What Does World War II Teach Us About Industrial Policy Today?
CHIPS and WWII have more in common than I thought
When I signed on as Director of the CHIPS Program Office, I asked a friend for reading recommendations on the history of US industrial policy. He suggested Destructive Creation by Mark Wilson, a deeply researched history of the government’s role in building the “arsenal of democracy” that won World War II. I read the book during my first few months on the job, but I found it hard to spot parallels to the task confronting me. The world Wilson described — massive war mobilization, sprawling new bureaucracies, New Deal politics, unparalleled US industrial capability — seemed too remote. CHIPS had to revive an atrophied industry to address a different kind of geopolitical challenge, all while implementing a program that existed only on paper; a complex undertaking, but no wartime effort.
I found that my perspective had shifted when I picked the book up again a few weeks ago. Wilson’s analysis suddenly seemed like an essential lens for understanding the last five years of US industrial policy under both the Biden and Trump administrations.
This piece deploys both Wilson’s account and my own experience at CHIPS to offer four perspectives on the past, present, and future of US industrial policy:
When national security demands rapid industrial capacity expansion, supply-side public investment appears essential — a pattern evident in WWII, reinforced in CHIPS, and visible across successful industrial buildouts from postwar Japan to contemporary China.
The American tradition of public-private partnership has worked through a distinctive dynamic: keeping government and industry as separate spheres while building genuine collaboration and maintaining productive (if at times fierce) commercial tension.
Recovering the state capacity that fueled the WWII mobilization — both by removing procedural barriers and creating a political culture that values public service — is essential for advancing national security today.
Today’s geopolitical context demands fundamentally different approaches to executing industrial policy — particularly when it comes to demand-side interventions.
It’s become something of a trope in the current policy discourse to say that competing with China requires becoming more like China. But this obscures the fact that we have an American tradition of industrial policy — one that can illuminate our current moment but remains underappreciated. In reviewing the history, I consider how and why we moved away from this tradition after WWII. Understanding the reasons for that departure may be just as important as understanding the tradition itself.1
Supply-side investments are essential
When national security demands rapid industrial capacity expansion, supply-side public investment appears to be essential. This was true in World War II. It was true in CHIPS. And examining other major industrial buildouts over the last century, the pattern holds. Demand-side policy alone, even with the clearest possible market signal, has not historically been deployed to drive strategic industrial buildouts at speed and scale. This is not proof that demand-side policy alone could never work. But the absence of successful examples should counsel caution about relying on it exclusively.
The scale of government supply-side investment during World War II was staggering. The industrial boom across munitions, explosives, ships, tanks, aircraft, and upstream inputs was driven by so-called “GOCO” facilities — government-owned, contractor-operated. Under these arrangements, the government financed and owned the entire investment, contracting out construction and operations to a manufacturer, who earned a fee. The government spent close to $20 billion on manufacturing facilities and machinery over the course of the war, equivalent to more than $2.5 trillion today as a share of GDP. This was more than double the amount of private sector investment. Public capital had financed about one-tenth of the value of American war plants during World War I; as GOCO facilities proliferated during World War II, it financed two-thirds.2
By 1945, the government owned nearly all national production capacity in aircraft, guns and ammunition, shell and bomb loading, ships, synthetic rubber, and enriched uranium and plutonium. Nearly half of this investment came directly from the War and Navy Departments, with the other half flowing through the Defense Plant Corporation (DPC) — a subsidiary of the Reconstruction Finance Corporation, which had served as a source of New Deal financing since 1932. By war’s end, the federal government owned close to a quarter of the value of all the nation’s factories — the largest collection of state-owned assets outside the Soviet Union.
Similarly, the CHIPS program was a supply-side intervention. The program consisted of a 25% investment tax credit alongside $39 billion in grants, which typically amounted to an additional 10% of investment. Some, including President Trump and Secretary Lutnick, have implied that supply-side incentives are wasteful, and that demand-side tools like tariffs alone would encourage buildout. But this argument was available to our World War II predecessors in even starker form. They didn’t need tariffs to create demand; the military’s procurement signal was massive and unambiguous. Yet the mobilization’s success relied on massive government supply-side support nonetheless.
Despite the skepticism, both the Biden and Trump administrations have acted in accordance with this historical lesson and favored supply-side interventions. The Biden administration instituted the 25% tax credit and roughly 10% in additional grant funding per CHIPS project. The second Trump administration has actually expanded the tax credit to 35%. Whatever the rhetoric, the underlying policy has seen bipartisan continuity: when national security demands rapid industrial capacity expansion, supply-side public investment has been deemed essential.
