Philippe Aghion - Contribution to workshop

FRANCE STRATÉGIE & OECD WORKSHOP ON NEW INDUSTRIAL POLICY TOOLS Paris, 17 October 2022

Reconciling industrial policy and competition policy Philippe Aghion Professor; INSEAD

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Introduction Industrial policy has been criticized for being by essence anti-competitive. Are we bound to choose between competition policy and industrial policy?

Our view is that we should reform both policies so as to reconcile them.

Reforming competition policy We need competition for innovation. However, competition policy is not working well.

Competition, growth and distance to frontier

FRANCE STRATÉGIE & OECD WORKSHOP ON NEW INDUSTRIAL POLICY TOOLS - PARIS, 17 OCTOBER

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Rise and decline in TFP growth

Rise and decline in employment-weighted plant entry rate

Note: Job creation by birth over total employment by firm size bins. 5-year centered moving average.

Source: US Census Bureau’s Business Dynamics Statistics.

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Too much emphasis on market definition and market share

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Need to factor in effects of M&As on subsequent entry and innovation

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Alstom-Siemens?

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Reforming industrial policy We need industrial policy : •

To redirect innovation towards clean technologies (carbon tax not sufficient)

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To foster innovation in sectors where it requires

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The challenge is to make industrial policy more competition-friendly

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Rethink the governance of industrial policy: selection of sectors, allocation of sectoral aid: not only to incumbent firms, and not pre-selected national champions

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DARPA

Summary In the 1980s industrial policy came under some justified criticisms. Yet, there is a role for industrial policy, provided we reconcile with competition policy. Competition policy itself needs to be reformed

FRANCE STRATÉGIE & OECD WORKSHOP ON NEW INDUSTRIAL POLICY TOOLS - PARIS, 17 OCTOBER