Industrial policy has once again become one of the central tools of economic strategy. Only a few years ago, the dominant view was that markets would allocate capital efficiently, identify promising technologies and determine future winners on their own. But geopolitical tensions, the race for technological sovereignty, the climate transition and the restructuring of global supply chains have pushed governments back into a more active role. Today, states around the world are subsidizing industries, financing new production facilities, supporting strategic sectors and trying to accelerate structural transformation. Yet as intervention expands, an increasingly uncomfortable question emerges: why do some countries create globally competitive industries while others simply expand the list of businesses dependent on government support?
The answer emerging from international experience is far less straightforward than the traditional debate over budget size or policy quality. The issue is not merely how much support governments provide, but the nature of the industries being supported and the mechanisms used to support them. China has become the world’s largest laboratory for testing this proposition. Over the past several decades, the country has simultaneously backed heavy industry, transportation, energy, shipbuilding, electronics, semiconductors and emerging technologies. The scale of that experience reveals a pattern that is often difficult to observe in individual countries: industrial policy is not universally effective. It can generate growth in some sectors while entrenching inefficiency in others.
Government support tends to deliver the strongest results in industries where technologies are relatively mature and production can be scaled rapidly. Shipbuilding offers one of the clearest examples. Chinese shipyards expanded capacity at remarkable speed, increased output and captured a growing share of the global market. At first glance, this appeared to be an unquestionable industrial policy success. Yet as the sector expanded, less visible problems began to emerge. Capacity grew faster than demand. The number of firms increased faster than their ability to generate profits. Utilization rates declined, while profitability remained under pressure. Government support allowed businesses to survive, but it did not always make them more efficient.
For Kazakhstan, this lesson is particularly relevant. Many capital-intensive projects can produce impressive results in their early stages. Investment rises, output expands and jobs are created. But if a business remains viable only because support never ends, the economy gains not a new growth engine but a new fiscal obligation. The existence of production facilities alone does not create a competitive industry. The key question is whether companies can survive once the state steps back.
The picture looks very different when government support aligns with market incentives. The development of the electric vehicle industry demonstrates that the most durable outcomes emerge not when governments try to replace markets, but when they help markets accelerate. In this sector, subsidies were accompanied by growing domestic demand, expanding infrastructure and intense competition among producers. Companies competed not only for access to government support but also for customers. That pressure forced firms to reduce costs, improve quality and pursue technological innovation. The state acted as a catalyst rather than the sole engine of growth. As a result, the industry moved beyond the domestic market and became integrated into global production networks.
This points to one of the most important lessons for Kazakhstan. Industrial support only makes sense where real demand already exists or can emerge quickly. Without a market, governments end up financing the appearance of development rather than development itself. Factories continue operating. Projects continue expanding. Reports continue showing progress. Yet the economic return remains limited. On the surface, such a model may appear sustainable. In reality, it often becomes a mechanism for preserving the existing economic structure.
The challenge becomes even greater in technologically advanced sectors, where the highest expectations collide with the toughest constraints. Efforts to accelerate semiconductor development have shown that even enormous financial resources cannot quickly eliminate technological gaps. The reason is simple: advanced technologies are not created by money alone. They require accumulated knowledge, engineering culture, research ecosystems, specialized suppliers and human capital that often take decades to develop. These ingredients cannot be produced through administrative directives or another subsidy program.
This is why attempts to leap directly into the most sophisticated technological niches often become the most expensive mistakes in industrial policy. The more complex the technology, the greater the risk that financial resources create the external appearance of an industry without its underlying capabilities. For Kazakhstan, this lesson is especially important. The ambition to move rapidly from a resource-based economy toward high technology is understandable and attractive. Yet international experience suggests that technological breakthroughs rarely occur by skipping several stages of development at once. More often, they emerge through the gradual accumulation of capabilities, the steady upgrading of production and the systematic development of a broader technological ecosystem.
This is where modern industrial policy begins to diverge from traditional approaches. An increasing number of countries are focusing less on protecting existing industries and more on creating the conditions for new technologies to emerge. The shift is particularly visible in three areas: the climate transition, the technological frontier and new regulatory requirements that are steadily reshaping access to global markets.
The climate transition is becoming industrial policy not simply because governments want to meet environmental commitments. More importantly, it is creating entirely new markets, value chains and investment opportunities. Private capital is often reluctant to finance projects with long payback periods and significant uncertainty. Governments therefore assume part of the risk, creating conditions for industries that might otherwise emerge much later, or not emerge at all. For Kazakhstan, the climate agenda is increasingly becoming less about compliance and more about future competitiveness.
Perhaps the most important lesson from global experience, however, is not about choosing industries. It is about choosing the right instruments. For decades, most governments relied on tariffs, subsidies, concessional loans and protection of domestic markets. Such policies often generated short-term growth, but much less frequently produced lasting technological advantages. Over time, companies adapted to the support system and began competing not for customers but for access to government resources. Investment in innovation gradually gave way to investment in preserving existing positions.
As a result, the center of gravity in industrial policy is shifting toward research and development, technological consortia and innovation-oriented public procurement. Their key advantage is that they do not focus on a single company. They focus on the source of competitiveness itself: technology, knowledge, engineering capabilities and research institutions. Subsidies support firms. Research transforms the environment in which all firms operate.
For Kazakhstan, this may be the most important lesson in the entire global debate on industrial policy. The real question is no longer how much money should be allocated to industrial support, nor which sectors should be added to the next list of priorities. The more fundamental question is whether industrial policy creates new knowledge, new technologies and new capabilities, or merely extends the life of the existing economic model. The answer will determine whether industrial policy becomes a tool for long-term development or remains an expensive system for supporting the past.
Lina Yegil kizi, expert of the EconomyKZ.org portal
