This year's Nobel Prize in Economics celebrates two contributions that underlie contemporary understanding of the economics of innovation, and consequently, of economic growth. One, by Joel Mokyr, has already been featured in an article in the ARA (by Albert Carreras, October 13). I will dedicate this one to the work of Philippe Aghion and Peter Howitt, who jointly formulated a theory of innovation based on Joseph Schumpeter's concept of "creative destruction." It is rigorous, empirically testable, and useful for public policy.
Schumpeter, born in Austria-Hungary and a professor at Harvard since 1932, published, in 1942, Capitalism, socialism and democracy, A book in which he expresses his conception of the dynamism of capitalism as the result of the action of entrepreneurs with new ideas that push new projects forward. Who, by competing, create. A key point is that Schumpeter understands that competition for innovation requires the existence of monopolies, since innovation will only occur if the entrepreneur enjoys protection (say, patents) against copying by competitors. This positive conception of monopoly was a novelty in the liberal economic tradition, which would only admit them, and even then regulated, in the case of unlimited returns to scale (natural monopoly).
Now, a successful innovation destroys capital that has become obsolete. Here we have an asymmetry: those who lose are the established ones, not the innovative entrepreneur. And, therefore, creative destruction encourages today's established entrepreneur, who may be yesterday's innovator, to dedicate monopoly rents to creating barriers to innovation. Schumpeter was convinced that this trend would triumph and that his capitalism—that of the entrepreneur—would stagnate and become something else: a system of bureaucratized monopolies with little innovation. He writes: "Can capitalism survive? No, I don't think it can."
Schumpeter's ideas were just that: ideas and grand visions. They were not supported by theoretical modeling or sufficiently elaborated empirical evidence. But they were attractive and powerful. In Barcelona, Fabià Estapé popularized them when I was a student. They resonated well with the captains of industry at Vicens Vives. The fact is that decades passed before Aghion and Howitt incorporated them into a precise model, capable of being subjected to the test of data and deployable in a multitude of directions that can be consulted in The story of creative destruction -Philippe Aghion, Céline Antonin and Simon Bunel-, gathers the lessons learned from a course at the Collège de France in 2020. Today, the results of this research program are fundamental for policies to promote innovation. They permeate the Draghi report.
An example: Aghion has insisted that the level of innovation in an economic sector depends on the productive structure and the degree of competition in the market, variables that public policies can influence by seeking the level of innovation that, said to the Gramsci, optimizes the combined rate of birth of the new and the death of the old. We consider two extreme cases. In one, we have a radically competitive market (in particular, without patents). Thus, the level of innovation, due to the impossibility of appropriating the value created, will be zero (or very low). In the other—the opposite pole—we have a radically oligopolized market, without internal competition and with protectionist barriers to entry. Again, the level of innovation will be zero. A potential entrant will not succeed in destroying even the minimum necessary to gain a piece of the market. The game, therefore, will be in intermediate situations, and here the structure of production will count. If the levels of competition or non-competition are not extreme, it will be possible for an innovator to enter and carve out a space for themselves by eliminating—destroying—the less efficient established firms (further from the "technological frontier"), but at the same time, this will provoke a multiplier effect on innovation, since the more efficient established firms resist. Ultimately, the distribution of firms in terms of proximity to the technological frontier will determine the level of innovation and destruction. Consequently, it is conceivable that a well-thought-out industrial policy could affect the degree of competition (patent policy?) and the productive structure (tax incentive policies?) to achieve the most desirable levels of innovation. This is what Aghion, who considers himself a social democrat, advocates.
