**Introduction** Industrial policy can strengthen key industries without weakening competition when it is designed to enhance productive capacity, innovation, and resilience rather than permanently shielding firms from market discipline. Effective industrial policy supports strategic sectors through transparent, time-bound, and performance-based measures while preserving competitive pressures that encourage efficiency and technological upgrading. The challenge for governments is to balance strategic support with safeguards against market concentration, subsidy dependence, and protectionism. **Contextual background** Industrial policy has re-emerged as a major economic strategy after several decades in which many economies prioritized market liberalization and globalization over direct state intervention in industry. Since the late 2010s, governments have increasingly used subsidies, tax incentives, public procurement, and investment screening to strengthen strategic sectors such as semiconductors, clean energy, and advanced manufacturing in response to supply chain vulnerabilities, geopolitical competition, and energy transition goals. However, without safeguards, these measures can reduce competition by favoring dominant firms, restricting market access, or encouraging long-term protectionism. The effectiveness of industrial policy therefore depends on whether governments can support industrial upgrading while preserving competitive market conditions. **How industrial policy can strengthen industries while preserving competition** **1.** **Use performance-based and time-limited support measures** Industrial policy is more likely to preserve competition when support is conditional on measurable outcomes such as innovation, export performance, productivity growth, or emissions reduction. Time-limited incentives reduce the risk that firms become permanently dependent on state support. Competitive allocation mechanisms — including auctions, open grant competitions, and transparent procurement processes — help prevent favoritism and encourage firms to innovate. This approach allows governments to support sector-wide development without guaranteeing dominance to specific firms. In clean energy industries, competitive subsidy allocation has helped accelerate technological learning and cost reductions while maintaining rivalry among producers. Global solar photovoltaic prices, for example, declined sharply as large-scale production expanded across competing firms and jurisdictions[1]. **2.** **Support ecosystems rather than individual national champions** Industrial policy is generally more effective when it develops broader industrial ecosystems instead of concentrating support on a small number of protected firms. Investment in infrastructure, logistics, research institutions, workforce skills, and supplier networks strengthens entire industries while allowing competition among firms within those ecosystems. Cluster-based approaches encourage knowledge spillovers, innovation, and supplier diversification. This reduces the risks associated with excessive concentration and improves resilience across value chains. Policies that expand access to finance and technology for small and medium-sized enterprises can also prevent dominant firms from capturing disproportionate advantages. Competitive ecosystems tend to generate stronger long-term productivity growth than systems centered on a few state-backed champions[2]. **3.** **Maintain strong competition policy and regulatory oversight** Competition policy plays a critical role in ensuring that industrial policy does not weaken market dynamics. Antitrust enforcement, merger scrutiny, and regulatory oversight help prevent supported industries from evolving into monopolistic or oligopolistic structures. Governments can combine industrial support with rules that prevent anti-competitive conduct, discriminatory procurement, or exclusionary practices. Independent competition authorities are particularly important in sectors receiving significant subsidies or state support. This issue has become increasingly important as industrial subsidies expand globally. Without effective oversight, subsidy races may encourage consolidation and market distortions that reduce innovation and raise barriers to entry[3]. **4.** **Preserve openness to trade and international collaboration** Industrial policy does not necessarily require broad protectionism. Strategic industries can be strengthened through diversified supply chains, international research cooperation, and targeted resilience measures while remaining integrated into global markets. Open trade and foreign investment expose domestic firms to competitive pressures that encourage efficiency and innovation. Excessive local content requirements or long-term import restrictions may instead reduce competitiveness by insulating firms from external competition. Balancing resilience with openness is particularly important in technology-intensive and clean energy sectors, where innovation often depends on cross-border supply chains and international specialization[4]. **5.** **Coordinate industrial policy with innovation and human capital development** Long-term industrial competitiveness depends not only on subsidies or tariffs but also on innovation capacity and workforce development. Public investment in education, vocational training, research institutions, and advanced infrastructure strengthens industries without directly distorting firm-level competition. Policies that improve technological diffusion and workforce capabilities allow multiple firms to compete and innovate simultaneously. This broadens participation in industrial upgrading and reduces dependence on a narrow set of dominant incumbents. Countries that successfully combine industrial strategy with innovation systems tend to achieve stronger productivity gains and more sustainable industrial expansion over time[5]. **Conclusion** Industrial policy can strengthen key industries without weakening competition when it focuses on building capabilities rather than protecting incumbents. Performance-based support, ecosystem development, strong competition policy, openness to trade, and investment in innovation and skills help maintain competitive market structures while advancing strategic industrial objectives. As industrial policy becomes more prominent globally, the effectiveness of these measures will increasingly depend on governments’ ability to balance resilience and strategic autonomy with market dynamism and innovation.
