A Strategic Policy for the Drone Industry

As someone who sits between critic and advocate when it comes to industrial policy, I believe it can work, but achieving the right outcome is exceptionally challenging. It demands solid policy design, and above all, it requires economics that actually support it.

Industrial policy, for those who are new to the concept, is government action aimed at expanding a specific industry. In general, its success is judged by whether an early, cost-efficient nudge leads to enduring and self-sustaining commercial growth. That means no white elephants, and no endlessly funded sinkholes.

Let’s illustrate with a pair of examples—one success and one failure.

A Department of Energy loan to Tesla stood out as a successful industrial policy move, helping propel the electric vehicle sector forward by keeping a crucial firm afloat. Yet its success depended on electric vehicle technology nearing true commercial viability. By contrast, a 1980s government program to cultivate a synthetic fuels industry faltered because, in the long run, synthetic fuels did not present a sound economic case—even with substantial government funding.

Forecasting in advance whether the economics will favor a given industrial policy is often fraught, so a dose of humility is appropriate. Still, I contend that drones at least have a reasonable chance of becoming a fruitful target for policy support.

To start, here’s a straightforward policy concept I’d like to put forward for the first time: Drone to the Top.

The result would be a broad roster of U.S. organizations empowered to use drone swarms for public-interest purposes, while drone industries in the U.S. and allied nations would receive what’s known as an “advance market commitment,” signaling predictable demand.

So why focus on drones? You may have seen drone swarms in action at large-scale fireworks displays. The technology has advanced further, with a recent world record of 22,580 drones being controlled by a single computer. Such swarms can be impressive as a spectacle, but they also hold real-world potential. In contrast to single drones, researchers argue that “drone swarms can perform complex tasks by utilizing decentralized operation and data processing.” These capabilities are already exploited on the battlefield, yet researchers say drone swarms could be valuable in civilian applications such as “monitoring rapidly evolving ocean phenomena … and target detection and tracking.” This hints at a wide array of non-defense uses, which I’ll touch on below.

But I’ll begin by arguing why the economics line up favorably with backing industrial policy in this particular case.

Let’s start with the national security angle. Even the most vocal critics of industrial policy typically concede that national security concerns can overpower other objections. It’s true that security considerations are often used to justify protectionism for nearly any good—even peanut butter. But the war in Ukraine has made it clear that drones play a pivotal role in modern warfare.

Since the conflict began, both sides have employed drones for offensive and defensive purposes. Ukraine is notable for having established an entire branch of its armed forces dedicated to unmanned systems, drones included. In 2025, Ukrainian drone pilots were carrying out about 10,000 combat missions per day, and the nation’s top commander estimated that they accounted for roughly 60 percent of Russian casualties. Russia, too, is deploying thousands of drones daily.

Drones have also been central to the war in the Middle East, with Iran using them to strike military targets as well as civilian infrastructure. The national-security implications here are very real.

Drone policy in the real world has never mattered more, as drone production has become a crucial lever in contemporary warfare. In a few short years, Ukraine has evolved from a handful of drone makers to being described as “a drone superpower” by the Atlantic Council, capable of producing millions of drones each year. Russia is expanding its capacity for kamikaze drones to lessen its dependence on China, with aims to produce about 130,000 such drones annually by 2030 and as many as 350,000 by 2035. As for FPV-style drones, which resemble the compact quadcopters favored by hobbyists, Ukraine’s top military commander claims Russia intends to reach an annual output of about 7.3 million units.

The United States is also pushing to strengthen domestic drone capabilities. For instance, the Defense Department is running a Drone Dominance contest inviting commercial manufacturers to compete in a series of trials, with the winners ultimately delivering 300,000 drones by 2027. The aim is to provide a steady demand signal and to spur private investment through healthy competition.

Crucially for industrial policy, drone innovation is not limited to large, traditional defense contractors. Much of the innovation occurs in the commercial sector, meaning policy must also target non-defense markets. As Kateryna Bondar of the Center for Strategic and International Studies notes:

For the United States, the objective isn’t merely to construct one or two onshore drones. Some drones, such as large military aircraft, may not be appropriate or accessible for local groups needing swarms. Instead, the goal is to boost the entire commercial drone industry and its suppliers, making the “electric tech stack,” with its broad defense applications, more friend-shored and onshored.

Usually, industrial policy is framed around a claim that it makes the targeted industry more productive. There are various channels through which this can occur, including economies of scale and learning-by-doing.

What makes drones a particularly persuasive case for industrial policy is the potential for benefits on both the supply and demand sides. Let’s examine them in turn.

Producer side: Companies that thrive under Drone to the Top would receive advance commitments to future demand, enabling them to invest in large-scale production. In other words, the program could unlock economies of scale that wouldn’t emerge otherwise.

This demand helps producers reach a sustainable scale and helps resolve coordination problems within the supply chain. Drone firms rely on suppliers just as much as suppliers rely on drone companies. Communicating that demand will exist helps everyone plan and invest rather than waiting for others to lead.

Allowing the applying organizations, instead of a centralized bureaucratic entity, to select the drones means drone makers will engage directly with end users and gain insights from them. This is a form of “learning by doing” that has shown promise in Ukraine’s drone policy. Ukraine has empowered 700 military units to procure drones (and other technologies) directly from approved commercial providers, enabling frontline troops to articulate their needs clearly to manufacturers.

