Industrial policy: theoretical paradigms, tools and strategic directions

The paper reconstructs the historical and theoretical evolution of industrial policy, highlighting its shifting rationales and practices across diverse economic paradigms and geopolitical contexts. It examines how industrial policy emerged as a pragmatic response to development challenges, gained legitimacy during the era of the mixed economy, and was later dismantled under neoliberal orthodoxy. Special attention is given to the resurgence of industrial policy in response to recent global crises and structural transformations needed to tackle contemporaneous challenges. The paper explores the current theoretical debate, contrasting traditional market failure justifications with more discretionary and transformative frameworks, such as the entrepreneurial state and mission-oriented innovation policies. It offers a critical assessment of the limitations inherent in neoclassical welfare economics when addressing contemporary global challenges, including the green transition, rising inequality and deindustrialisation. Building on the historical experience of state-led economic planning, this paper calls for a renewed, flexible and distribution-conscious industrial policy. This approach should combine demand-side and supply-side tools, prioritise social and environmental objectives and reassert the role of the state as a market shaper. Only through such a comprehensive rethinking can industrial policy regain its transformative capacity within capitalist economies.