The neo-Schumpeterian approach of Philippe Aghion – co-author of The Power of Creative Destruction (2021), among many other books – has had a significant influence on European economic policy since the turn of the century. Earlier this week, he was one of three economists to receive the Sveriges Riksbank Prize in memory of Alfred Nobel, the most prestigious award in the discipline, with the committee praising his account of how innovation provides the impetus for growth. What is the nature of this account, and what are its implications? It is perhaps an auspicious moment to reflect on Aghion’s thinking, as France undergoes a political crisis whose origins can be traced to the unpopular economic policies he championed as an adviser to President Macron.

The governing thesis of Aghion’s work, which draws inspiration from Schumpeter who in turn inherited the theme from Marx and Rosa Luxemburg, is that innovation is the engine of capitalism, and that the source of growth is creative destruction. ‘The new replaces the old’, as Aghion puts it. What has set him apart is his attempt to model and measure this phenomenon. According to his findings, this process has two key conditions. The first is flexibility. Markets should be liberalized so that innovations lead to an effective reorganization of the productive forces, resulting in increased economic activity. The second, however, is a limit on competition, too much of which inhibits innovators, who must be encouraged with low capital taxation and strong intellectual property rights. If this generates inequality, it’s a necessary evil. ‘I’ll take it’, Aghion says.

But he has a problem. There may have been growth in patents in recent decades – Aghion’s preferred indicator for measuring innovation – but economic growth as a whole is declining. And so he wonders: why is this acceleration in innovation not reflected in growth and productivity trends? His first line of defence was to insist that growth is in fact strong, and the theory was safe – the issue is with how it’s being measured (Michel Husson has effectively rebutted this attempt as statistical fiddling). Later, he acknowledged that growth, even if it’s higher than standard indices suggest, is trending downward.

Aghion then turned to a series of ad hoc explanations for the faltering correlation between innovation and productivity. First, he proposed that underestimating productivity leads to exaggerating inflation. As a result, interest rates are too high and public investment is too low. Or could it be the other way around – that credit is in fact too cheap? ‘The slowdown in productivity growth in most developed countries since the 1970s, he argued ‘could indeed be partly linked to a reduction in financial constraints, via reallocation effects.’ In other words, interest rates are too low leading to poor capital allocation. Next, the problem was Big Tech: competition policy is ill-suited to the age of algorithms. Ultimately, Aghion has suggested, it’s all of the above, and we’re (almost) back to square one: not enough structural reform, not enough liberalization, and too much monopoly in tech – all of this is stifling the creative energies of entrepreneurs.  

There are, however, many reasons to believe that liberalization, innovation and growth do not necessarily go hand in hand. While the general idea that economic development depends on the relationship between technology and institutions is correct, far richer insights can be found elsewhere: in the national innovation systems developed in the nineties by evolutionary and Marxist economists such as Richard Nelson, Chris Freeman, François Chesnais and others, sometimes in dialogue with the work of Benjamin Coriat and Robert Boyer and other scholars in the French Regulation school, the techno-economic paradigms developed by Carlota Perez and continued by Mariana Mazzucato, or the long-wave theory of Ernest Mandel.

This research underscores and transcends the aporias of Aghion’s thinking. It demonstrates that there is no such thing as dynamic entrepreneurial capitalism in the 21st century, caught as it is between the Charybdis of coercive competition and the Scylla of extractive monopoly rents. The vitality of mature economies during the postwar manufacturing boom cannot easily be revived: the rapid productivity gains of that era were highly specific and are not ostensibly reproducible. Production capacities growing in line with demand allowed for sustained profitability and rising wages. However, with the global buildup of overcapacity and the deficiencies in demand resulting from neoliberal policies, this dynamic faltered. At a deeper level, the expanding share of services in consumption – itself linked to the saturation of markets for standardized goods – and the growing importance of intangibles in production processes made profit less predictable, increasing reluctance to make fixed investments in many sectors, further depressing demand. 

Especially in these changed circumstances, rather than blindly supporting entrepreneurship in the name of technological innovation per se, governments should discipline capital in order to carve a desirable and sustainable developmental path, deliberating on which areas should be prioritized. Since most countries are not, by definition, at the technological frontier, technological change below the frontier – i.e., imitation and capacity-building strategies rather than innovation – is an issue of utmost importance, which Aghion almost wholly ignores. Industrial policy and demand management, on the one hand, and strong support for public education and essential research, on the other, are the foundations upon which a progressive innovation system could be built in the 21st century. The objective should be to better align technological change with social needs, ecosystem limits, and the aspirations and capabilities of producers, bearing in mind the legacy of the various histories of national development.

Armed with his ‘Nobel’, Aghion is undoubtedly emboldened in his belief that he has supplanted Schumpeter. Yet unlike his Austrian predecessor, who had a tragic understanding of economic history – as shaped by profound crises and contradictory forces manifesting as class conflict – Aghion has no theory of capitalism. Despite the sophistication of his models, his empirical data has led him to an intellectual impasse. Faced with the upheavals of a system he struggles to decipher, he twists and turns to preserve the chimera of a utopian capitalism in which inequality is the acceptable upshot of innovation. Decades ago, Fredric Jameson identified ‘fantasies about the salvational nature of high technology’ with the apologists of the postmodern era. By preaching that technology shaped by capital is the ultimate horizon, Aghion implicitly accepts that nature, labour and society at large should be considered second-order variables, subordinated to a fetishized technical devenir. Sweet music to the ears of the powerful.

Read on: Cédric Durand ‘Landscapes of Capital’, NLR 147.