Building Bridges 2022 Spotlight Series: an interview with Philippe Aghion MAE#
Professor Philippe Aghion MAE, recipient of Academia Europaea’s Erasmus medal, tells us about his work on growth and innovation.
About Philippe Aghion MAE#
Philippe Aghion MAE is a professor at leading institutions in business and economics, including the Collège de France, at the London School of Economics, and the INSEAD Business School, and also an invited professor at the Paris School of Economics. His research on the economics of growth and contract theory is considered ground-breaking. With Peter Howitt, he pioneered the so-called Schumpeterian Growth paradigm, later extending it to analyse the design of growth policies and the role of the state in the growth process. International honours include the Yrjo Jahnsson Award for the best European economist under age 45 (2001), the John Von Neumann Award (2009), and the BBVA “Frontier of Knowledge Award” (2020), which he shared with Peter Howitt for “developing an economic growth theory based on the innovation that emerges from the process of creative destruction.” He was elected Fellow of the American Academy of Arts and Sciences in 2009 and Corresponding Fellow of the British Academy in 2015. He was elected to AE in 2016.
The interview#
Congratulations on the award of Academia Europaea’s Erasmus Medal for 2022. It is the highest award that the Academia Europaea can bestow on eminent scholars and recognises sustained achievement and contributions to scholarship over a career period. What does the award mean to you?
You have had a truly international career, working in France, America and the UK, for example. What impact has that had on your work?
In the UK, I started to collaborate with empiricists, in particular with Richard Blundell
and his team at the Institute of Fiscal Studies. Through working with Richard Blundell and his team in the mid-1990s, we could confront our Schumpeterian growth theory with microdata, in particular to analyse the effect of competition on innovation-led growth.”
Your work focuses on growth and innovation. Your book, The power of creative destruction (co-authored with Céline Antonin and Simon Brunel, English translation 2021), focuses on growth and its benefits. Could you say more about the arguments you set out – what is ‘creative destruction’ and what are its merits and difficulties?
You can see that there is a contradiction at the heart of the growth process. On the one hand, you need innovation rents to motivate investments but on the other hand, yesterday’s innovators are tempted to use their rents to prevent subsequent innovators from entering the market because they themselves do not want to become subject to creative destruction. Regulating capitalism is all about how you manage this contradiction. When thinking about inequality, secular stagnation[2], the middle income trap, green innovation, you always come across this contradiction and how you should manage it to achieve sustained, green and inclusive growth. What we explain in the book is that the state plays a big role, but civil society also comes into play. You need to rely on the triangle between firms that innovate, the state that regulates and civil society that makes sure the state is not captured by private vested interests.”
What policies does it lead to that we could apply to solving the challenges we face in 2022?
You also need instruments to finance innovation. First, to finance basic research, it is important to have well-funded and well-organised universities and institutions (such as the National Science Foundation). You also need a financial ecosystem which favours the creation and growth of new start-up firms – venture capital and institutional investors that turn basic research into industrial projects. And the state can also provide research tax credits to innovative firms. On top of that, there is more vertical support to innovation that the state can provide. In particular, there are some technologies where the basic research has been done but there is a need to coordinate resources and actors to turn it into industrial applications. DARPA (the Defense Advanced Research Project Agency) was created in the US in the 1950s and resulted in innovations like GPS, the Internet and autonomous navigation. More recently, BARDA (Biomedical Advanced Research and Development Authority) has turned mRNA -based technology into the mass production of vaccines against COVID.
Overall, we see that the state can intervene both horizontally (education, competition, labour market policies) and also vertically (in sectors like defence, space, energy and biosciences) to boost innovation.”
It’s often said that Europe lags behind other parts of the world when it comes to innovation. Do you have insights on this, and what might be done?
You have written about the impact of innovation on long-term challenges like societal inequalities and climate change. Could you say a little more about this within the context of Europe – are we proceeding far enough and fast enough, in your view?
Finally, where might your research interests lead you in terms of future projects?
The other big issue I want to get deeper into is the notion of economic rent. Rents from innovation and those from a windfall monopoly are not the same, and you should not treat them in the same way. So, when you deal with redistribution policy, with inequality, you have to distinguish between innovation-driven rents and those that stem more from lobbying, entry barriers etc. This will help improve the design of R&D policies – should we favour small firms, large firms, how should we decide to allocate R&D subsidies?”
[2] A condition when there is negligible or no economic growth in a market-based economy (Wikipedia
)
.For further information please contact AECardiffHub@cardiff.ac.uk
.
