial Strategy, and developed the UK’s approach to “levelling up” through local growth. In previous roles he led the UK Government’s Housing, Planning and Local Growth analysis, economic and financial reforms in Britain’s Overseas Territories from the UK Foreign and Commonwealth Office, and neighbourhood renewal and regeneration policy from the UK Treasury. Andrew holds a Masters in Politics, Philosophy and Economics from the University of Oxford.