Vivek Chibber argues that subsidies and protection cannot transform an economy unless governments can make companies deliver something in return. At UIII, the question became harder: Can that discipline still work when capital can move globally?

DEPOK, Indonesia — Industrial policy is having a comeback. After decades in which free markets, deregulation and privatization dominated economic thinking, governments are again reaching for tariffs, subsidies and strategic investment. Semiconductors, critical minerals, green technologies and domestic manufacturing have returned to the center of economic policy.

But as Vivek Chibber suggested in a keynote at Universitas Islam Internasional Indonesia (UIII) on Wednesday, the revival of industrial policy may be easier to announce than to implement.

The difficult question is not whether governments have the tools.

It is whether they still have the power to use them.

Chibber, Professor of Sociology at New York University, was speaking at the opening of the 2026 IFAR Consortium Conference, “Contours of Inequality: Power, Protest, and Privilege in Southeast Asia.” His keynote, “What was Industrial Policy?”, examined the rise, decline and possible return of state-led industrial development.

Introducing him, the session chair, Dr. Sirajuddin Arif, placed the debate in a broader historical context. Industrial policy, once dismissed during the high tide of neoliberalism, has returned to the mainstream. The question now is not whether governments intervene, but under what conditions intervention actually works.

And that question led directly to Chibber’s central argument.

The discipline problem

Industrial policy usually begins with two familiar instruments: protection and subsidy.

But protection can create a captive market, while subsidies can reduce the pressure on firms to become more productive.

The result is a paradox. Governments may spend heavily to promote industrial upgrading while simultaneously removing the incentives that would make firms upgrade.

For Chibber, the missing ingredient is discipline.

The state must be able to extract commitments from companies, monitor their performance and sanction them when they fail.

Without the third element, the first two can become little more than bookkeeping.

Firms, meanwhile, have little reason to object to subsidies. What they resist is government direction.

The distinction is fundamental. Industrial policy succeeds not simply when the state intervenes, but when the state possesses enough leverage to make private capital respond to public objectives.

That was the lesson Chibber drew from the contrasting experiences of India and the East Asian developmental states.

The old bargain

South Korea and Taiwan were able to discipline domestic capital partly because their industrial strategies made firms dependent on the state.

Export-oriented companies needed the state to provide access to foreign exchange, markets and technology. In return for that support, they could be required to meet production and export targets.

The relationship was conditional.

The state helped business, but business had to perform.

That distinction helps explain why industrial policy produced different results in different countries. Protection alone was insufficient. What mattered was whether governments could turn support into a bargaining relationship in which firms remained dependent enough on the state to accept its demands.

For Indonesia and other Southeast Asian economies, the comparison raises questions that are not merely historical. They concern the continuing effort to move from commodity dependence and lower-value production toward more technologically sophisticated and competitive industries.

When success destroys the bargain

There was another twist to the story.

Even successful developmental states could eventually weaken the very relationship that made industrial policy possible.

As companies became more productive and internationally competitive, they needed the state less.

Private capital acquired access to international markets and finance. Its dependence on government support diminished.

The political bargain began to unravel.

This helps explain the transition toward liberalization in the 1990s, Chibber argued. Liberalization was not simply a story of governments discovering that markets were superior to states.

Capital itself had acquired an interest in reducing the constraints imposed by the state.

The success of industrial policy had, in a sense, helped create the conditions for its own retreat.

A new industrial policy, without the old leverage

That history poses an uncomfortable question for today’s industrial-policy revival.

Can the old model work in a world where capital is more mobile, supply chains are global and private finance provides companies with alternatives to state support?

Chibber is skeptical.

Governments are weaker in important respects after decades of neoliberal restructuring. Companies can move investment across borders. Global supply chains allow firms to source capital, technology and markets from multiple jurisdictions.

The state may still have money to offer.

But it may no longer have the leverage it once had.

The danger is a form of industrial policy in which government assumes the risk while companies retain the reward.

Public money goes in; private returns come out.

The state becomes, in effect, a “nanny state” for capital — socializing risk without securing enough reciprocity in return.

That is particularly consequential when industrial policy is presented as a solution to inequality.