In a 2025 CSIS briefing, based on interviews with more than fifty drone experts and stakeholders in Ukraine and beyond, Bondar argues that this procurement approach trims the role of centralized administration and makes acquisitions more “tailored to the real-time needs of frontline operations.” Rather than rigid, predetermined technical specifications, the Ukrainian military now frames needs as operational problems communicated directly by end users.

Toward that end, CSIS suggests a similar approach for U.S. drone procurement:

Drone to the Top would function in much the same way.

User side: It isn’t only the producers who stand to gain from learning by doing. The commercial drone market is still relatively young and the swarms themselves are still learning what they can do.

Drone to the Top would offer subsidized access to drone swarms for organizations that might not otherwise acquire them, letting potential field users experiment and capture lessons. The policy would also establish a framework for capturing user feedback and sharing it publicly. For example, police departments nationwide could learn from one winning department’s implementation and publish practical lessons learned.

What kinds of uses might these swarms enable? Part of the value of this competition is elevating ideas we can’t yet imagine. Drones and drone swarms are relatively new technologies, and here are some possible applications for both users and use cases:

As these organizations learn to deploy drone swarms for public benefit, their insights will be refined, codified, and shared by the federal government. The case for knowledge spillovers—another rationale for industrial policy—becomes clear here.

Between the security rationale and benefits on both sides of the market, the justification for industrial policy is being drawn from three converging sources that reinforce one another in pursuing a shared aim: boosting commercial production.

We have seen a similar dynamic before in the semiconductor industry. Looking back at history helps explain why industrial policy can work in this domain—and why it fails in other contexts.

The first widely used consumer application of an integrated circuit (IC) appeared in a Zenith hearing aid in 1964. Up to that moment, the U.S. government accounted for nearly all demand for such circuits, including onboard computer systems for the Apollo program and the guidance system for the Minuteman II. These programs undoubtedly accelerated the industry during a period when semiconductors were still costly and risky.

As economist David Mowery noted, “The prospect of large procurement contracts appears to have operated similarly to a prize, leading Texas Instruments to invest its own funds in developing a product that met military requirements.”

Yet while many ask what the government can do for industry, it’s crucial to recognize what industry did for the government. It wasn’t merely that the federal government saw a chance to spur growth in a fledgling technology. It faced pressing needs that were “acute, even existential.”

The problem was the “tyranny of numbers.” Before the advent of integrated circuits, computers consisted of individual components—transistors, resistors, diodes, and capacitors—wired together. As electronics grew more complex through the 1950s, components remained discrete, demanding vast wiring and soldering work. The Control Data CDC 1604, the era’s most powerful computer when released in 1959, used 25,000 transistors, 100,000 diodes, and countless other parts. New Navy aircraft carriers housed hundreds of thousands of electronic components, with millions of hand-soldered connections. The stakes were high: such systems were heavy, fragile, and difficult to scale for missiles and spacecraft where every extra pound mattered.

All three military services chased independent, divergent technological solutions (Navy “thin film,” Army “micro-module,” and Air Force “molecular electronics”), none of which succeeded.

The breakthrough came from researchers at Texas Instruments and Fairchild Semiconductor, who discovered how to place multiple electronic components onto a single chip. Integrated circuits solved the tyranny of numbers and addressed genuine government needs.

But ICs weren’t merely smaller and lighter; they were also durable and reliable. Fewer failure points mattered immensely. As IC co-inventor and later Intel co-founder Bob Noyce wrote in 1964, “Reliability is the most important single factor.” This was critical for uses like the Minuteman and Apollo—where high-speed flight and space travel demanded exceptional durability and dependability.

The story of integrated circuits illustrates how industry invested in response to a real, tangible government demand that happened to align with future market demand. In other words, the government did not purchase ICs merely to spur an infant industry; officials bought them because they solved concrete problems. Benefits accrued to both sides.

Drone to the Top is designed to replicate that dynamic for drone swarms.

I’m not advocating for industrial policy without discrimination, nor do I believe the average industrial policy plan is destined to succeed. But it becomes valuable when the economics indicate dual-sided benefits and when a bottom-up rather than top-down approach is possible. This sketch of a policy design isn’t ready for immediate deployment, but it’s worth further consideration and development.

Owen Zidar and Eric Zwick recently published a book titled The Everywhere Millionaire, which examines who becomes a millionaire in the U.S. economy. In a Wall Street Journal summary of their work, they contend there are roughly 3 million “everywhere millionaires,” together worth about $65 trillion. Some might view this inequality pessimistically, but Zwick and Zidar show that the path to wealth is accessible to those who hustle and launch a venture—entrepreneurs who start anywhere and build something significant.

I view this as a preferable alternative to the notion that Harvard or high finance are the sole routes to wealth. I’m a fan of Chris Koerner, a content creator who catalogs everyday businesses that ordinary people can pursue to achieve high earnings and independence. If you want to become an everywhere millionaire, the opportunity is out there.

The trend shows a rural population uptick alongside a decline in large urban areas.