Industrial strategy is a coordinated set of government policies intended to influence the structure, capabilities, performance or development of productive industries and businesses. The OECD's current formulation describes an industrial strategy as a consistent and articulated group of industrial policy instruments directed towards particular policy objectives, which may be national, sectoral, technological, mission oriented, sustainability related or concerned with resilience and strategic autonomy. The concept is broader than simply providing subsidies to factories. It can encompass research and development support, skills policy, infrastructure, public procurement, finance, competition policy, regulation, intellectual property arrangements, trade measures and innovation policy. The central idea is strategic coordination around the productive structure of an economy rather than isolated interventions considered independently.
Industrial strategy is closely related to the broader concept of industrial policy, but the terms are not always interchangeable. Industrial policy refers broadly to government interventions that affect the business sector or economic structure, whereas an industrial strategy normally implies an articulated direction linking multiple interventions to defined objectives. The OECD describes industrial policy as public intervention intended to improve the performance of the business sector and notes that instruments can operate through both supply and demand. An industrial strategy therefore provides an organising framework, identifying priorities, coordinating institutions and connecting instruments. A country might have industrial policies without possessing a clearly articulated industrial strategy, just as it might announce a strategy whose implementation is fragmented across ministries or agencies.
Industrial strategies can pursue very different objectives depending on national circumstances. Governments may seek higher productivity, technological innovation, stronger domestic supply chains, greater export capability, regional development, employment, energy security, decarbonisation, resilience against supply disruptions, strategic technological capacity or development of emerging industries. Modern industrial policy discussions increasingly encompass clean technologies, digital technologies, semiconductors, advanced manufacturing and other areas where governments identify economic or strategic vulnerabilities. These objectives can overlap, but they are not identical. A policy designed to increase domestic production may not maximise short term consumer prices, while a policy focused on innovation may require long periods before benefits appear. An industrial strategy therefore involves choices about objectives, trade offs, resources, time horizons and evaluation criteria.
Industrial strategy operates through numerous policy instruments. Supply side instruments can include research grants, investment incentives, loans, loan guarantees, skills programmes and support for innovation. Framework policies include taxation, competition rules, labour market institutions, trade arrangements and financial regulation. Demand side instruments can include public procurement, product standards and other measures that create markets for particular technologies or products. Public infrastructure can reduce business costs, while education and training can expand the skills available to firms. These instruments can interact strongly. For example, research funding may generate technology that requires skilled workers, specialised infrastructure, private finance and government procurement before it becomes commercially viable. The OECD therefore emphasises coordination among innovation, infrastructure, skills, finance, energy, trade and regulation.
The historical meaning of industrial strategy has evolved considerably. Earlier approaches to industrial policy often involved tariffs, state ownership, production subsidies, protection of selected industries and direct attempts to influence industrial structure. Later approaches increasingly incorporated policies aimed at correcting market failures associated with research and development, training, finance and knowledge spillovers. More recent approaches frequently emphasise innovation systems, networks, technological capabilities, resilience, clean transition and strategic coordination.
This evolution does not mean that older instruments disappeared, nor does it establish a single universally accepted model. The OECD explicitly notes that there is no complete consensus over the industrial policy paradigm and that the boundary of what counts as industrial policy is contested. The term consequently has different meanings across countries and periods.
Industrial strategy raises important questions about government failure as well as market failure. Markets may underinvest in activities that create benefits for others, such as basic research, training or infrastructure, or may not adequately account for resilience and environmental externalities. Government intervention can address some of these problems, but governments can also allocate resources poorly, protect inefficient firms, favour politically connected interests, distort competition or continue supporting unsuccessful programmes.
Industrial strategy therefore requires mechanisms for evaluation, transparency, competition and policy adjustment. The OECD has highlighted the need for regular reassessment of targeted industrial strategies and notes that industrial policy can produce costly failures as well as successful outcomes. The existence of a market failure does not automatically establish that a particular government intervention will solve it efficiently.
Industrial strategy is also distinguished from central economic planning. An industrial strategy can operate within a predominantly market based economy in which private firms make most production and investment decisions. Governments may influence incentives and capabilities without determining every firm's output, prices or allocation of resources. Similarly, industrial strategy is not synonymous with nationalisation, protectionism or subsidies. Some strategies rely heavily on public procurement, standards, infrastructure or research rather than direct financial support.
The breadth of the concept means that two countries can both describe their policies as industrial strategies while using very different instruments. Understanding a particular strategy therefore requires examining its objectives, targeted sectors, instruments, institutional arrangements, funding, implementation mechanisms and evaluation procedures rather than relying on the label alone.
In contemporary economic policy, industrial strategy is particularly associated with structural transformation, technological change and the relationship between public institutions and private productive capacity. A strategy may seek to build capabilities that are difficult for individual firms to create alone, coordinate complementary investments, reduce supply chain vulnerabilities or accelerate transitions that have economy wide implications. Successful implementation depends on administrative capacity, reliable information, coordination across government and meaningful evaluation.
The OECD's 2026 Industrial Policy Handbook emphasises strategic orientation, coordination and effective delivery as central components of industrial strategy. The concept therefore refers less to a single policy instrument than to an organised approach to shaping productive capabilities and economic structure through interconnected policies, while recognising that results remain dependent on institutional quality, market conditions and the specific objectives chosen.
