Centering Workers and Communities in Global Industrial Policy

By Ayo Aladesanmi

Across the world, industrial policy is back and bigger than ever, and governments are deploying billions of dollars toward industrial policy initiatives. Broadly speaking, industrial policy is the government provision of grants, incentives, or other targeted measures to private sector entities to achieve strategic goals, such as investing in renewable energy sources, enhancing national security, or bolstering global economic competitiveness.       

In the United States, the Inflation Reduction Act (IRA) allocates nearly USD 30 billion for building and scaling clean energy projects. The European Union (EU) recently proposed the European Sovereignty Fund—an EUR 800 billion industrial policy package—to create incentives and regulations to speed up technology production. And in some African countries, such as Ghana and Cote d’Ivoire, policymakers are leveraging industrial policy to fortify their segments of global cocoa supply chains to benefit local cocoa manufacturers.

For households and taxpayers across the world, however, the question remains: how will governments ensure that providing massive grants and financial incentives to private companies will ultimately help individuals and communities?

So far, the answer is still uncertain. Recent outcomes show, however, that an explicit focus on subnational administration, active multilateralism, and workplace-based learning will help policymakers to calibrate global-scale implementation decisions to human-scale perspectives. These approaches will be key for bringing new jobs, new investments, and new industry to the areas that will benefit most, as well as for using industrial policy to tangibly benefit workers, families, and underserved communities.

CHALLENGES AND OPPORTUNITIES

In the United States, new initiatives authorized by the IRA and Infrastructure Investment and Jobs Act (commonly known as the Bipartisan Infrastructure Law) have earmarked billions of dollars to make meaningful investments across various sectors. These investments will benefit many large U.S. companies, from semiconductor fabrication plants to electric vehicle charging station manufacturers. Meanwhile, funding to provide accessible support services for the workers in these industries—such as childcare subsidies or transportation credits—remains scarce.

An encouraging start to addressing this issue are certain provisions in the CHIPS & Science Act of 2022. The act requires applicants to also submit plans for how they intend to provide accessible childcare to their workers. This requirement has already received considerable political pushback, though, and it still does not explicitly outline how much funding from the act will be reserved for other critical worker-focused support mechanisms.

In the EU, some states have shown an early willingness to collaborate on industrial policy investments, which could bring enhanced coordination and economic efficiency to taxpayer-funded programs. In other situations, however, industrial and economic rivalry is still the first instinct for many business and political leaders.

National leaders in Germany and France, for example, expressed joint support for European industrial policy as early as 2019. Yet only a few years later, the proposed merger of an Italy-based shipbuilder and a France-based competitor went awry, potentially due to “nationalist animus.” The situation represents the kinds of valuable opportunities facing European businesses that could be endangered if business leaders forgo mutually beneficial partnerships for rivalrous, nationalistic behavior and decision-making. In addition, while some states have pledged support in principle for these kinds of implementation agreements, very few of them have actually been realized—potentially due to the limits of state financing, accusations of protectionist economic policy, or even disputes over the actual effectiveness of government-led industrial policy.

Research has shown, though, that bilateral and multilateral agreements will be essential for allowing European countries and their residents to share in the success that industrial policy can bring. International organizations and foreign ministries alike recognize that active multilateralism helps to promote fair business conditions for both workers and firms and creates economic efficiencies across products and sectors. Multilateral agreements also support open markets and a global rules-based trade system.

Nevertheless, ongoing U.S.-EU talks have not yet resulted in any major, concrete steps toward multilateral partnerships in industrial policy implementation. During U.S.-EU negotiations in October 2023, partnership opportunities were stymied because of disagreements over existing trade rules, labor and environmental regulations, and China’s rising geopolitical influence. But in each of these areas, successful negotiations and coordinated action will provide important opportunities for the United States and the EU to optimize industrial policy investments, benefitting both American and European businesses and the individuals working for them.  

Across the Global South, increasing interest in industrial policy demonstrates the varying strategies that developing countries are using to position themselves favorably for the future. For example, as Ethiopia invests in nation-wide industrial parks to serve as manufacturing hubs and business incubators, national leaders have also recognized the importance of skills development for workers to prepare them to join the globalized manufacturing sector. In particular, in recent years, many African countries have started using development financing to support high-potential homegrown industries—a strategy that combines active public sector governance with iterative private sector ingenuity.

