Philippe Aghion: 'Competition, education, flex-security are the pillars of a successful growth structure'

3 months ago

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Transcript

00:00When the week began, France faced the very real possibility of a snap election.

00:17But the reappointed prime minister, Sébastien Lecornu,

00:21whose previous cabinet lasted only 14 hours, this time threw a bone to the left.

00:27Giving up on Emmanuel Macron's signature pension reform bill,

00:33suspending the raising of the retirement age.

00:36The result? In a national assembly with 577 seats.

00:41The winning margin over votes of no confidence put forth by the far right and far left

00:48was a mere 18 votes.

00:51The key, the socialists, all but seven of their 69 sitting members of the national assembly,

00:59abstained on the vote.

01:04If the government doesn't keep its commitments, in particular over the pension reform,

01:08we will of course immediately vote against it.

01:11All right, so the government's not out of the woods yet

01:18as the battle over how to reduce the budget deficit continues.

01:24In other news, he was one of the authors of a key report

01:27submitted to President Emmanuel Macron last year

01:29outlining how France could take the lead in the field of artificial intelligence.

01:34Philippe Aguillon on Monday shared honours with Joël Mokir and Peter Howitt

01:39for the Nobel Economics Prize.

01:44His explanation of how creative destruction can drive economic growth

01:49is one of those cornerstones that people are talking about

01:53in this age of artificial intelligence.

01:56Siobhan Silk has more.

01:58Why do humans live so much better now than our ancestors did?

02:04That's the main question tackled by the trio of academics

02:08who've been awarded the 2025 Nobel Prize in Economics

02:11for their work on how innovation drives growth.

02:15American-Israeli Joël Mokir took half the prize

02:18for his long-term studies based on historical sources,

02:22while French economist Philippe Aguillon

02:25shared the other half with Canadian Peter Howitt

02:30for their mathematical model quantifying creative destruction,

02:34the idea that innovations destroy older technologies and businesses,

02:39but in the long run generate stable growth and improve human welfare.

02:43It's particularly timely amid growing anxiety over the AI revolution

02:48and its potential to make many jobs obsolete.

02:51With the understanding of the mechanisms of creative destruction

02:56provided by the laureates and the follow-up research,

03:00we have a better chance to make sure growth can continue

03:04and be guided in the direction that benefits humankind.

03:09Reacting to their win,

03:11Howitt and Aguillon warned against the protectionist policies

03:14of the current U.S. administration,

03:17saying they could stifle innovation.

03:18Anything that gets in the way of openness is an obstacle to growth.

03:24So I see there kind of dark clouds currently, you know, accumulating.

03:28The three laureates will each take a share of the 1 million euro prize.

03:33Philippe Aguillon says he intends to invest his part in his research lab

03:37at the Collège de France and INSEAD Business School,

03:40helping to fund young researchers' work on AI and green growth.

03:44He says he still doesn't like seeing himself on camera.

03:48Philippe Aguillon, Nobel Economics Laureate, is with us in our studios.

03:51Thanks for joining us here on France.

03:53Very nice seeing you.

03:54I heard on the radio the other morning, you giving an interview,

03:58where you said that the Nobel Committee actually asked you

04:00for the phone numbers of the other winners?

04:02Absolutely.

04:04Tell us what happened.

04:05No, I mean, they were not sure because they tried.

04:07It was not working.

04:08So they wanted to double check, probably.

04:10I think they had some numbers, but they wanted to double check.

04:13So they asked me to look for.

04:15I had the phone number of Peter Howitt, although not at hand,

04:18which is true.

04:20And my assistant had the number of Joel Mokir,

04:24but I could not tell my assistant what it was for,

04:26that I needed that number.

04:27So I had to call my assistant, ask her for the phone number of Joel Mokir

04:33without telling her the reason why I needed that number.

04:37And she didn't guess why.

04:38Okay, so you don't like seeing yourself yet on TV,

04:40but you've got to brace yourself, right?

04:42Because imagine the next time you're in the faculty lounge

04:46at the Collège de France, are people going to look at you and say,

04:50oh, it's Philippe, or are they going to say,

04:52oh, it's the Nobel Economics Laureate?

04:54Remember that the famous philosopher Jean-Paul Sartre refused

04:57the Nobel Literature Prize because he didn't want to be known

04:59as the Nobel winner for the rest of his life all the time.

05:03I think, you know, yeah, I think you can live.

05:08I'm very happy to have received the Nobel because it rewards the whole line of research.

05:15I think it acknowledges, you know, a whole new way of thinking about the growth process.

05:21There was what we used to call the neoclassical growth paradigm.

05:25It was the Solo model, the model of Robert Solo.

05:28He was a wonderful man, Robert Solo.

05:30But it's a model whereby growth is, you know, driven by capital accumulation primarily.

05:36So that was the paradigm.

05:38And capital accumulates, you produce more GDP, more output, you can save more,

05:44and the savings turn into investment, into new, increasing capital stock,

05:49and you keep growing this way.

05:50That was the Solo model, okay?

05:52Nothing to do with innovation.

05:54It was pure capital accumulation, output, savings, investment, capital accumulation.

