The effectiveness of industrial policy depends on how well it is coordinated with other economic policies.
One such policy area is competition policy, which aims to promote fair and free market competition among firms. In Japan, the Japan Fair Trade Commission enforces the Antimonopoly Act against practices such as cartel formation and bid-rigging and reviews mergers and acquisitions that could restrict competition. By strengthening market mechanisms, competition policy is expected to benefit consumers through lower prices and higher quality, while encouraging firms to improve productivity and innovate.
At first glance, competition policy may appear to conflict with industrial policy, which involves direct intervention in the allocation of resources across industries. However, research by Professor Philippe Aghion of the Collège de France and his coauthors, based on data on Chinese companies, found that industrial policy measures such as subsidies and tax breaks can enhance productivity when support is distributed across firms in a way that preserves competition or is directed toward young firms that can intensify competition.
Their research suggests that industrial policy and competition policy should not be treated as alternatives. Instead, the aim should be to strengthen their complementarity.
Industrial policy is also closely linked to structural reform. Broadly defined, industrial policy includes creating conditions that facilitate workers’ transition from declining to expanding industries, rather than merely sustaining declining industries.
The relationship between industrial policy and fiscal policy is also important. Japan’s persistent fiscal deficits and high level of government debt impose substantial fiscal constraints. It is therefore important to adopt a “wise spending” approach that strategically prioritizes the use of limited fiscal resources.
In addition, policies should be designed to encourage private-sector investment. While the mission-oriented approach to industrial policy emphasizes the government’s role in taking on a certain level of risk, subsidies are not the only available instrument. Regulatory reform, government procurement, and information provision can also play important roles in encouraging private-sector investment.
Finally, policy implementation inevitably involves uncertainty. It is therefore essential to clarify policy objectives and promote the wider adoption of evidence-based policymaking (EBPM). This includes using findings from ex post evaluations of policy effects to inform subsequent policy decisions.
>> Original text in Japanese
* Translated by RIETI.
August 14, 2026 - Published in Nihon Keizai Shimbun's " Introduction to Economics—New Trend in Industrial Policy "
