Current issues in industrial policy: The beginnings and evolution of industrial policy theory; historical and current analysis.

Industrial policy has been a crucial element in economic planning since the beginning of the industrial revolution, although its form, approach and theoretical justification have evolved considerably. Through this article we will explore how this theory has changed over time, adapting to global dynamics and contemporary challenges, and how recent movements in Europe, Spain and the ceramics industrial cluster reflect the latest trends in this field.

The beginnings of industrial policy theory

Industrial policy theory has its roots in classical economic thought. Economists such as Alexander Hamilton and Friedrich List argued that the state had a key role in protecting and encouraging infant industries. List, in particular, stressed the importance of protecting infant industries from international competition through tariffs and subsidies until they became competitive.

During the 20th century, industrial policy became established as a tool for economic development, especially in regions such as Asia, where export-oriented industrialization strategies proved successful. History of industrial policy in Asia . In countries such as Japan and South Korea, governments adopted export-oriented industrialization strategies, combining investments in infrastructure, subsidies and cheap credit for strategic sectors. These successful models generated a broad debate on the effectiveness of state intervention in the economy.

Transformation in industrial policy thinking

Economic planning, especially in the context of industrial policy, has traditionally been viewed as a mechanism that allows states to guide economic and social development toward specific goals. In its historical form, planning was based on direct state interventions, such as the protection of infant industries, the creation of infrastructure, and control over key sectors. This perspective was central to the development models of countries such as the Soviet Union, Japan, and South Korea.

However, this interpretation contrasts with the currently dominant liberal model, which privileges open markets and the limited role of the state. In this context, the renewed importance of industrial policy in a liberal world may seem paradoxical. On the one hand, it is recognized that the free market can generate significant imbalances, such as the relocation of critical industries or dependence on vulnerable global supply chains. On the other hand, liberal principles demand minimal state intervention, which raises tensions between the need to plan and the desire to preserve market dynamics.

Over the past two decades, interest in industrial policy has re-emerged, integrating it with a focus on technological innovation, ecological transition and digitalisation, aspects already addressed in the context of modern economic transformation. Modern theory recognises that the State must not only correct market failures, but lead markets towards strategic objectives such as sustainability and economic security, a recurring idea that reinforces the need for an active State role in the face of current challenges. This shows a change in the interpretation of the State's role: from being a controlling agent to becoming a facilitator of economic development.

The liberal model and contemporary industrial policy thus find themselves in a tense but complementary relationship. Current strategies attempt to harmonize free market principles with the need to ensure economic resilience, relying on public incentives for key sectors without falling into interventionist excesses. This approach reflects an inherent paradox: while economic planning seems antithetical to liberalism, it is also its necessary response to modern global challenges.

In the late 20th century, the neoliberal consensus, led by institutions such as the IMF and the World Bank, downplayed the role of the state in the economy. Free markets were argued to be more efficient at allocating resources and fostering innovation. However, recurrent financial crises and the rise of China as an industrial power led to a re-evaluation of this approach.

Over the past two decades, there has been a resurgence of interest in industrial policy, now with a focus on technological innovation, ecological transition and digitalisation. Modern theory recognises that the state should not only correct market failures, but also lead markets towards strategic objectives such as sustainability and economic security.

Economic fragmentation and the role of industrial policy

In recent years, the global scenario has seen increasing economic fragmentation, characterised by geopolitical tensions, trade disputes and the regionalisation of supply chains. This phenomenon, intensified by the COVID-19 pandemic and the rivalry between major powers such as the United States and China, has put globalisation as we knew it in jeopardy, revealing vulnerabilities in global supply chains. Impact of the pandemic on global supply chains .

Economic fragmentation results in greater dependence on local and regional markets, as well as less interconnected economies. This has forced countries, especially in Europe, to redefine their industrial policies to ensure economic resilience. Industrial policy has become a key tool to address these challenges, promoting strategic self-sufficiency in critical sectors such as semiconductors, renewable energy and pharmaceutical production.

In this context, the relocation of industrial clusters can be interpreted as a possible response to geopolitical and economic fragmentation. The creation of diversified regional clusters makes it possible to minimise risks by reducing dependence on a single geographical point or on supply chains concentrated in specific regions. For example, some sectors are beginning to relocate key parts of their production within Europe, or diversify it towards nearby countries, as part of a "friend-shoring" strategy that seeks to rely on reliable commercial allies.

The ceramics industrial cluster: A paradigmatic case

The ceramic cluster in Castellón is an emblematic example of the challenges and opportunities of contemporary industrial policy. Ceramic industry and energy challenges . This sector, traditionally export-oriented, faces structural challenges such as the energy crisis and international competition, particularly from Asia.

However, questions also arise about the concentration of clusters in a context of increasing economic fragmentation. While clusters allow for economies of scale, specialization and greater efficiency in production, they can also generate risks related to a lack of diversification. In a global scenario characterized by increasingly regionalized supply chains and trade conflicts, over-reliance on a specific cluster or region can increase vulnerability to external disruptions or fluctuations in international demand.

An example of this is the high dependence of the ceramic cluster in Castellón on the prices of natural gas and imported raw materials. These dependencies could become bottlenecks that limit the competitiveness of the sector if energy sources and markets are not diversified. In addition, competition from Asian producers, with lower cost structures, reinforces the need to adopt advanced technologies to maintain relevance in international markets.

Recently, the sector has received significant support through grants for innovation and the transition to more sustainable production processes. Ensuring greater supplier diversification, together with the development of proprietary technologies, is essential to strengthen the sector's resilience to the challenges of global economic fragmentation. Innovation and sustainability in the ceramic sector . The implementation of advanced technologies such as ceramic 3D printing, the use of green hydrogen and the digitalization of the value chain are not only key to its competitive future, but could also serve as a basis for integrating additional capabilities that reduce concentration risks.

These moves align the sector with European trends and reinforce its role as a strategic industrial player in Spain, promoting sustainability and technological innovation.

Conclusions

Industrial policy theory has come a long way from its protectionist beginnings to its current form, which combines sustainability, innovation and global competitiveness. Growing economic fragmentation and European industrial decline have acted as catalysts for renewing these strategies, focusing on key sectors and adopting a more active approach by States.

The Castellón ceramics cluster is an example of how industrial policies can be adapted to local needs while contributing to national and European strategic objectives. The key lies in effective implementation that ensures that the benefits of these policies are equitably distributed and generate a transformative impact on the economy and society.