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Anthony Rowley

Industrial policy is back in fashion. Governments across the world are embracing the belief that individual governments can pick winners among industries to foster and restore international competitiveness.
This is a futile pursuit in a fragmented global economy. What is required instead is a global industrial development strategy. In the absence of this, single-nation policies are likely to prove hugely costly and ineffective for taxpayers and investors alike, as Japan is likely to discover soon.
Industrial policy as it is now being construed often comes along with narrow nationalism and protectionism as distinct from a global or multilateral vision and an ability to think beyond national borders. In short, it is a recipe for conflict.
It represents an attempt to turn back the clock in some parts of the world while ignoring the fact that times have changed in other parts, and it ignores the need to come to terms with change. The global clock needs to be reset.
In Japan, Prime Minister Sanae Takaichi has unveiled a long-term vision for economic development. It features massive investment in artificial intelligence and semiconductors as well as other key sectors. The plan calls for investing more than 370 trillion yen (US$2.3 trillion) from public and private sector sources in the 14-year period ending in March 2041, with 101.6 trillion yen earmarked for artificial intelligence (AI) and chips spending alone.
Some of these areas – not least semiconductors and AI – are the same ones that the United States and China are competing in fiercely to the tune of hundreds of billions or even trillions of dollars of collective investment. Europe and others are also increasingly involved.


The obsession among national leaders with fostering competitive AI strategies can also exacerbate “K-shaped recovery” syndrome. This refers to uneven and divergent growth patterns between leading industries or sectors – the upper arm of the letter K, mainly hi-tech sectors – and the laggards in the rest of the economy, with traditional industries represented by the lower arm.
“Recent developments suggest that advances in artificial intelligence have reinforced the K-shaped growth pattern in many different countries,” Hung Tran, a non-resident senior fellow at the Atlantic Council in Washington, observed in a recent report.
These developments, he suggested, are likely to worsen growing inequalities within countries and the gaps – especially digital and AI gaps – between core foundation leaders such as the US and China, other high-adoption leaders among developed countries and the rest of the world.
Similar arguments apply with regard to aerospace and defence equipment manufacturing, where the Takaichi administration has a strong eye towards competing in global export markets. It is the same with shipbuilding, an area where China is strong and where US and European shipyards are seeking to regain their position against industry leaders such as South Korea.

There is a basic problem with such ambitious plans to restore greatness among former industrial powers which have since relinquished their lead positions in favour of developing service industries: they cannot hope to restore the status quo ante in the short to medium term.
Industrial skills require a broad supporting infrastructure of education and training at the university and technical college level. It also requires fostering a network of parts and components suppliers and a general culture of “making things” – monozukuri, as the Japanese term it – instead of one that places finance and making money above all else.
Another, arguably bigger hurdle to the revival of industrial policy among the world’s major economic powers is that there is no global master plan for assessing the ultimate size of world markets in any or all of these areas. Neither is there any semblance of an international accord when it comes to market-sharing.
Without such a plan, Japan and Western nations pursuing industrial policy are at risk of falling into the quagmire of overcapacity in which China already finds itself. However, any kind of master plan is out of the question while world leaders remain obsessed with making wars rather than making things and rationally agreeing upon market shares.


This is one area where the market will ultimately decide. The market could decree loss-making and bankruptcy among firms that attempt what is, in effect, a forced re-entry into industrial policy via officially supported programmes.
This is not stated out of any naive belief that industrial policy is best left to the wisdom of the market. Markets can be led by the financial nose. By the same token, however, governments can be led by the nose into unwise decision-making when they are driven by nationalistic competitive instincts rather than collective, informed wisdom.
Takaichi’s investment goals are ambitious and uncertain in that they rely upon private investment to cover much of their total cost and public money of one kind or another to take care of the rest. Private companies could balk at the idea of stumping up further investment to finance her plans, even if domestic rather than overseas investment is involved.
Firms have their own investment priorities to pursue. Even if Takaichi’s view is a broader one because it involves Japan’s national interest, it does not serve the broader global interest. Her government would do well to think again rather than try to replace the market.


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Takaichi’s embrace of industrial policy won’t make Japan great again

Japan’s Prime Minister Sanae Takaichi (left) gestures as US President Donald Trump delivers a speech in front of US Navy personnel on board the US Navy’s USS George Washington aircraft carrier at the US naval base in Yokosuka, Japan, on October 28, 2025. Photo: AFP

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Japan’s Prime Minister Sanae Takaichi attends a joint meeting of the committees of both houses on fundamental national policies at the National Diet in Tokyo on July 15. Photo: AFP

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 Illustration: Henry Wong

Opinion

World Opinion

Economy

Policy

Governments trying to pick winners is a futile pursuit in a fragmented world that needs a coordinated global development strategy


Governments trying to pick winners is a futile pursuit in a fragmented world that needs a coordinated global development strategy.


Sanae Takaichi

Macroscope

China

United States

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


Column

Takaichi’s embrace of industrial policy won’t make Japan great again

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Governments trying to pick winners is a futile pursuit in a fragmented world that needs a coordinated global development strategy

Governments trying to pick winners is a futile pursuit in a fragmented world that needs a coordinated global development strategy