This is not to diminish the importance of demand-side policy. Government procurement drove the WWII mobilization, and the lack of robust demand-side tools presented real challenges for our efforts to implement CHIPS. As discussed below, today’s context requires more creative policy approaches on the demand side, alongside the continued need for supply-side investment.
The central role of supply-side investment extends beyond the American experience. Japan’s Ministry of International Trade and Industry directed strategic industrial development with substantial state financing. South Korea channeled subsidized credit to advance its industrial aims. Taiwan built designated industrial parks and deployed state capital (alongside private investment) to launch TSMC. Singapore’s Economic Development Board coordinated industrial strategy and sponsored manufacturing investments. China has sustained massive state investment in infrastructure and strategic industries. The mechanisms and magnitudes of supply-side investments have differed, but each case reflects a conviction that public investment could shape industrial outcomes that markets alone would not produce.
The historical record — American industrial mobilization in WWII, the East Asian development successes, China’s rise — offers no clear examples of strategic buildouts in capital-intensive manufacturing that didn’t rest on state investment. Public support has been foundational, not peripheral. This is not to claim that supply-side investment alone caused these outcomes — the counterfactual is unavailable. But its presence in every successful case is difficult to dismiss as coincidence. The lesson from Wilson’s account, reinforced by CHIPS and international experience, is that supply-side public investments have been at the core of the most successful industrial expansions in recent history.
Public-private partnerships have succeeded through separation and tension
How did the partnership between government and industry actually work during World War II? The relationship was a complex web of interlocking and overlapping functions. Government provided the bulk of supply-side capital, but industry made critical investments too. Industry built and operated the vast majority of GOCO facilities, but the government directly ran operations in some sectors (most notably, shipbuilding yards were operated entirely by federal agencies). Government demand was the dominant force across the economy, but commercial demand continued to shape sectors like oil and steel, where civilian and military needs overlapped. Industry generally managed its own supply chains, but government actively steered equipment and materials across the industrial base.
Yet for all this overlap and entanglement, public and private entities remained fundamentally distinct. It was not like modern-day China, where CCP committees operate inside major companies — even nominally private ones like Huawei. Rather than fusing into one, lines were maintained between the American government and industry, with relationships defined by contract. The government acquired property or other assets and contracted with businesses for operation. It also provided businesses with loans and insurance, which then carried out production efforts independently. Regardless of the contractual relationship, government and industry remained distinct spheres with different institutional interests, objectives, and constraints. This separation would prove fundamental to the function of the partnership.
Building the partnership
Despite the institutional separation, government and industry developed effective working relationships. Roosevelt deliberately cultivated ties, placing industry titans in central roles: developer Jesse Jones to run the Reconstruction Finance Corporation, GM’s William Knudsen to coordinate production, and Sears executive Donald Nelson to lead the War Production Board. He also appointed Republicans to the military’s top civilian posts — Frank Knox, a former GOP vice-presidential candidate, as Secretary of the Navy, and Henry Stimson, a Wall Street lawyer and former Secretary of State under Hoover, to run the War Department. As Wilson notes, Roosevelt was willing to let “enemies of the New Deal run some of the most powerful offices in the wartime federal government.”
Other historical accounts of the period, like Chris Hughes’s Marketcrafters and Arthur Herman’s Freedom’s Forge, chronicle how figures like Jones and Knudsen relentlessly worked their industry connections to advance the mobilization effort. These weren’t just symbolic appointments — they provided the relationships and trust essential to making the public-private partnership work at the operational level. Even New Deal stalwarts like Harold Ickes (who led coordination with the oil industry) developed strong working relationships with their industry counterparts.
Commercial tension
Yet for all of the genuine collaboration and mutual respect, the relationship between government and industry was marked by constant tension, often boiling over into outright hostility. This wasn’t an unfortunate side effect. It was structural and practically inherent to the American model. Government and industry remained distinct entities with different institutional interests, operating in constant commercial relationship — that separation generated real friction.
Business leaders constantly criticized the government, and publicly. Oil executive J. Howard Pew, who once gave Ickes a standing ovation at an industry dinner, told business leaders in 1943 that the wartime mobilization had succeeded despite “the schemes of bureaucrats and economic planners.” George Romney, who led an industry association for car companies and later became governor of Michigan, called Washington’s “paper blizzard” reminiscent of “Hitler’s methods.” NAM president Ernest T. Weir railed against “whimsical restrictions of bureaucrats.”