06:00And in our paradigm, you know, really the key role is played by enterprises.

06:08You see, I mean, the core of our paradigm are the firms,

06:13the firms that innovate to find new products or to better products

06:18or more efficient way to produce.

06:20And that's what, you know, drives productivity growth,

06:23is the innovation activities of firms.

06:25So firms that innovate, is it firms that take big risks?

06:30They take, of course, big risks because they need incentives.

06:33Because you can try and fail.

06:34Of course, and they may fail.

06:35So that's why you need to create a business, a favorable business climate

06:38for them to be, you know, to be willing to invest in innovation,

06:42which is very risky, rather than, you know, invest in real estate or pension funds.

06:46Or, you know, when someone puts her own funds or her own money into a risky undertaking,

06:53it's not the same as if you put, you know, your private savings into, you know,

06:59a bank account or whatever.

07:01So it's a world, our world is a world where all the time you have new talents.

07:06New talents become new startups.

07:08And the new startups come to challenge existing firms.

07:12You see what I mean?

07:12And so it's a model where you want to encourage firms to innovate

07:16because they will get innovation grants.

07:18But later on, they may be tempted to use their grants to prevent subsequent innovations

07:23because they don't want themselves to be subject to creative destruction.

07:27So you see, there is this contradiction at the heart of the growth process.

07:30On the one hand, you need innovation grants to induce firms to innovate.

07:35But on the other hand, they are tempted to use their grants

07:38to prevent subsequent entry and subsequent innovation

07:40because themselves don't want to be subject to creative destruction.

07:44So how do you deal with this contradiction?

07:46You see?

07:47And you must have had many years of, I guess I can only call it heartache

07:52because 1992 is when you co-author this paper.

07:56But in fact, we started to work on it in 87.

07:59Oh, 87.

07:59We met.

08:00Even earlier.

08:01Before we worked on it.

08:02We did it in 87.

08:03Nobody in those days had a cell phone or...

08:06It was no...

08:07No.

08:07And so 1987 was the year of a big stock market correction.

08:15There was going to be financial crisis that followed.

08:18And yet, you co-author with Peter Howitt this paper in 1992.

08:22And for years, decades afterwards, the jobs that people go to

08:27are not the entrepreneurial innovation jobs.

08:30There are things like working in the city of London for a big trading firm or for a bank.

08:36It's true that whenever you have waves, you know, when you have new technological waves,

08:40people tend to go too much into the financial sector.

08:44So we need finance, of course.

08:45You need venture capital, institutional investors to finance innovation.

08:50But sometimes what happens is that there is too much, you know,

08:55you know, attraction for finance at the expense of the real economy.

09:01And so you now have this model.

09:04When you talk about innovation, you understand how some of our viewers might be a little bit

09:10intimidated, dare we say scared, this notion of...

09:14Because, you know, people feel intimidated when they see new gizmos and...

09:19Because they are afraid of losing their jobs, for example.

09:22And that's why it's so important.

09:24And that's why I advocate a lot, kind of the niche system of flex security.

09:27When you lose your job, you get, you know, 90% of your salary for two years.

09:32You are retrained and the state helps you find a new job.

09:35I think it's very important, you know, to make creative destruction socially acceptable

09:40and to make sure that nobody is left out of the process.

09:44It's very important to have this kind of flex security system that they have in Denmark.

09:48And it's also very important to have a good education system.

09:51Because at school, you learn to learn.

09:53At school, you learn to be adaptable.

09:55If you don't go to good schools, you don't know how to adapt.

09:59So I think the combination of good schools, of a very good ecosystem for everybody,

10:03you know, like in Finland, like in Korea,

10:05if you have a good education system combined with a good flex security system,

10:10then there will be less reluctance to the creative destruction, you see,

10:14which is the driver of growth.

10:16Growth is really economies that are dynamic.

10:18Are those economies where all the time you have new talents,

10:21new firms that come in, grow and challenge existing firms.

10:25And existing firms, if they want to survive, they need to innovate again.

10:29Or if they don't, well, they have to, they are driven out of the market.

10:33You see what I mean?

10:34And that's what drives growth.

10:36But then first you need new talents.

10:38Where do new talents come from?

10:39From schooling.

10:40So if you don't have good schools, you have very few new talents.

10:43Excuse me, Philippe Aguillon, you're French, right?

10:46And in France, the schooling is very top-down.

10:49You probably endured like I did, sitting on the benches of big amphitheaters

10:55where the professors who were then called mandarins sometimes.

10:59Yeah, that's right.

11:01That's not a recipe for innovation, is there?

11:02No, but there are two things.

11:03You talk about universities.

11:04I talk about, you know, primary, secondary schools.

11:07Right.

11:07We need primary, secondary schools that deliver good test scores.

11:11You see, good PISA tests.

11:13So I am very much at school in favor of going back to calculus, reading, dictations.

11:21It's very important that, you know, high school students really master the basic knowledge.

11:27You see, I think that's very important.

11:29And then on top of that, you can study history, geography.

11:32But calculus, reading, basic literature, they need manuals.

11:37They need, you know, books.

11:38Books, don't use books, read paper books.

