Centre de l'économie de l'innovation
In the Spotlight
The Power of Creative Destruction
Economic Upheaval and the Wealth of Nations
From one of the world’s leading economists and his coauthors, a cutting-edge analysis of what drives economic growth and a blueprint for prosperity under capitalism.
Crisis seems to follow crisis. Inequality is rising, growth is stagnant, the environment is suffering, and the COVID-19 pandemic has exposed every crack in the system. We hear more and more calls for radical change, even the overthrow of capitalism. But the answer to our problems is not revolution. The answer is to create a better capitalism by understanding and harnessing the power of creative destruction—innovation that disrupts, but that over the past two hundred years has also lifted societies to previously unimagined prosperity.
To explain, Philippe Aghion, Céline Antonin, and Simon Bunel draw on cutting-edge theory and evidence to examine today’s most fundamental economic questions, including the roots of growth and inequality, competition and globalization, the determinants of health and happiness, technological revolutions, secular stagnation, middle-income traps, climate change, and how to recover from economic shocks. They show that we owe our modern standard of living to innovations enabled by free-market capitalism. But we also need state intervention with the appropriate checks and balances to simultaneously foster ongoing economic creativity, manage the social disruption that innovation leaves in its wake, and ensure that yesterday’s superstar innovators don’t pull the ladder up after them to thwart tomorrow’s. A powerful and ambitious reappraisal of the foundations of economic success and a blueprint for change, The Power of Creative Destruction shows that a fair and prosperous future is ultimately ours to make.
The Center for the Economy of Innovation, established at the Collège de France by Professor Philippe Aghion, receives support notably from Paris Sciences et Lettres (PSL) within the framework of the Institutions, Innovation and Sustainable Development program (IISD), and funding from the Banque de France. Research is one of it's main activities.
Taxation and small entrepreneurs
This project assesses the effect of successive changes in the French tax system aimed at promoting microbusinesses and small entrepreneurs. Under the leadership of Professor Aghion, Stefanie Stantcheva (Harvard University) and students are developing a new method for calculating the reaction elasticity of economic agents in response to reforms introduced in 1999 and 2008.
Exports and Innovation
This study, carried out with Marc Melitz (Harvard University) and two of Professor Aghion’s students – Antonin Bergeaud and Matthieu Lequien – analyzes the effect of the expansion of export markets on innovation in French exporting companies. It shows in particular that higher export demand gives rise to a market size effect, which leads to increased innovation, especially for firms positioned far from the technological frontier in their respective sectors.
Measurement of Growth
This study, conducted with Pete Klenow (Stanford University), shows that productivity growth (in real terms) in the United States is inaccurately measured since statistical agencies do not adequately account for the contribution to global inflation in the economy of new products which add to – or replace – old products. Statistical agencies often use imputation or extrapolation: in other words, for each sector of the economy, the statistics agency relies on prices of products which are not replaced by new products to infer the rate of inflation for the economy as a whole. This study shows that the use of imputation leads to an underestimation of real productivity growth in the United States of approximately one point per year for the last thirty years.
Economics of Innovation Seminar Series
Speaker: Elio Nimier-David (with David Sraer and David Thesmar)
Title: The Effect of Mandatory Profit-Sharing on Workers and Firms: Evidence from France
Abstract: This paper provides an assessment of the effects of profit-sharing on firms’ pay policy and workers productivity. Since 1967, French firms with more than 100 employees have been required to distribute a share of their net income to workers. In 1991, the size threshold was reduced from 100 to 50 employees. We exploit this regulatory change to evaluate the incidence of mandated profit-sharing on workers' earnings and its cost for firms. Using a difference-in-difference strategy, we show that mandatory profit-sharing led to a significant
increase in workers' total compensation that matches a decrease in shareholders' profits. We estimate a precise zero incidence on base wage for all employees but managers and engineers who experience a one to one substitution with profit-sharing. The reform hence led to a reduction of earnings inequality within firms. These results suggest a very strong downward rigidity of earnings for most workers except at the top of the distribution. Regarding firms, we find that profit-sharing is indeed perceived as a cost with some bunching at 100 employees
before the reform. However, we do not find evidence of avoidance strategies such as increased leverage or substitution between capital and labor after the reform. Finally, we estimate a small non-significant impact of profit-sharing on productivity.
The Economics of Creative Destruction Conference
In 1992, Philippe Aghion and Peter Howitt published "A Model of Growth through Creative Destruction". To honour the 30th anniversary of this publication, Ufuk Akcigit and John Van Reenen organised a four-day zoom seminar, followed-up by a book edited at Harvard University Press on "The Economics of Creative Destruction" (to be published in December 2022).
More than a hundred renowned economists met last year to present and exchange ideas about how the creative destruction framework offers a fresh lens to think about questions such as:
- What are the effects of creative destruction on employment and health?
- Why did we observed a growth decline despite the IT and AI revolutions?
- How does creative destruction interacts with competition and trade?
- How can we explain and tackle inequalities to make growth more inclusive?
- How can we reconcile growth with the environment, especially the challenge of climate change?
- How should we finance and organize the innovation ecosystem to favor creative destruction?
- How to regulate modern capitalism?
The Innovation Campus for High Schools
The "Innovation Campus for High Schools" project is a pro-bono action, initiated in 2016 by Philippe Aghion with a partnership agreement signed with the Ministry of National Education.
The mission of this project is to show students in high schools, especially those from the most disadvantaged areas, what teaching through research is all about.
For Philippe Aghion, "it is a matter of encouraging students who do not benefit from immediate social and territorial proximity to academic knowledge to dare, to move forward, to become actors in their academic and professional success. It is a question of desacralizing academic knowledge, demonstrating how knowledge, economics for example, is a tool for understanding and acting on the world, their world”. The project develops its action through four disciplines, Economics, History, Life and Earth Sciences and Mathematics. This project works with the help of researchers at the top of their field, like Yves Agid from the Brain Institute, or Edith Heard and François-Xavier Fauvelle from the College of France.
The Innovation Campus for High Schools has several objectives:
- Demystify the relationship with academic knowledge
- To awaken vocations
- Encourage students to project themselves into the future