As Wilson tells it, some of this tension reflected frustration with government dysfunction — paperwork mountains and bureaucratic overreach that made the public servant in me cringe. But much of the tension was driven by government competence, not incompetence. The state developed deep “economic knowledge” and “regulatory flexibility and capability,” and used them aggressively. Profit margins were monitored and controlled through pricing. Statutory excess profits taxes reached 90%. Contract terms were renegotiated when companies’ costs came in below projections. As Wilson observes, “Far from being a blind behemoth or price-insensitive pushover, the wartime state often acted as one tough customer.”
Wilson’s deeper insight — and I’m glossing here, as this is my interpretation of his account — is that this tension was productive. It kept both sides honest. The government prevented profiteering and kept costs down. Industry pushed back on government inefficiency and overreach. The collaboration worked not despite the friction, but because of it.
Lessons for today
Reading this history, I sometimes felt like the CHIPS team was an unwitting heir to this American tradition. Our role was fundamentally different from the government’s role in WWII — we weren’t functioning as customers, and our leverage was more limited. We were providing incentives covering perhaps 10% of project capital (alongside the 25% tax credit) rather than owning the facilities outright. But certain dynamics felt familiar.
We maintained the separation between government and industry. We developed deep relationships with industry, buttressed by the commercial credibility of our team members — many of whom had industry and finance backgrounds.
But there was also constant tension. Applicants pushed back when we overreached. That friction improved us — it forced discipline that made the program better. But most of the tension wasn’t about bureaucratic irritation. It was about dollars, milestones, and other protections for taxpayers. We were pushing companies to do more for less than they wanted to.
Early in the program, a former senior policymaker told me: “If Pat Gelsinger is totally happy with how things go, you probably haven’t done your job.” That stuck with me. When public and private remain distinct, when they’re commercial counterparts rather than fused entities, tension is baked into the model. And based on what Wilson documents, that’s a feature, not a bug.
But I worry that today’s environment threatens aspects of this model. While I think there are real use cases for government equity, the current administration’s haphazard approach — while not amounting to state-industry fusion (the Intel stake, for example, carries no control rights) — could blur the public-private distinction over time. More concerning to me is the risk that productive tension devolves into corporate acquiescence. If companies perceive that disagreeing with the government might affect their standing with the government, the incentive structure changes (and recent disputes with firms like Anthropic suggest this isn’t merely hypothetical). Wilson documents that WWII business leaders could publicly attack government policy without consequence. That freedom to criticize, grounded in institutional separation, was central to the American tradition. When it erodes, we’re departing from norms that have historically distinguished our approach.
Building state capacity at speed
When national security demanded it, the WWII-era government built state capacity with astonishing speed — both in expanding the bureaucracy itself and in producing results. Recovering that capability today requires confronting two challenges: the procedural constraints that have accumulated over decades, and a political culture that no longer consistently values public service. Without addressing both, we risk lacking the state capacity that national security may require.
The wartime government built massive bureaucracies at an extraordinary pace. The War Production Board employed 25,000 people. The War Department had 150,000 procurement officers spread across multiple agencies. Treasury grew from 45,000 to 95,000 employees as the federal government applied a broad-based income tax for the first time. By comparison, the 180-person team we built for CHIPS seems downright quaint.
But more impressive than bureaucratic scale was the speed at which the state produced results. In June 1940 — nearly 18 months before Pearl Harbor, before the crisis of war was fully at hand — chemical company DuPont agreed to build and run a smokeless powder facility on a 5,000-acre site in Indiana, WWII’s first major GOCO facility. Production (not construction — production) began less than one year later in spring 1941, while 27,000 people were still building out parts of the plant. The facility was fully scaled by the second half of 1942, employing 9,400 workers and producing a million pounds of powder per day. By the time of Pearl Harbor in December 1941, 17 explosives and munitions plants were already up and running with 32 more in the pipeline. By the end of the war, there were 73 GOCO plants in this sector alone employing 400,000 people. All of this happened at a pace that seems almost incomprehensible today.
