Societies must rethink not only what industrial policy aims to achieve, but how it is designed and governed – Mariana Mazzucato

“Industrial policy is having a revival. But it needs a redesign. Ahead of an event at the LSE Festival on 15 June Mariana Mazzucato describes her “common good framework”, which shifts industrial policy away from a narrow focus on competitiveness or sectoral growth and towards the broader question of how economic transformation can generate shared prosperity and democratic legitimacy. Across the world, industrial policy is once again gaining political momentum. After decades in which governments were encouraged to minimise intervention and “let markets decide”, policymakers across the political spectrum are once again embracing an active role for the state in shaping economic growth. From Europe’s Green Deal Industrial Plan to America’s short-lived, but highly influential, Inflation Reduction Act, governments have increasingly recognised that markets alone will not deliver the scale and speed of transformation required to address the complex challenges we face today. My recent work on mission-oriented industrial strategy, with Sarah Doyle and Luca Kuehn von Burgsdorff, argues that this resurgence reflects a broader recognition that major societal challenges – from climate change to technological disruption and public health crises – require states capable of setting direction, co-ordinating investment and building collective capacity. Industrial policy is increasingly returning not as a relic of the past, but as a necessary tool for shaping the future. Even institutions that once championed market liberalisation are reassessing their position. The World Bank’s chief economist, Indermit Gill, recently acknowledged that the institution’s previous stance against industrial policy “has not aged well.” For decades, the World Bank had discouraged state intervention and industrial targeting. Today, however, it increasingly recognises the importance of industrial policy for development, green transformation and structural change. As Lara Merling and I recently wrote , this shift must be accompanied by a broader rethinking of economics itself: one that sees governments not merely as correcting market failures, but as actively shaping and co-creating markets around collective goals. While this shift is certainly welcomed, and is something I have argued for over many years in books such as The Entrepreneurial State , first published more than 15 years ago, many new proponents of industrial policy are still falling short. Much of the renewed enthusiasm has focused on technical questions: which sectors to target, how to structure incentives and how to measure spillovers. These questions matter. But they overlook a deeper challenge: industrial policy is not only an economic project. It is also a political and democratic one. You cannot do good without a new theory of what good actually is For decades, industrial policy was often associated with a top-down model of economic governance in which governments selected strategic sectors, supported national champions and negotiated primarily with large firms and industry insiders. Citizens were typically treated as passive beneficiaries of growth rather than active participants in shaping economic priorities. While these strategies sometimes generated innovation and growth, they also frequently concentrated benefits within particular sectors or regions while the broader public saw fewer tangible gains. In highly polarised societies marked by distrust in institutions, rising inequality and regional divides, this legacy has become politically risky. Even the most technically sophisticated industrial policies can fail if citizens do not perceive them as legitimate. Public backlash against climate policies, opposition to infrastructure projects and resistance to economic transitions all reveal the limits of technocratic policymaking detached from social consent. The current revival of industrial policy presents an opportunity to rethink not only what industrial policy aims to achieve, but how it is designed and governed. The central challenge is not simply whether governments can direct investment effectively, but whether they can build industrial policies that citizens perceive as fair, participatory and collectively beneficial. This is where the “common good framework”, which I develop in my new book, The Common Good Economy , becomes essential. The common good approach A common good approach shifts industrial policy away from a narrow focus on competitiveness or sectoral growth and toward the broader question of how economic transformation can generate shared prosperity and democratic legitimacy. It recognises that citizens are not passive recipients of policy, but active participants in shaping economic direction. The Common Good Compass Importantly, there are already emerging examples of how industrial policy can be designed more democratically. Some governments are experimenting with participatory policy design assemblies on climate transitions, participatory budgeting processes, community benefit agreements tied to infrastructure investments and local consultation mechanisms around green industrial projects. These approaches recognise that legitimacy cannot simply be engineered through communications campaigns after policies are designed. It must be embedded into policymaking itself. The Common Good Compass provides a useful framework for thinking about how industrial policy can be designed around collective outcomes rather than narrow economic indicators alone. First, industrial policy should embed purpose and directionality into economic governance. The question is not only whether a policy increases productivity or attracts investment in a specific sector, but whether it advances collective missions and addresses broader societal challenges. For example, investments in green housing retrofits can simultaneously reduce emissions, lower household energy costs , improve public health outcomes and advance a just green transition . Second, industrial policy should prioritise co-creation and participation. Economic transformation is more likely to gain legitimacy when citizens, workers, local governments and communities have meaningful opportunities to shape priorities and implementation. In Germany, for example, traditions of co-determination and worker participation in corporate governance demonstrate how democratic participation can be institutionalised within economic decision-making rather than treated as an afterthought. Similar approaches have also emerged in Brazil. In Pará, under the leadership of Edel Moraes, Bolsa Verde initiatives combined environmental protection with participatory governance and social inclusion, recognising local and indigenous communities not simply as beneficiaries of development policy but as active stewards and co-creators of sustainable economic transformation. Third, industrial policy should foster collective learning and knowledge sharing. Innovation should not depend on extractive systems in which knowledge is privatised and concentrated among a small number of firms. Instead, governments can support open innovation ecosystems, collaborative research networks, patent pools and knowledge-sharing partnerships. The mRNA Technology Transfer Programme , which is backed by the World Health Organisation and seeks to expand vaccine production capabilities across the global south through shared technological knowledge, offers one example of how innovation can be governed more collectively. Fourth, industrial policy should ensure access for all and reward sharing. Public investment should generate broad-based benefits rather than concentrated gains for a small number of firms or sectors. For instance, public support for renewable energy industries can include conditions around local job creation, workforce training, community ownership models or reinvestment into underserved regions, ensuring that the rewards from transformation are shared more equitably. As Dani Rodrik and I have argued , conditionalities can help ensure that public support for firms delivers broader social outcomes, from workforce development and regional investment to decarbonisation and fairer reward sharing. Finally, industrial policy must strengthen transparency and accountability. Citizens need visibility into how decisions are made, who benefits from public investment and whether policies are delivering on collective goals. Taiwan pioneered a model of “radical transparency” in which all government meetings were published online and citizens were directly involved in policymaking through platforms such as vTaiwan . Using digital tools designed to build consensus rather than deepen polarisation, these initiatives demonstrated how transparency and participation can reinforce one another to create more accountable and democratic forms of governance. Taken together, these dimensions shift industrial policy away from a narrow model in which governments subsidise strategic industries and simply hope that benefits eventually trickle outward. Instead, they suggest that the success of industrial policy depends not only on what governments build, but also on how those transformations are governed and who gets to benefit from them. If industrial policy is necessary to address the great challenges of our time, then it must also be designed in ways that bring people along rather than leave them behind. Economic transformation cannot succeed if citizens experience it as something imposed from above while rewards remain concentrated among a narrow set of sectors, firms, or interests. Saving the planet ultimately requires building economies that work for the common good, where democratic legitimacy and shared prosperity are treated not as afterthoughts, but as central conditions for transformation itself. On 15 June Mariana Mazzucato will explore her new theory of the common good with LSE President Larry Kramer in “ How to save the planet ”, part of the LSE Festival. To watch this or any other LSE Festival event online please register here . The post Societies must rethink not only what industrial policy aims to achieve, but how it is designed and governed – Mariana Mazzucato first appeared on LSE Business Review .

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