11:41And I think that's very important.

11:44And we used to have a school like that in France, and we lost it.

11:49We've lost it.

11:50We lost, well, yeah, the school.

11:52We have very good teachers.

11:53We have really devoted, fully dedicated teachers in high schools in France, in primary and secondary schools.

12:01But the system is organized in such a way that the public school system in France no longer delivers the promise of opportunity.

12:09And why is that?

12:10Why is that?

12:10Is it because, well, the decision is that the private sector is good and we shouldn't be putting our money?

12:16No, no, no.

12:17I mean, it's good to have the private sector.

12:18But I think, you know, we had migrations.

12:21We had new ways of migration.

12:22We would need, we needed classes with, you know, 15 students at most.

12:28We had excessively numerous classes, you know.

12:32So lack of funding for education.

12:34Then if there were students left behind, the teacher doesn't have time to care about them.

12:40So we need schools where there is nobody left behind.

12:43When anybody is left behind, she or he can have tutorship, can be helped, can the homework done at school.

12:50All this we didn't have, you see.

12:51We need to invest in schools so that we can really make sure that nobody is left out.

12:58The problem with the French schooling system, there are a lot of wastes.

13:01A lot of children who get out of it barely knowing how to read and write.

13:06And that's not right.

13:07That's not good.

13:08So there may be.

13:08They should.

13:09No.

13:09It should be maybe cold comfort.

13:11But you compare the United States to Europe and you say the U.S. does poorly on inequality

13:17on the social safety net that you're describing there.

13:20And Europe does poorly on innovation.

13:23Exactly.

13:24You know, that's right.

13:25And so is this trend going to continue?

13:29Well, I hope not.

13:30There is a Draghi report.

13:31You know, Mario Draghi recommends that we wake up and we try to revert trend.

13:37I mean, the European per capita GDP is declining compared to the U.S. per capita GDP.

13:43We need to get our acts together and become a frontier innovator space.

13:49So we need a single market, a truly single market, you know, for goods and services, which we don't have.

13:55There are too many gold plating.

13:57Each country, each member state in Europe has its own regulation on top of the European regulation.

14:03We need a good financial ecosystem of innovation, venture capital, institutional investors.

14:07We don't have like in the U.S.

14:08And we don't have the equivalent of the DARPA, Defense Advanced Project Agency, this very pro-competition way of doing industrial policy.

14:15You have that in the U.S.

14:16You don't have that in Europe.

14:18So I think on all those dimensions, we can improve a lot in Europe to become more innovative.

14:23And on top of that, I would add the education and the flex security to make sure that, you know, the creative destruction that we generate is socially acceptable.

14:34But that's where Europe needs to wake up.

14:36All right.

14:37The creative destruction, that term sounds a little bit like when Mark Zuckerberg talked about move fast and break things to people.

14:45Yeah, but break things in a way which does not endanger social, you know, social safety.

14:52We need social safety nets.

14:54We want to make sure that people feel comfortable with it.

14:57Right now?

14:57Like in Denmark.

14:58In Denmark, there is no negative effect on health of losing your job.

15:02There's been studies on that by my friend Alexandra Roulet.

15:04No negative effect on health in Denmark of losing your job.

15:08In U.S., you have the death of despair phenomenon, which Anne Case and Angus Ditton have pinpointed so well.

15:14So that's the big difference is that we need, on top of the Draghi recommendation,

15:18we need to have good education system and good flag security system to really make sure we don't run into populism.

15:25You see, why do you have Trump or Mrs. Le Pen on the doorsteps of the Elysees and Matignon?

15:32Because there were many people in France or in our countries left out of the process.

15:37You see, abandoned.

15:38That felt abandoned.

15:39Nobody should be left abandoned.

15:41Should we be left out of this, you know, quest for more innovation and more innovation-based growth.

15:50More innovation.

15:51One final question, Philippe Aguillon.

15:53We're talking about artificial intelligence now, and you've argued that it can be a factor for that innovation.

16:01Absolutely.

16:01It's a big driver.

16:02This interview, if there's a transcript of it, AI will eat it, will digest it.

16:08And for some, that's not innovation.

16:12That's theft.

16:13And they're taking people's…

16:15Ah, I know.

16:15That's right.

16:16There is a good and bad use.

16:17But the good use of AI…

16:18Taking people's content, their copyright…

16:21Of course.

16:22That's why you need regulations.

16:23So you do need more regulations.

16:24But too many regulations can get in the way of competition.

16:27So you need the right regulation.

16:29But avoid over-regulating, because when you have too many regulations, incumbent firms know how to cope with them.

16:35New entrants don't.

16:36So you want to make sure you have the right regulations, but not too many regulations, because then it stifles competition.

16:44And we know that the big problem with IT is that IT boosted growth initially.

16:49But then you had a growth decline because you had the emergence of superstar firms that discouraged new entry, you see.

16:56And because competition policy was not adequate, we let those firms grow unboundedly through merger and acquisition.

17:04And now we have to be very careful.

17:06Competition policy has to be there to make sure that the AI revolution will not end up having two or three dominant firms that will deter any innovation by anybody else, you see.