Perhaps just as telling as the stories themselves is what’s absent from them. Procedural constraints on state capacity and barriers to construction simply don’t appear in Wilson’s narrative. When I recall our struggles to navigate procurement rules, federal hiring processes, NEPA reviews, contractual protections for taxpayers, the Paperwork Reduction Act, the Davis-Bacon Act — or when I think about the layers of permitting that TSMC had to work through to get its first Arizona fab off the ground — it doesn’t feel like we’re talking about degrees of difference in efficiency. We’re looking at fundamentally different systems. At CHIPS, we mostly powered through these procedural constraints to deliver on our program’s objectives — but, as we’ve explained before, the effort required didn’t feel sustainable or replicable.
To the extent that Wilson’s account has an ideological thrust — and it’s subtle — it’s this: national security requires a state energized and entrusted to solve big challenges. For me, that necessitates taking a hard look at the procedural constraints holding government back today. I think the emerging discourse around state capacity has a national security dimension that needs amplifying. When semiconductor supply chains or defense industrial base challenges demand speed, procedural barriers become strategic vulnerabilities.
But procedural reform, while critical, isn’t sufficient on its own. Wilson’s narratives show hundreds of thousands of civilian and military public servants working tirelessly as part of a celebrated national effort. This points to something equally essential: a political culture that values public service.
The current administration’s initial approach to federal workforce reduction illustrates the danger. Increasing the performance and efficiency of government is undoubtedly a worthwhile objective. But when workforce reductions are executed indiscriminately and paired with rhetoric that denigrates federal workers broadly, it creates risks for national security capacity. The immediate consequence has been talent loss — the CHIPS program alone lost dozens of capable public servants. The longer-term impact on recruiting may be more severe. If potential public servants no longer view federal employment as stable or the work as valued, they will be less likely to serve. This is particularly concerning for programs that require both technical expertise and commitment to public mission.
Wilson’s account suggests we once knew how to build state capacity quickly when national security demanded it. Whether we can recover that capability depends on both removing procedural barriers and rebuilding respect for the work of governing itself. National security requires attending to both.
This time is different
So far I’ve focused on the ways that Wilson’s history offers lessons that feel directly relevant to the industrial policy challenges we face today. But the WWII history can only take us so far, because the world we’re navigating is fundamentally different.
A different strategic context
Consider one final story from the war: When Japan seized Southeast Asia after Pearl Harbor, it created a supply chain crisis that could have lost us the war — capturing about 95 percent of the world’s natural rubber supply. The response was dramatic: an all-out mobilization to build a synthetic rubber industry from scratch. The DPC spent $700 million building three dozen facilities. By war’s end, synthetic rubber production reached three hundred times the level in 1940.
Two things stand out about this episode. First, how existential the threat was. Rubber was life or death for the war effort. When the government sold off surplus war property after 1945, they held onto the rubber plants longer than almost anything else, keeping most of them in strategic reserve until the mid-1950s. Second, the rubber appears to have been unique — the only major supply chain vulnerability to a hostile power in the war.
Today’s situation couldn’t be more different. The American economy is more than 10 times larger in real terms than it was in 1945. But more importantly, the global economy has become vastly more integrated and complex. Our chief geopolitical competitor manufactures one-third of global output today — likely approaching 40% by decade’s end. Supply chain dependencies have proliferated far beyond any single commodity. Semiconductors and rare earths come to mind as modern parallels to the rubber challenge, but vulnerabilities extend far beyond these obvious cases. Pharmaceuticals present another clear dependency. And given the complexity and opacity of modern supply chains, we genuinely don’t know how many such challenges we have.
This different strategic context demands a different conceptual framework for industrial policy. Industrial policy today isn’t just about making weapons for war — though that capacity remains critical. It’s part of a broader geopolitical competition in which we’re trying to establish leverage and mitigate our adversaries’ leverage across a wide range of economic activity.
Three key differences in execution
The shift in strategic context creates significant differences in how industrial policy must be executed today compared to WWII. Reading Wilson’s account, three such differences stood out to me.
First, as Kurt Campbell and Rush Doshi have articulated, we cannot build resilient supply chains to compete with China without relying on other countries. WWII mobilization was overwhelmingly a domestic effort — American government working with American companies to build American capacity. Today, coordination with allies is essential. Building resilience requires coordinating industrial strategy across allied economies in ways that didn’t arise during WWII. This adds layers of diplomatic and economic complexity that have no clear historical precedent. Moreover, recent ruptures in our traditional alliance frameworks complicate this imperative further. We haven’t fully reckoned with how to achieve global industrial coordination in light of the shifting global order.
