The quiet return of industrial policy across the West

Mario Draghi spent the defining stretch of his career as the head of the European Central Bank, an institution whose entire operating philosophy rests on the idea that markets, left alone with sound money and clear rules, allocate capital better than governments do. So it’s worth sitting with the fact that the same Mario Draghi, in his own 2024 report on European competitiveness, explicitly called for Europe to abandon what he termed its “small-state mentality” and build an active, sector-by-sector industrial policy at the EU level. That’s not a technocrat tweaking a few regulations. That’s one of the most credible custodians of market orthodoxy in modern European history looking at the data and concluding that the orthodoxy itself had stopped working for the situation Europe is actually in.

The numbers behind that reversal are large enough that they’re hard to dress up as anything other than what they are: a return of the state as an active industrial actor, after roughly four decades in which “the government shouldn’t pick winners” was close to unchallenged conventional wisdom across most of the West. The global semiconductor subsidy race alone has pulled in more than $170 billion in public and private commitments. The US CHIPS Act allocates $52.7 billion directly, with the CHIPS Program Office having now committed $38.7 billion of its available funding across 23 recipients and physically disbursed around $11 billion of it against verified construction milestones - real money, moving, against real poured concrete. The European Chips Act aims to mobilize more than €43 billion, and a follow-up proposal introduced this June would extend state aid eligibility across the entire semiconductor value chain, from raw materials through packaging, rather than just the flagship fabrication plants that got most of the initial attention.

What I find most telling isn’t the size of these numbers, though - it’s how granular the intervention has gotten. This isn’t a broad tax credit available to any qualifying company. Germany’s government secured European Commission approval this July for direct, named subsidies to four specific semiconductor facilities: 353 million euros for one plant, 214 million for another, smaller amounts for two more, each approved individually, each tied to a specific company and a specific site. That’s industrial policy in its most literal, old-fashioned sense - a government looking at a map, deciding which factories in which towns matter strategically, and writing checks accordingly. It’s precisely the kind of state intervention that European competition law spent decades constraining, now moving through the same institutions that used to police it, because those institutions decided the strategic cost of not doing it had become larger than the market-distortion cost of doing it.

Defense spending tells the same story from a different angle, and it comes with a specific number that I think explains the whole shift better than any policy paper: of roughly €75 billion European member states spent on defense procurement in one recent stretch, nearly 80% went to imported weaponry - 63% from the United States alone. Europe wasn’t under-spending on defense. It was spending plenty, just almost entirely on someone else’s industrial base, which is a strategic vulnerability that looks a lot like the semiconductor and energy dependencies driving the same reversal elsewhere. Germany’s own defense spending has since climbed 24% year over year to roughly $114 billion, part of a broader European rearmament push that helped drive global military spending to a record $2.9 trillion. Draghi himself called Germany’s shift a “game changer,” which from the person who spent a career warning against loose fiscal discipline is a genuinely notable choice of words.

I think the honest way to describe what’s happening across all of this - chips, defense, critical minerals, energy - is that the West spent roughly forty years treating efficient global markets and national resilience as the same thing, on the theory that the most efficient supplier anywhere in the world was, by definition, good enough to depend on. The last several years of pandemic shocks, war in Ukraine, and open strategic competition with China broke that assumption decisively enough that governments across very different political traditions all arrived at roughly the same conclusion independently: efficiency and resilience are not the same property, and optimizing for one can actively undermine the other. What’s quiet about this return of industrial policy isn’t its scale - €43 billion and $52.7 billion and named subsidies to named factories are not small, quiet numbers. What’s quiet is the almost complete absence of anyone standing up to explicitly announce the ideological reversal underway. Nobody’s holding a press conference to say “we were wrong about markets for forty years.” They’re just doing it, one targeted subsidy and one rearmament budget at a time, under the technical language of resilience and de-risking, while the actual scale of the U-turn keeps compounding underneath the vocabulary chosen specifically to make it sound like less of one.