From Industrial Policy to Innovation Strategy: Lessons from Japan, Europe, and the United States

Executive Summary

All the world’s leading economies, including the United States, embrace multiple forms of policies that channel resources towards targeted sectors. Despite distaste for the term in some quarters, elements of industrial policy have always been a significant feature of U.S. policymaking. Since World War II, Washington has used military procurement and large research budgets to accelerate the development of cutting-edge technologies that serve as the foundation of the modern economy, including the Internet, vaccines, satellites, supercomputing, and the components of smartphones.

In response to today’s economic challenges—particularly managing the Covid-19 pandemic and the rise of China—prominent U.S. policymakers and political figures on both sides of the aisle, as well as business leaders, have called for more active government efforts to boost domestic production and innovation. However, there is significant disagreement about how to do so.

This report focuses on the role of government in supporting innovation in critical technologies, although there are other challenges—notably Covid-19—where greater federal intervention could be appropriate. To help further the discussion, we reviewed historical approaches to industrial policy in three advanced democracies: Japan, Western Europe, and the United States. Reflecting on those experiences, we present in this report a set of ten “first principles” intended to guide a more active U.S. innovation strategy to reaffirm the country’s leadership in critical technologies.

Dylan Gerstel is a research assistant for Economics Program Center for Strategic and International Studies (CSIS)

Matthew P. Goodman is the Senior Vice President for Economics and the William E. Simon Chair in Political Economy at Center for Strategic and International Studies (CSIS)

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