Second, both capital flows and the firms that direct them are now global. In WWII, the government worked almost entirely with American companies to drive American investment. Today, we are competing for incremental global capital investment. We need to attract not just American companies but foreign ones — and we’re competing against other countries doing the same. At CHIPS, attracting foreign investment was central to our strategy — we couldn’t afford to be narrowly nationalist about onshoring. The goal was bringing semiconductor manufacturing capacity to the United States, regardless of whether the company was American or foreign.
Third, the role of government demand has fundamentally changed. In WWII, government procurement was everything — the military was the customer for virtually all industrial output. Today, government demand plays too small a role in many critical industries to serve as the primary driver. The semiconductor industry alone is rapidly approaching annual revenues of $1 trillion globally. Government procurement, while important in specific segments, cannot drive investment at that scale the way wartime military demand did in the 1940s.
Getting creative on demand-side tools
In the absence of procurement as the primary lever, policymakers have been developing creative approaches. The Trump administration’s recent rare earths deals illustrate one direction: using the government balance sheet to create demand-side incentives without direct procurement. Offtake guarantees and price floors can reduce investment risk and accelerate capacity buildout.
We considered similar approaches for CHIPS but found they mostly didn’t make sense in the semiconductor context. The scale is simply too large to be an efficient use of government resources, and the products are too differentiated — hundreds of different chip types with distinct specifications and customers. Moreover, the relationship between manufacturer and customer is too integrated and technically complex to allow meaningful government intermediation.
Tariffs and domestic sourcing requirements are other obvious demand-side instruments. But given how integrated supply chains have become, both need to be wielded carefully. Applied poorly, they can easily disrupt existing production and do more harm than good.
One underexplored approach, in my view, is direct regulation of industrial inputs. Sometimes the simplest answer is the most effective: if we don’t want industry to depend on our adversaries for certain inputs from China, the government can seek to regulate that dependence directly. We’ve taken some steps in this direction — for example, the federal government just proposed a rule to implement a provision of the 2023 NDAA that requires federal vendors to ensure their products contain no chips from designated Chinese firms — but in my view, this is an area that deserves much more exploration.
Charting the future by rediscovering the past
Perhaps the strongest lesson from Wilson’s account isn’t about any specific industrial policy tool. It’s that active government intervention in industrial capacity isn’t foreign to the American tradition — it is the American tradition, particularly when national security has demanded it.
In the decades following World War II, the country moved away from that tradition. A political consensus emerged that treated industrial interventions as inconsistent with the American way rather than part of it. There are a few reasons for that shift.
One is revealed in painstaking detail in Wilson’s account: an energized and organized effort by industry itself to extol its own role and diminish the government’s role coming out of the war, as part of a broader campaign to shift American politics away from the New Deal. Wilson argues that these efforts to diminish the role of the state won the narrative and shaped politics going forward, diminishing the state’s role in industry for decades to come.
But I also think two broader ideological shifts were at play. First was an economic consensus that emerged in the 1980s embracing trade liberalization and minimal state intervention in the economy. Second was a foreign policy consensus that economic integration and interdependence would promote peace and security — that deeper trade and investment ties between nations would make conflict less likely and advance democracy globally. Together, these created a powerful logic: global economic integration would generate prosperity through free markets while simultaneously reducing geopolitical risk.
Today, there’s active debate on the economic case for global integration — whether the efficiency and growth it generated justified the dislocations it created. But regardless of the economic debate, there’s a growing consensus as a matter of national security that economic interdependence has created vulnerabilities that need to be addressed through industrial policy.
That consensus is a response to the world as it is today — particularly the reality of China’s rise as a manufacturing and technological superpower. But recovering industrial policy for national security isn’t a break from American tradition — it’s a return to it. And that history should fuel confidence: we’ve done this before, and we’ve done it well.
One note on scope: I’m writing this as a practitioner, not a historian (though as a former history major, it’s been satisfying to engage with history again). My aim is to situate recent experience within the broader context of industrial policy for national security. The New Deal and WWII involved government industrial interventions for many purposes. This piece focuses on the national security dimension without addressing those other uses.
Beyond its investment in GOCO facilities, the government also invested around $2 billion in government-owned-government-operated (GOGO) facilities. And in sectors retaining significant private investment, like steel and oil, tax incentives played a critical role in catalyzing expansion.