On Pakistan's Industrial Policy

 The debate on industrial policy has once again resurfaced in Pakistan’s official circles — and for good reason. It is a global conversation, and Pakistan cannot remain an exception. Some may say industrial policy is “back on stage”; in truth, it never fully disappeared. Even in the most neoliberal settings — the United States, the United Kingdom, and the European Union — governments continued to practice it, albeit under different labels. Far from being a relic of the past, today’s initiatives such as the CHIPS & Science Act in the USA (2022), the European Chips Act (2023), and the UK’s Steel Industry Act (2025) are just a few examples of how governments still turn to industrial policy openly when it matters.

The debate was further popularized by Mariana Mazzucato’s influential book “The Entrepreneurial State”, which argues that patient, upfront public investment is indispensable for kick-starting innovation and industrial development. Markets are good at scaling and commercialization once the path is visible; what they lack are incentives to pursue long-term public goals — in decarbonization, health, or welfare.

The state’s entrepreneurial logic is now extending to the regulatory domain. Industrial policy is no longer confined to grants, subsidies or tariffs; it increasingly uses regulation to shape the direction of markets. The U.S. Genius Act (2025) — often described as a stablecoin framework — exemplifies this shift. By setting standards for issuance, reserves, and consumer protection, it doesn’t merely fix market failures; it defines the very rules of engagement, echoing the Entrepreneurial State mindset in the digital economy.

But optimism must be tempered with caution. Critics are not silent — and they too for good reason. As noted by earlier contributors in the same pages, there is concern that industrial policy inevitably leads to rent-seeking, protectionism, and wasted resources. The risk is real, but one shouldn’t throw out the baby with the bathwater. The issue does not lie with the idea of industrial policy per se, but with how it is designed and enforced. Without discipline and institutional checks, subsidies and grants risk becoming mere giveaways. With accountability — tied to export targets, productivity gains, or technological upgrading — support can be transformative.

The challenge now is whether Pakistan can replicate such discipline. Its draft National Industrial Policy (NIP) rightly acknowledges the role of discipline but interprets it mostly in institutional terms — better coordination, faster dispute resolution, and streamlined regulation. These are necessary steps, yet true industrial policy discipline also requires reciprocity: public support must be conditional on measurable performance. Tax breaks, credit lines, or access to industrial parks/SEZs should be tied to clear milestones in productivity, exports, and technology upgrading, with sunset clauses for firms that fail to deliver. This is how successful countries — from East Asia to Europe and the USA — ensured that industrial policy was not an entitlement but a bargain, aligning private gain with national goals.

For an industrial policy to be truly transformative, discipline must be paired with a forward-looking outlook on emerging technologies and new industrial sectors. Pakistan’s draft NIP stops short of fully embracing this mission-oriented dimension; its coverage of non-traditional areas remains thin. Yet globally, artificial intelligence, blockchain, cybersecurity, and climate-smart infrastructure are no longer peripheral — they are fast becoming the backbone of modern industry. The challenge is to build domestic expertise in these knowledge-intensive fields and then plug them strategically into our established sectors, from textiles to transport, so that innovation reinforces rather than bypasses our industrial base.

The Special Technology Zone Authority, Board of Investment, and M/o Industries & Production should run a joint, time-bound program — co-locating providers in SEZs/EPZs, using procurement and standards to create demand, and tying support to export or productivity targets with sunset clauses. Germany’s Mittelstand 4.0 illustrates the case. There can be many such models worth exploring, as pairing technology with traditional sectors is essential for Pakistan’s competitiveness.

Beyond regulation and technology integration, equally important is the recognition of institutional coordination. This remains the weakest link in our pursuit of excellence in any economic initiative. One rare example where coordination was relatively strong was the CPEC initiative. Too often, scattered and fragmented interventions move in different directions, with little effort to pull toward a common goal. If poverty is a coordination failure, so is the lack of industrialization. Poor coordination turns policy into paralysis. Today, the Board of Investment, together with provincial chapters, is responsible for Special Economic Zones, while the Ministry of Industries oversees Export Processing Zones and industrial parks. Yet no formal mechanism exists to align their efforts.

The draft policy does propose new mechanisms — an Industrial Advisory Council, an Inter-Ministerial Coordination Committee, and a Policy Implementation Unit. On paper, this sounds promising. In practice, however, they risk becoming just another wish list. Pakistan has seen too many committees launched with fanfare, only to fade once the political zeal wears off. Real coordination requires authority to enforce discipline, clear performance targets, and budgetary backing. The current draft policy is silent on discipline enforcement with no mention of sunset clauses and reciprocity between the state and the private sector.

On the question of policy ownership, the problem is obvious: we treat the Ministry of Industries and the provincial industrial departments as minor players rather than anchors of development. This neglect is evident in the PSDP and ADP allocations over the years. Other aspects could be discussed another time, but the central point is clear: unless this mindset shifts, the NIP’s institutional architecture risks remaining rhetorical rather than real.

In short, industrial policy must be approached with clarity and an open mindset. Traditional approaches may be relics, but today’s industrial policies are living practices, evolving with the demands of technology, finance, and society. Pakistan must treat it as central, not peripheral, to its development path — and commit to industrialization as a whole-of-society mission, not just a policy document. Without such commitment, every vision and mission outlined in the policy will remain a pipedream.