ver the past few years, governments have reached deep into the policy toolbox. Faced with a cascade of global shocks, from the Covid pandemic to rising geopolitical tensions, they've responded with bold new ideas to shore up resilience, rewire supply chains, and rebuild growth. Chief among these ideas: a revival of industrial policy.
But there’s a critical flaw in how some governments are going about it. While national strategies get most of the attention, local realities are being left out of the conversation. Place, where policy actually meets people, is too often treated as an afterthought.
This is a mistake. If industrial strategies are to succeed, especially in a world of limited fiscal space and growing political fragmentation, they must be built with place in mind.
Why local matters now more than ever
Long–term growth is faltering. In the OECD, average growth since 2000 has dropped to just 2% a year, well below the pace of previous decades. Productivity gains are sluggish, and inequalities between regions remain stubbornly high. In fact, the most productive regions in OECD countries are now twice as productive as the least.
That divide isn’t just an economic concern, it’s political dynamite. Communities that feel left behind are losing faith in institutions and policy itself. Social trust is eroding, polarization is growing, and digital echo chambers are amplifying the discontent.
At the same time, public finances are stretched. Governments face rising debt burdens and an ageing population. Every policy dollar must go further. That means investing where it counts, and doing so in a way that reflects real–world complexity.
The untapped power of subnational government
Place–based industrial policy offers a way forward. But it requires national governments to recognize and engage the power of local institutions. In OECD countries, subnational governments are not marginal players. In 2023, they spent over $13 trillion, around 16% of GDP, and were responsible for over half of all public investment, including two–thirds of climate–related public investment.
They also make critical decisions on land use, infrastructure, housing, and skills—shaping the ecosystems where businesses choose to locate and grow. These local governments are better positioned to understand regional strengths and essential for building lasting coalitions around change.
Yet too often, national strategies are “place–blind”, designed centrally and deployed uniformly. That leads to policies that miss the mark, frustrating local leaders and deepening mistrust.
Three things national governments must do now
First, embed place in national industrial strategies. That means tailoring approaches to different types of regions, whether tech–driven urban hubs, industrial heartlands in transition, or rural areas with untapped potential. One–size–fits–all rarely works.
Second, build stronger, more structured partnerships between national and local governments. That includes aligning incentives, clarifying roles, and sharing data to enable joint decision making. This is especially crucial for cross–cutting issues like the green and digital transitions, which require action across levels of government.
Third, back local actors with real resources. Local governments need not just mandates, but money and capacity. Without that, the best–laid national plans will stall on the ground.
A smarter, fairer way forward
Industrial policy is back, and rightly so. But if we want it to deliver for both people and planet, we need to make it smarter and fairer. That starts with acknowledging that place matters.
By connecting national ambition with local delivery, governments can build more resilient economies, rebuild trust, and unlock new sources of growth. In an era of hard choices, that’s a win no country can afford to ignore.
Editor's Note: Read the OECD report "Place-based industrial policy" here.
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Place, the big missing piece in industrial policy
Hull City Hall in Hull, UK. To succeed, industrial policy must embed regional specificity and engage with local governments. Photo by Different Resonance on Unsplash
July 1, 2025
Governments have revived industrial policy to help shore up resilience and rebuild growth. The idea is good, but there are flaws in how governments are going about it, writes Lamia Kamal–Chaoui.
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ver the past few years, governments have reached deep into the policy toolbox. Faced with a cascade of global shocks, from the Covid pandemic to rising geopolitical tensions, they've responded with bold new ideas to shore up resilience, rewire supply chains, and rebuild growth. Chief among these ideas: a revival of industrial policy.
But there’s a critical flaw in how some governments are going about it. While national strategies get most of the attention, local realities are being left out of the conversation. Place, where policy actually meets people, is too often treated as an afterthought.
This is a mistake. If industrial strategies are to succeed, especially in a world of limited fiscal space and growing political fragmentation, they must be built with place in mind.
Why local matters now more than ever
Long–term growth is faltering. In the OECD, average growth since 2000 has dropped to just 2% a year, well below the pace of previous decades. Productivity gains are sluggish, and inequalities between regions remain stubbornly high. In fact, the most productive regions in OECD countries are now twice as productive as the least.
That divide isn’t just an economic concern, it’s political dynamite. Communities that feel left behind are losing faith in institutions and policy itself. Social trust is eroding, polarization is growing, and digital echo chambers are amplifying the discontent.
At the same time, public finances are stretched. Governments face rising debt burdens and an ageing population. Every policy dollar must go further. That means investing where it counts, and doing so in a way that reflects real–world complexity.
The untapped power of subnational government
Place–based industrial policy offers a way forward. But it requires national governments to recognize and engage the power of local institutions. In OECD countries, subnational governments are not marginal players. In 2023, they spent over $13 trillion, around 16% of GDP, and were responsible for over half of all public investment, including two–thirds of climate–related public investment.
They also make critical decisions on land use, infrastructure, housing, and skills—shaping the ecosystems where businesses choose to locate and grow. These local governments are better positioned to understand regional strengths and essential for building lasting coalitions around change.
Yet too often, national strategies are “place–blind”, designed centrally and deployed uniformly. That leads to policies that miss the mark, frustrating local leaders and deepening mistrust.
Three things national governments must do now
First, embed place in national industrial strategies. That means tailoring approaches to different types of regions, whether tech–driven urban hubs, industrial heartlands in transition, or rural areas with untapped potential. One–size–fits–all rarely works.
Second, build stronger, more structured partnerships between national and local governments. That includes aligning incentives, clarifying roles, and sharing data to enable joint decision making. This is especially crucial for cross–cutting issues like the green and digital transitions, which require action across levels of government.
Third, back local actors with real resources. Local governments need not just mandates, but money and capacity. Without that, the best–laid national plans will stall on the ground.
A smarter, fairer way forward
Industrial policy is back, and rightly so. But if we want it to deliver for both people and planet, we need to make it smarter and fairer. That starts with acknowledging that place matters.
By connecting national ambition with local delivery, governments can build more resilient economies, rebuild trust, and unlock new sources of growth. In an era of hard choices, that’s a win no country can afford to ignore.
Editor's Note: Read the OECD report "Place-based industrial policy" here.
