Industrial Policy in the 21st Century: Toward a “Big Government” Paradigm
—The Revival of Industrial Policy Worldwide and Implications for Japan—

■ The Revival of Industrial Policy: No Longer a Taboo
In the decades following the end of the Cold War, economic policymaking across the globe was broadly anchored in liberalism as a central doctrine. A symbolic milestone was China’s accession to the WTO in December 2001.
In recent years, however, protectionist tendencies have intensified—particularly among the two major powers, the United States and China. At the same time, within the economics profession, support has been growing in certain fields for more proactive government intervention to promote industrial development.
These arguments are grounded in Modern Supply-Side Economics (MSSE), which shifts the focus away from demand stimulus toward strengthening the supply side. In particular, it emphasizes an active role for government in areas prone to market failure, such as environmental challenges, inequality, and national security.
This line of thinking has contributed to rehabilitating industrial policy—long viewed with caution due to concerns about excessive government intervention—and is fostering its resurgence as a legitimate policy tool.

■ Industrial Policy Actively Deployed Worldwide
Against this backdrop, the World Bank’s recent report, Industrial Policy for Development, observes that industrial policy is “back with a vengeance” across countries. It highlights several key trends:
Emerging economies are more active users of industrial policy than advanced economies. In upper middle-income countries, total subsidies to firms now average 4.2% of GDP—the highest level on record.
Low-income countries prioritize, on average, 13 industries for targeted development—more than twice as many as high-income countries.
The report positions itself as “the first comprehensive guide to industrial policy for development in the 21st century” and outlines 15 key policy instruments:

Industrial parks
Skills development
Market access assistance
Quality infrastructure
Production subsidies
Specific innovation subsidies
Commodity export bans
Public procurement
Import tariffs or quotas
Export subsidies
Technology transfer quid pro quo
Local content requirements
Consumer demand subsidies
Competitive exchange rate devaluation
R&D tax credit

While noting that industrial policy is not a universal panacea, the report concludes that it is a valuable tool for many countries when appropriately designed and implemented. It underscores several critical considerations, including:

・Ensuring political neutrality and strengthening implementing institutions
・Minimizing fiscal costs
・Preserving market-based incentives
・Guarding against macroeconomic risks associated with intervention

■ How Should Japan Approach the 17 Strategic Sectors under the Takaichi Administration?
In light of the increasingly positive assessment of industrial policy by both economists and international institutions, Japan should pursue industrial policy in an appropriate and competitive manner so as not to lag behind other countries.
However, when evaluated against the World Bank’s framework, several issues arise with respect to the 17 strategic sectors identified under the Takaichi administration.
First, the number of target sectors is excessive.
As noted above, low-income countries prioritize around 13 sectors on average, while advanced economies tend to focus on fewer than half that number. By comparison, selecting 17 sectors appears overly broad, suggesting the need for sharper prioritization.
Second, the governance framework for implementation remains underdeveloped.
The current policy framework does not clearly indicate how key considerations highlighted by the World Bank—such as political neutrality, fiscal cost management, market incentives, and macroeconomic implications—will be addressed. Strengthening institutional design and governance mechanisms should therefore be a priority.
Third, greater emphasis should be placed on regulatory reform.
Although regulatory reform typically lacks immediate impact, it has the advantage of containing fiscal expenditure while fostering private-sector growth over the longer term. Its potential benefits should be more fully leveraged as part of Japan’s industrial policy strategy.

Refference

World Bank ”Industrial Policy for Development: Approaches in the 21st Century”、
https://openknowledge.worldbank.org/entities/publication/9f8098d5-fa1f-4c1b-97b5-f04262818bb3

*This report is intended solely for informational purposes and should not be interpreted as an inducement to trade in any way. All information in this report is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will JRI, its officers or employees and its interviewee be liable to you or anyone else for any decision made or action taken in reliance on the information in this report or for any damages, even if we are advised of the possibility of such damages. JRI reserves the right to suspend operation of, or change the contents of, the report at any time without prior notification. JRI is not obliged to alter or update the information in the report, including without limitation any projection or other forward looking statement contained therein.