This piece is published simultaneously by the French Institute for International and Strategic Affairs (IRIS).
The outcome of the US-Israeli war against Iran reveals a profound shift in power dynamics, centered on industrial capacity and a new paradigm for innovation. Superiority now depends less on the most advanced systems—or on GDP—and more on industrial organization. This organization must follow a modular logic: designing, modernizing, and producing systems rapidly by integrating diverse components and sustaining high replacement rates, to support a rational deterrent strategy.
Beyond the strategic fiasco for the United States, what is most striking is not Iran’s military-industrial prowess—despite its economic constraints—but America’s difficulty in embracing this new global industrial paradigm. Western economies struggle to translate their historic scientific base into productive capacity. Chronic shortages of armaments are just one revealing symptom. The concentration of resources in asset bubbles, such as AI or real estate, plays a key role, as does the sidelining of essential skills. Yet, contrary to stereotypes, Generation Z—despite the educational crisis—would be capable of driving a rapid recovery.
Industrial Capacity and Engineering Density
Emerging economies, in all their diversity, increasingly rely on the classic skills of engineers and technicians—versatile and trained in large numbers. Many nations, like China, are pursuing industrial ascension on this basis, reflected in their economic policies. This shift is evident in military terms, both in Iran and on the Russo-Ukrainian front.
Recent conflicts mark a crucial turning point. Drones of all kinds, ballistic missiles, and electronic warfare systems are reshaping the economics of war. The ability to mass-produce relatively simple devices is becoming more decisive than possessing a limited number of highly sophisticated systems.
The appeal of Iran’s Shahed drones lies less in technological breakthroughs than in their industrial architecture. Design choices prioritize available components, standardized electronics, simple manufacturing, low costs, and continuous adaptation to operational constraints. Ballistic missiles follow the same logic of incremental improvement. This approach mirrors what emerged in the Russo-Ukrainian conflict: innovations do not come solely from design offices but also from production lines, the battlefield, and the ability to rapidly modify systems. This challenge is already pushing the United States to attempt a new approach to drone and missile production—massive and less costly.
Behind the fantasy of replacing engineers and coders with AI, this evolution places the skills of younger generations at the heart of the race. Innovation depends on a vast number of engineers, technicians, and geeks of all kinds, capable of solving new problems. Emerging countries—particularly China, but also Russia and Iran—now train a higher number of scientific profiles than most Western nations. While attention remains fixed on the most (over)valued companies, the real difference lies in the depth of the technical fabric.
This also influences decision-making processes. When an organization is largely composed of individuals with scientific understanding, choices naturally rest more on technological realities than on politico-administrative considerations. This is the paradox of the rise of centralized yet effective countries, as was the case with several European countries like France under Charles De Gaulle’s presidency, during their post-war industrial boom.
Iran has many structural weaknesses. Even before their influence grew during the war, the IRGC already wielded considerable economic power, monopolizing resources and, naturally, prioritizing military objectives—often at the expense of civilian development. However, the industry is well-suited to the demands of a war economy, where industrial planning, the decentralization of production capacities, and organizational resilience are top priorities.
Modularity Redefines Industrial Sovereignty
The organization of value chains has evolved. Systems now rely on increasingly modular architectures, composed of electronic subsystems, embedded software, sensors, batteries, or RF components that circulate within international supply chains. In many of these segments, the Chinese industry now occupies a central position, lowering entry barriers for numerous countries. Developing a system no longer requires mastering all the necessary industrial processes from the beginning. The advantage often lies in the ability to integrate components, organize production that evolves with needs, while pursuing a gradual substitution strategy for autonomy purposes.
Iran has largely built its military-industrial apparatus on this logic. Chinese supply chains have given it access to abundant and inexpensive electronics, while the modularity of systems facilitates their continuous improvement. Sanctions have forced Iran to adapt—modifying architectures or developing certain components locally.
This openness does not diminish the importance of industrial sovereignty. On the contrary, competition now focuses on mastering critical dependencies. The goal is to identify the links whose loss could disrupt production capacity and concentrate efforts on securing them. Industrial resilience depends less on absolute autonomy than on the ability to continue producing despite sanctions, logistical disruptions, or infrastructure destruction. Moreover, the concept of economic warfare, developed by the United States, is now being mirrored by Iran—with the Strait of Hormuz—and China—with rare earth elements.
China’s industrial lead stems from the gradual integration of value chains. Batteries, electric vehicles, electronics, rare earths, and robotics illustrate this strategy. U.S. restrictions on semiconductors exemplify the dynamic: they temporarily slow certain Chinese developments but also create strong incentives to invest in domestic capacities, such as those around Huawei.
The rise of Turkey’s defense industry is another example of this industrial development trend, particularly in drones—where it established an early foothold—but also in armored vehicles, weapons, and ammunition, even generating interest in its fighter jet program. While it had long been confined to a subcontractor role in the automotive sector, the country now develops its military exports to the EU, addressing significant needs after decades of underinvestment.
The Erosion of Western Productive Culture and the Potential of Gen Z
The United States retains exceptional assets, such as its university system and energy independence. Yet, a growing share of capital is directed toward activities whose valuation depends primarily on hyper-inflated financial markets. Passive investments, major stock indices, and abundant liquidity create self-sustaining mechanisms where the most highly valued companies attract new flows.
The technological potential of AI is undeniable. However, a significant portion of investment remains focused on consumer applications, driven by advertising revenue or the growth of digital platforms. Applications capable of durably transforming the productive apparatus—such as robotics—still occupy a secondary role.
These shortcomings also affect skill allocation. The United States continues to attract some of the best scientists and engineers. Yet, cronyism often prevails, as seen even in the civilian nuclear industry with the so-called “nuclear bros”—entrepreneurs whose knowledge of nuclear physics is often no deeper than that of the two lead diplomatic negotiators.
The situation in Europe appears even more concerning. Despite the persistence of cutting-edge scientific sectors, strategic decisions are increasingly driven by administrative or political logic. The FCAS fighter jet program is a case in point, with its insurmountable flaws evident from its politically motivated launch. The “Chips Acts” overlook the value chains linking electronics, materials, industrial equipment, software, and manufacturing demand. Issues are addressed in isolation, without an integrated vision or sufficient scientific expertise. Analyses often revolve around calls for a great financial leap forward in European construction, as seen in the Draghi report, rather than technological foresight. Setbacks in key sectors, such as batteries—with the bankruptcy of Northvolt—now invite a more gradual approach to substitution.
As shown by various emerging countries, recovery remains possible. Never before has a generation had such broad access to scientific and cultural knowledge, open communities, or educational and catch-up content. Despite the educational crisis, much of Generation Z is developing—often outside institutions—a technical culture that familiarizes them with the design of complex systems.
An economy does not regain its industrial dynamism through an accumulation of short-sighted political spending initiatives, but by empowering those who understand technologies, master production chains, and can transform innovation into productive capacity. It is on this terrain—far more than on that of spending, including military spending—that the hierarchy and prosperity of global powers will be decided.