In many of these countries, however, worker-focused skills development is still not the centerpiece of industrial policy implementation, even though it holds the key to equitable and sustainable development across Global South regions. If these strategies for industrial development fall short, twenty-first century industrial policy could devolve into the typical instances of crony capitalism and poor governance that shaped many developing countries throughout the twentieth century.

STRATEGIES AND SOLUTIONS

In executing industrial policy, a clear focus on worker needs will be paramount. Maintaining this focus requires both local and global stakeholders to embrace three key ideas: wide discretion for sub-national actors, smart bilateralism and multilateralism, and understanding the future of work in key sectors.

Especially in the United States, meaningful discretion for subnational stakeholders—such as public officials across states, cities, metropolitan areas, and multistate regions—creates more opportunities to calibrate the implementation of industrial policy to meet the needs of the neighborhoods and communities that stand to benefit most. Therefore, U.S. policymakers should consider devoting a fixed proportion of all industrial policy funding to worker-focused support services. When combined with subnational actors’ influence and discretion, this kind of measure would empower local stakeholders to make policy decisions that sufficiently center social equity and effectively support workers in underserved communities.

For the EU and across developed countries, smart and intentional bilateralism and multilateralism means that countries will partner strategically with economically-aligned countries while making industrial policy investments according to their comparative economic advantages. To date, however, this approach has been unpopular in the world’s largest economies. The place-based nature of industrial policy has driven countries to focus on the benefits of building industries within their borders, as opposed to investigating how multilateral partnerships can bring shared prosperity across borders. 

In order to simultaneously recognize industrial policy’s place-based motivations and foster globally minded strategic cooperation, researchers, advocates, business leaders, and policymakers should consider creating a global clearinghouse—a database of reputable information and recommendations—for industrial policy implementation strategies. Not only would this kind of exchange create a repository for best practices, but it would also provide a forum to research and debate emerging principles for navigating the world’s new industrial policy era.

And throughout the developing world, the implementation of worker-focused industrial policy could act as a watershed moment in the shift away from foreign aid dependence toward earnest efforts in sound economic governance.

In regions such as South and Central America, Southeast Asia, and sub-Saharan Africa, efficient implementation of industrial policy could result in new economic opportunities for workers and businesses. But, perhaps more importantly, it would also reflect the decades of effort that citizens, advocates, and civil society groups have spent to reform the public institutions that govern the commercial and industrial activity of countries in these regions. The best way for leaders in these countries to bring the benefits of industrial policy to workers and families is to devote considerable attention to the future of work in sectors that will be critical for economic development in the coming decades.

And in particular, African business leaders working in high-growth sectors should use development financing to increase worker-focused investments and learning opportunities—such as work-based education in advanced manufacturing, exposure to global forms of digital entrepreneurship, or learning about distributed ledger and blockchain technology according to the most secure practices. If business leaders and policymakers create and scale these kinds of supports, many African workers will be able to access additional high-skill jobs in the formal economy, learn how to incorporate digital technologies into manufacturing processes, and introduce new lines of business according to their country’s comparative advantages.

MEETING THE MOMENT

The world is rapidly changing, and many individuals, families, and communities have already been left behind. Governments are failing to prepare their citizens for the future and the global economy continues to favor only a small minority of people.

In the face of these challenges, though, industrial policy can provide opportunities for countries across the world to advance and develop. By implementing industrial policy while centering the perspectives of individuals and communities, these investments can also help to level the playing field for workers and families, and in turn, prepare everyone to participate in the economy and society of the future.

Ayo Aladesanmi is an MPA/ML graduate from the University of Pennsylvania and was a 2022-23 Global Shifts Graduate Associate at Penn’s Perry World House. During his public administration studies at the Fels Institute of Government, Ayo focused on urban policy and public management. As a master’s in law student at Penn Carey Law, Ayo studied administrative law and public governance. During graduate school, Ayo interned with the U.S. Economic Development Administration and worked as a research consultant with Equitable Cities Consulting, a Philadelphia-based consulting practice focused on inclusive economic development. Ayo holds a B.S. in Economics from the Georgia Institute of Technology and calls the Atlanta area home. He thanks Clay Risen, Visiting Fellow at Perry World House, for rigorous revision and feedback on this essay.

“Industrial Policy Action Plan Launch” is by GovernmentZA and is licensed under CC BY-ND 2.0.