Innovation is inevitable. Absent the aff innovation will occur in a reactive “fail-and-fix” framework. The aff shifts to a “lead-and-learn” approach.

As a result of these views, the industrial and innovation policies of the past have largely been horizontal rather than vertical. Instead of articulating system-wide missions and fostering the economywide learning required for their achievement, the role of the state has been confined to leveling the playing field for commercial actors —mostly through supply-side inputs such as better skills or the removal of market frictions—and then getting out of the way. At the macroeconomic level, the market failure approach to industrial policy limits the role of the state to “stabilization”—mitigating the impact of the business cycle—and remains neutral about which markets are being created. Governments have accepted externally imposed rules-based frameworks limiting discretionary interventions. Fiscal policy is constrained by the “discipline” of tight budget deficit targets, and central banks are limited by tight mandates oriented toward price stability above and beyond other goals and are operationally independent of governments and thus not susceptible to political capture. The financial and pandemic crises of the last fifteen years and escalation of the climate and environmental emergency make it clear that such an approach is not enough. We need a different approach to policymaking: a mission-oriented framework that focuses government action on solving fundamental challenges rather than waiting for the solution to trickle down through competitive market forces. Such an alternative approach is built around four key principles that take inspiration from Karl Polanyi's description of the “embeddedness” of the economy in society and culture, weaving together the private sector, the state, and civil society in a collective effort to serve the public good. First, the state should do far more than passively react to market failures. It should play an active role in creating and shaping markets in the direction of well-defined missions, using the full arsenal of policy instruments at its disposal—including public investment, regulation, demand-stimulating procurement, macroeconomic policy, and education and skills training. Second, building the state's capacity and willingness to make high-risk investments depends on developing dynamic public sector organizations that welcome experimentation and the possibility of failure, all while creating the conditions for cross-sectoral learning and progress. Third, assessing public investment and evaluating mission success requires new measures of progress in place of those used by the market failure approach, which emphasizes cost–benefit analysis, the efficient allocation of resources in the short term rather than over the long term, and tightly constrained budgets. And fourth, sustaining successful industrial policy requires rethinking the way risks and rewards are distributed between the state and the private sector to ensure the government is rewarded for its successes. We discuss each of these principles in turn. Together, they show how we can move policy from the existing support-and-measure approach—find the market failure; fix it with a support instrument; measure the impact—to a lead-and-learn approach: one that is based on creating and shaping markets using a variety of policy instruments with open-ended impact horizons and learning through wider social engagement and coordination.