Growth is not distribution

Economic growth can raise incomes. But it does not automatically determine who captures the gains.

That was another of Chibber’s central points: growth is not distribution.

An economy can expand while wealth and political influence remain concentrated.

It can become more productive while workers see little improvement in their bargaining power.

And it can receive large amounts of public investment while the gains from that investment accrue disproportionately to private firms.

The central question is therefore not merely whether industrial policy produces growth, but who captures the gains from that growth.

This is precisely where the conversation resonates with UIII’s broader academic profile.

The university’s Faculty of Social Sciences provides a setting for examining the political and social dimensions of economic transformation, while its Faculty of Economics and Business engages questions of economic development and markets. Its Master of Public Policy (MPP) in Sustainable Finance adds another perspective on the relationship among public policy, finance and sustainable development.

Seen from that perspective, Chibber’s keynote was more than a historical discussion of industrial policy. It intersected with questions increasingly central to UIII’s academic mission: how should states govern economic transformation, how should public resources be allocated, and how can economic development become both sustainable and broadly shared?

A question that travelled beyond the keynote

Chibber’s presentation also prompted a lively exchange with the audience. A number of questions followed from scholars and participants from Indonesia, the Philippines, and Ghana, reflecting the broader relevance of the issues he had raised.

The questions ranged beyond the historical cases of India, South Korea and Taiwan to contemporary concerns about foreign direct investment, financial capital, labour, inequality, and the ability of governments to discipline increasingly mobile forms of capital.

For participants from Southeast Asia in particular, the discussion raised a practical question: if the conditions that enabled the classic developmental states have changed, what kind of industrial policy is possible today?

The exchange reinforced one of the central themes of Chibber’s keynote: industrial policy is never simply a technical matter of choosing the right instruments. Its success ultimately depends on the political relationships among the state, capital and labour.

The politics of a different coalition 

Chibber’s argument points toward two possible ways of rebuilding state leverage.

One is to reverse the traditional logic of protection.

Rather than permanently sheltering domestic firms from international competition, governments could expose them to competitive pressures while offering support under explicit conditions. Exposure creates the risk; state support can then provide a way to manage that risk — giving the government leverage.

The other possibility is more political.

The developmental state of the mid-20th century was often built around a coalition between the state and capital. A contemporary version, Chibber suggested, may require a different alliance: state and labour.

That would move industrial policy toward a more social-democratic model, in which organized workers become part of the political constituency supporting industrial transformation.

It would also change the question from how much government should do for business to what business should be required to do for society.

Why the argument matters now

The setting of the debate could hardly be more contemporary.

Governments are now pursuing industrial strategies in response not only to globalization but also to climate change, artificial intelligence, energy transitions and geopolitical competition.

The technologies are new.

But the political problem may be familiar.

Who controls investment?

Who determines the conditions attached to public support?

Who bears the risk?

Who captures the returns?

And who has enough power to make the others comply?

These questions sit at the heart of UIII’s broader academic engagement with inequality and development. The university’s Faculty of Social Sciences provides a setting for examining the political and social dimensions of economic transformation, while its Faculty of Economics and Business addresses questions of economic development and markets. Its MPP in Sustainable Finance adds another perspective on the relationship among public policy, finance and sustainable development.

Seen from that perspective, Chibber’s keynote was not simply a historical discussion of what industrial policy once was.

It was a question about the governance of economic transformation today.

The question that remains 

Perhaps the most useful way to understand Chibber’s argument is through the question with which Sirajuddin framed the discussion:

“The East Asian model presupposed a state that controlled finance and a bourgeoisie that couldn’t leave. Neither condition holds now — so what exactly are today’s industrial policies replicating?”

That question does not have an easy answer.

But it changes the terms of the debate.

The revival of industrial policy is real. Governments are spending more, protecting more and intervening more.

The harder task is ensuring that intervention produces more than protected profits.

For Chibber, the central constraint is ultimately political, not technical.

Industrial policy can be designed on paper.

But its success depends on whether the state has the power to make economic actors respond to the public interest.

And that brings the discussion back to inequality.

The question is not simply whether economies grow.

It is who gets to decide how they grow — and who gets to share in what that growth produces. []