Industrial policy is back - it's currently central to the agendas of both the EU and the UK . This resurgence comes amid a polycrisis marked by climate breakdown, social inequality, energy insecurity and geopolitical instability. And it reflects a wider shift. Governments across G20 countries are stepping in more actively to shape their economies, moving away from the idea that markets should be left to run themselves.
Authors
- Richard Bärnthaler
Lecturer (Assistant Professor) in Ecological Economics, University of Leeds
- Jason Hickel
Professor at the Institute for Environmental Science and Technology, Autonomous University of Barcelona
This is an important development. But current frameworks for industrial policy risk deepening the crises they are meant to solve.
In our research with Sebastian Mang of the New Economics Foundation, we have found that in the case of the EU, its industrial policy framework is riddled with contradictions.
It seeks resilience, yet fails to strengthen essential public services that underpin stability. It aims for strategic autonomy, yet reinforces resource dependencies. And while it gestures towards sustainability, it remains tethered to private-sector strategies that delay the phase-out of harmful industries.
Eroding foundations
EU industrial policy aims to strengthen the resilience of the bloc's single market by preventing supply chain disruptions. It rightly views Europe's economy as an interconnected ecosystem, where shocks in one sector ripple across others. But it fails to prioritise the foundational sectors that sustain everyday life. These include essential services such as food, utilities, housing, healthcare and public transport.
Two core issues drive this failure. First, deregulation in the single market has often extended to essential services, pushing providers to operate like private businesses. For example, liberalisation of the energy sector has contributed to volatile prices and energy poverty. And EU competition law and state aid rules have historically constrained social housing provision.
Yet social resilience - the capacity of communities to withstand and recover from crises - and, by extension market resilience, rely on these essential services. But affordable housing, universal healthcare and affordable energy for households are often not prioritised.
Second, EU industrial policy lacks a clear definition of which sectors are "critical" and why. This results in inconsistent lists of priority industries and technologies, while foundational sectors like energy and housing often remain overlooked.
These blind spots have real consequences. Around 40% of Europe's workforce is employed in foundational sectors . These sectors are where low-income households spend about two-thirds of their income . Yet they often remain precarious and undervalued, leaving Europe more exposed to economic shocks.
To build real resilience, industrial policy must reassert public control over essential services and recognise them as priorities. This means redefining what counts as "critical", supporting jobs in foundational sectors and accelerating public investment. This investment could be enabled through measures such as reforming the fiscal rules and with joint borrowing by member states.
The scramble for resources
Europe is pushing for strategic autonomy (the capacity of the bloc to act in strategically important areas, without being dependent on non-member countries). The aim is to reduce reliance on imports in key industries such as green technology.
But to make this happen, the EU should put reducing demand for resources and energy at the centre of its industrial policy. Instead, however, its Critical Raw Materials Act foresees skyrocketing consumption of rare earths, lithium and other inputs.
This strategy is self-defeating. It increases the likelihood of European aggression towards the rest of the world and ultimately threatens long-term security and peace for all. These tensions are already surfacing. Export restrictions on things such as nickel, cobalt and rare earth minerals are multiplying. In an era of geopolitical ruptures, these tendencies are likely to intensify .
At the same time, resource conflicts are also escalating within Europe itself. Tensions are emerging in countries including Serbia , Portugal and Greece over lithium and copper, and the environmental and social costs of mining them. And indigenous communities such as the Sámi in northern Europe face threats to their land and rights.
This is not to argue against increasing the extraction of raw materials within Europe. However, without an absolute reduction in energy and material use, these contradictions will deepen. To avoid these problems, the EU must centre industrial policy on reducing unnecessary demand. Some key moves could include investing in public transport instead of subsidising cars, prioritising retrofitting over new building, ending planned obsolescence and backing agro-ecology over industrial farming.
Research shows that this kind of strategy could significantly lower Europe's energy use. It could also drastically cut reliance on critical imports and contribute to achieving energy independence by 2050. This is all without compromising basic quality of life.
If Europe wants peace and security, demand reduction is a rational approach that must be at the heart of the EU's industrial strategy. This should be adopted alongside strengthening ties of cooperation and integration with the rest of Eurasia and the global south, rather than ramping up antagonism towards these neighbours.
Green transition
The EU's vision of "competitive sustainability" rests on the belief that market incentives and the private sector can drive the green transition. Yet despite decades of efficiency improvements, high-income countries have not decoupled material use and emissions from economic growth at the speed and scale required.
The EU remains reliant on derisking - using public subsidies, guarantees and looser regulations to make green investments attractive to private finance. But as this approach leaves both the pace and direction of change to private capital, it slows the phase-out of harmful industries.
What's missing is more effective economic planning to restore public control over decarbonisation. Achieving this means building on existing mechanisms capable of delivering change - such as public credit guidance . This sets rules to limit the flow of finance from commercial banks to damaging sectors while directing investment toward sustainable ones.
China offers an example whereby the central bank has used public credit guidance to shift finance to cleaner sectors. The European Central Bank also experimented with credit guidance between 2022 and 2023, introducing climate scores for companies. And post-war France used planned credit to modernise infrastructure over two decades.
Europe and the UK are rearming, climate shocks are intensifying and global power dynamics are shifting. This moment demands a new industrial strategy - one that prioritises foundational sectors and creates fiscal space to build resilience. Reducing demand must be a prerequisite for security, peace and strategic autonomy. And reviving economic planning tools, such as public credit guidance, can accelerate the green transition.
Without these shifts, Europe and the UK face an increasingly unstable future. Industrial policy must change because the stakes are existential.
The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.
