For Germany, where manufacturing accounts for a high proportion both of employment and of the economy’s total value added, developing manufacturing is crucial for future prosperity. Economic policymakers must therefore explicitly consider how conditions conducive to industrial growth can be created. This will involve not only horizontal approaches that set the same legal and institutional framework for all companies; vertical measures that are selective and only affect certain branches of manufacturing can also be effective. The present IW Analysis proceeds in three steps: First, the importance of manufacturing industry is highlighted, the structural changes it has experienced since the 1970s are outlined and the so-called German business model is described. Then the different phases of industrial policy since 1970 are detailed and current challenges addressed. The analysis concludes with proposals for industrial policy in Germany and Europe.