Industrial policy is back in fashion. It is discussed as a response to technological shifts, climate goals, and competition for supply chains. Germany is often cited as an example of a country where industrial policy supported a strong manufacturing base for decades. But this story has another side. Costly mistakes, failed projects, and cases where policy began to serve not public goals, but the interests of specific players.
The main lesson of recent years is simple. Even mature institutions are not immune to capture. Industrial policy without built-in safeguards quickly turns into a mechanism for rent redistribution. This experience is especially important for Kazakhstan, where public trust in state support for business remains fragile.
Industrial policy rarely fails because of bad intentions. More often, it is undermined by uncertainty and asymmetric information. The state makes decisions in an environment where future technologies are unclear, while businesses know more about real risks and costs. Mistakes are inevitable.
Germany was no exception. One of the most illustrative cases is magnetic levitation trains. The idea looked revolutionary. Trains without friction. Very high speed. Technological leadership. The state invested in research and test tracks for decades. Commercial projects and exports were expected.
In reality, simpler and cheaper solutions won. Conventional high-speed trains on wheels proved more economically viable. Maglev never became a mass product. Investments did not pay off. The project was eventually shut down.
With hindsight, this decision is easy to criticize. But the logic behind it was clear. Private capital rarely funds radical technological leaps with long horizons and high risk. In such cases, the state acts as a venture investor. It invests in a portfolio, not a single idea. Some projects fail. That is the price of a possible breakthrough. The problem starts when failures are not recognized in time or continue to be financed by inertia.
The second group of problems is more dangerous. It is linked not to uncertainty, but to political capture. Large players begin shaping rules in ways that shift policy away from public goals. Germany faced this repeatedly, especially in energy policy. Energy-intensive industries received exemptions from levies that funded renewable energy expansion. Initially, the logic seemed reasonable. Firms competing globally should not lose ground due to extra costs.
Over time, however, the list of exemptions expanded. Firms without real international pressure were included. Lobbying diluted the criteria. The burden shifted to other consumers, and incentives to improve efficiency weakened. Another revealing case is nuclear energy. For years, the state financed research, provided regulatory support, and absorbed part of the risks. Profits from operations stayed with private operators. When policy changed and plants were shut down, a large share of waste management and decommissioning costs fell on society. This is a classic asymmetry. Profits are privatized. Risks are socialized. Everything happened legally. But public interest came second.
Such cases undermine trust in industrial policy, even where it works. They fuel the argument that any active state role inevitably creates rent-seeking. Germany shows this is not inevitable. But it also shows the risk is real and requires institutional safeguards.
Another vulnerability is inertia. Once a program is launched, interest groups form around it. Jobs. Budgets. Reputations. Stopping or adjusting the policy becomes politically difficult, even if goals are no longer relevant. As a result, resources continue flowing into outdated areas, while new priorities lack support. Germany encountered this in digitalization and decarbonization. The country long held strong positions in green technologies, but later lost ground to those who scaled new solutions faster. Pressure from traditional sectors slowed course correction. These problems do not cancel the successes of industrial policy. They highlight the cost of mistakes and the importance of self-correction mechanisms.
Germany gradually built such mechanisms. One key tool is competitive selection. Support is often allocated through open tenders, where projects compete for funding. This reduces direct lobbying and forces applicants to present clear strategies. Another element is time limits. Support is not permanent. It is granted for a defined period and reviewed. If targets are not met, programs are closed or redesigned. Institutions also matter. Independent auditors, courts, free media, and active civil society increase pressure on policymakers. Capture does not disappear, but it becomes more expensive in reputational and legal terms.
In Kazakhstan, industrial policy is often proposed as a cure for resource dependence and technological lag. But in public perception, it is frequently associated with privileges and support for insiders. This perception has real roots. The country’s history of state support includes many cases where efficiency was secondary and access depended on connections.
Germany’s experience is valuable precisely because of its dark side. It shows that risks arise even where institutions are strong. For Kazakhstan, this means safeguards must be built in from the start.
First safeguard: transparency. Support must be based on clear and public criteria. Who qualifies. For how long. Under what obligations. Without this, any program quickly turns into bargaining.
Second safeguard: competition. Competitive selection reduces capture risk. It does not guarantee perfect outcomes, but it forces disclosure of plans and measurable commitments. With limited resources, this is critical for Kazakhstan.
Third safeguard: co-financing. When recipients invest their own money, incentives change. Support is no longer free. Mistakes hurt both the budget and the business. Germany uses this widely. It does not prevent failure, but it limits losses.
Fourth safeguard: time limits. Support must have an expiration date and review conditions. No automatic extensions. This disciplines both administrators and beneficiaries. For Kazakhstan, this could counter the practice of endless programs with changing names but the same substance.
Germany also faced rising inequality and social exclusion amid wage restraint and structural change. This undermined public support for reform. Kazakhstan faces a similar risk. If sector support is not paired with investment in skills and workforce adaptation, political sustainability will be weak. Industrial projects without a social component increase tension.
Another key lesson is the state’s role as a venture investor. Failures are inevitable. The issue is not how to avoid them completely, but how quickly they are identified and contained. Germany shut down maglev when it became clear the economics did not work. Painful, but rational. For Kazakhstan, the ability to admit failure and stop financing will be critical. Without this, industrial policy risks becoming a collection of dead assets.
The most important safeguard is institutional autonomy. Bodies allocating support must be embedded in the economy, but protected from direct pressure. This balance is difficult. Germany does not always achieve it, but the very goal allows course correction. For Kazakhstan, building such autonomy will be one of the hardest, and most necessary, steps.
Industrial policy without illusions starts with acknowledging risks. Germany learned this through mistakes, conflicts, and revisions. Its experience shows that an active state role does not equal arbitrariness if constraints and feedback are built in. For Kazakhstan, this lesson is timely. The country faces a choice. Either industrial policy becomes a tool of long-term transformation, with clear rules and safeguards. Or it remains a synonym for rent and distrust.
Germany does not offer ready-made recipes. It offers a map of minefields. And that is often more valuable.
Alen Serik, expert of the portal EconomyKZ.org
