It would be difficult, perhaps even reckless, to talk about modern economic policymaking without at least mentioning the International Standard Industrial Classification (ISIC) system. Admittedly, it’s an arcane topic at first glance—a rigid, hierarchical code system, dense with numbers and nomenclature. But scratch beneath the surface and it becomes clear: ISIC codes are something like the taxonomy of the economic world. They underpin how we measure, compare, and ultimately govern the economic activity that constitutes a nation’s lifeblood.
Economists—myself included—have always been aware of the temptation to treat the ISIC system as a mere technicality, a clerical necessity for statisticians. But this would be a grave underestimation. The system, in fact, is foundational to policy formation in ways that are both obvious and, paradoxically, almost invisible. In practice, nearly every fiscal or monetary policy decision—be it about industrial subsidies, tax incentives, or sectoral regulations—relies on the clarity and comparability that ISIC codes provide.
Take fiscal policy as a first example. When a government wishes to stimulate manufacturing, it’s not enough to gesture vaguely in that direction; it needs to define “manufacturing” in a manner that is administratively robust and internationally recognizable. The ISIC framework provides just that: a standardized way to carve the economy into manageable, meaningful segments. Without this shared vocabulary, how would one reliably identify eligible firms for, say, a tax break? One might even wonder how any meaningful comparison of the impact of those breaks could be made—either over time, or between countries.
There’s an oft-cited example from the 2008 financial crisis. Policymakers, under pressure to act quickly, used ISIC codes to rapidly identify which sectors needed urgent support, which could serve as engines of recovery, and which were (for the time being) resilient enough to be left alone. In the fog of crisis, ISIC codes cut through ambiguity—almost a minor miracle, considering the chaos of those months.
But ISIC codes don’t just matter for moments of acute crisis. On a more mundane level, they inform the routine, unglamorous work of macroeconomic planning. Take sectoral rebalancing—a perennial challenge for developing economies seeking to reduce dependence on a single industry. Policymakers need to know not just the relative size of, for instance, agriculture and manufacturing, but the granular detail of their subcomponents. Rice versus wheat; textiles versus electronics. The ISIC structure, with its nested levels, allows for precisely this degree of differentiation. Is it perfect? Certainly not. No classification system can capture every nuance. But in my experience, the alternative—no common language at all—is far, far worse.
Let’s pivot, for a moment, to international comparison. Here, too, the ISIC system is indispensable, though perhaps less intuitively so. When an economist in Vietnam wishes to benchmark her country’s industrial output against Singapore or Germany, she needs to know that “manufacturing” means the same thing in all three contexts. ISIC is the closest we have to a lingua franca. There are, of course, national variations and local adaptations—no system escapes them. But the underlying structure remains consistent enough to allow for useful, if imperfect, comparisons.
I sometimes encounter skepticism among policymakers, who complain (rightly) about mismatches between local business classifications and ISIC categories. There’s merit to this complaint. Mapping national business registers to ISIC can be an arduous process, particularly when new sectors emerge or old ones fade away. But this, too, is part of the system’s strength: it is designed to evolve. The United Nations Statistical Commission reviews and revises ISIC regularly. As someone who has wrestled with aligning local and international datasets more times than I care to admit, I can attest that this evolutionary flexibility, while occasionally frustrating, is ultimately a source of resilience.
A brief aside—one that may seem trivial, but isn’t. ISIC codes also play a role in regulatory compliance and anti-fraud efforts. By defining which sectors are eligible for particular benefits or subject to specific regulations, policymakers can better target enforcement. In practice, this sometimes means that entire industries are protected—or penalized—on the basis of how they are coded. There are risks here: firms may attempt to “game” the system, reclassifying themselves to access more favorable treatment. But this is not a flaw of ISIC, so much as a byproduct of any classification scheme. The alternative—no codes at all—would be open season for regulatory arbitrage.
It is tempting to view ISIC codes as a purely technocratic tool. But, in reality, they are woven into the political, social, and economic fabric of policymaking. When governments debate which sectors to prioritize in five-year plans, or how to allocate pandemic relief, or where to focus export promotion, they are, in essence, debating the boundaries of ISIC codes. Every reclassification, every update, has ripple effects. And these ripples, though often unnoticed, shape the contours of development for years to come.
To close, perhaps a personal note. As an economist, I have learned that the most significant policy questions—those that shape countries’ destinies—are rarely answered with grand gestures or sweeping statements. Instead, they are solved, painstakingly, through systems like ISIC: quietly, behind the scenes, and with far less fanfare than they deserve. The next time you read about a bold new policy initiative, spare a thought for the code system underpinning it. Without that architecture, the edifice of policy would, I suspect, collapse into confusion.