Economic reform in the form of blanket policies may not be the best option for Europe, according to acclaimed French economist, Professor Philippe Aghion. Speaking at the SME Assembly in Bratislava, Aghion warns that people in countries who do not share in the wealth created by reform, would feel ignored, prompting them to respond at the ballot box.
His ‘Innovation in Enterprise’ lecture at the SME Assembly highlighted the common flaws that are overlooked with reforms are put in place. Reform must be ‘inclusive’, he said, which is now more possible than ever before through the power of innovation in social mobility.
He talked of the need for many countries to undergo fiscal and structural reform in order for them to truly prosper. But he added that reform alone would not be enough – they must still be open and innovative. Comparing the US economy with European ones he stated the view that the US is more ‘resilient’ and growing faster than Europe for several reasons, including the fact that it has a more proactive macro-policy, is more counter-cyclical and has a more flexible labour market.
“If we want to revive the idea of Europe, people to love Europe, Europe has to deliver growth. If we don’t deliver growth, it is over. When you do reform, you have to worry about the losers. You need to compensate the losers. Thatcher and Reagan, they understood that you had to make structural reforms. But they operated on the patient without anaesthetic and they didn’t care about the losers,” he said.
While some European countries need structural reform, Aghion believes that investment in infrastructure and structural reform are complementary, and unless this reform is implemented, there will be a backlash from disadvantaged groups. What is required is good education and good training, he said, in order to help nations attain employment and share in wealth creation.
Aghion is the Robert C. Waggoner Professor of Economics at Harvard University, an invited professor at the Paris School of Economics, and Professor of Economics at the London School of Economics. The lecture was part of the three-day conference SME Assembly 2016 held by the European Commission.