The Keys to Inclusive Growth
One of the COVID-19 pandemic’s most important economic lessons is that innovation and inclusion need not be mutually exclusive. By pursuing the right policies, Western governments can promote both and thereby help to bring about a dynamic and equitable recovery.
PARIS – The COVID-19 pandemic has highlighted major weaknesses of both the US and European models of capitalism. In the United States, the crisis has shown the limits of an economic system that fails to protect individuals against the effects of creative destruction and the social consequences of a macroeconomic shock. In Europe, it has revealed the insufficient dynamism of the region’s innovation ecosystem – particularly in the biotech sector, which holds the key to ending the pandemic. For all the harm it has caused, therefore, the COVID-19 crisis is also a wake-up call to rethink capitalism.
We do not regard the US economic model’s lack of protection and inclusiveness as a necessary price to pay for greater innovativeness. Nor do we think that Europe’s lack of innovativeness is a natural consequence of greater inclusion and better social protection. So, besides calling for greater investment in education, we advocate two policies that should both stimulate innovation-based growth and make it more inclusive and/or protective: beefed-up competition policy, and a Danish-style “flexicurity” system in the labor market.
Competition-policy discussions should start by asking why the innovative US economy, which spearheaded the information-technology revolution, has suffered from declining productivity growth over the past two decades. Among the various possible explanations for this trend, two have emphasized a competition problem.