While Professors Aghion and Howitt are evidently smart guys, it is Joseph Schumpeter who should have won the Nobel Prize, which he never did in his lifetime. Their work seems entirely derivative of Schumpeter's and not at all original. Even though they stole Schumpeter's "big idea" for their title, they do not seem to have given Schumpeter much credit (I infer this because you do not mention the master in your post.)
Almost a century ago, on page 95 of his deeply prophetic masterpiece "Capitalism, Socialism, and Democracy" Schumpeter wrote, "The important thing is not the number of firms competing in an industry, but the ease with which competitor firms can enter the industry."
For anyone interested, here is an annotated outline of "CSD."
Below is one of Schumpeter’s most profound insights. It could only have been perceived by that rare economist who actually understood business, not by a pure academic,
"Competition acts even when it is merely an ever-present threat. It disciplines before it attacks”.
He is saying that the main thing that motivates entrepreneurs is a fear of failure that amounts to abject terror. Keynes’ “radical uncertainty” does not only apply to the future, but also to the competition. One never knows what the competition is up to.
As Andy Grove, co-founder of Intel, understood (and every entrepreneur knows), “Only the paranoid survive.”
The original version of their Creative Destruction paper, which can still be found on NBER, begins:
> "This paper develops a model based on Schumpeter's process of creative destruction."
I'd bet that Aghion and Howitt (whose contribution was to formalize and extend the idea) would agree that Schumpeter deserves a big share of the credit. Alas, Nobels can't be awarded posthumously.
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For further reading, Robert Solow wrote a 2007 article on Schumpeter's legacy:
> "There is a sense in which Schumpeter could claim to have been the progenitor of a torrent of modern research that analyzes the dynamics of profit-driven innovation and innovation-driven economic growth. Even creative destruction has been translated into equations. (The pioneers were Philippe Aghion and Peter Howitt, and others have followed.)"
Have to respectfully disagree on the underlying assumptions of the article. The effort here to protect incumbent tech firms from any regulation or antitrust enforcement is amazing. The entire post is about how innovation is one of the goals that must be sought by antitrust and how competitive markets should be more innovative. Agree on that. However, when you touch on the Google subject, there is an intellectual exercise to distinguish "can be displaced" from "being displaced". You could extend this argument forever and argue that any monopolist can be potentially displaced - even though it never actually happens.
Great article. In my Macro 101 course students always associate free market with a monopolistic seller. I explain that free refers to free entry to supply someone's want. I know it is not as expensive as the breakdown of innovation here, but it is a start for students who have been told for decades that monopolies love free markets because they are free to charge a high price.
While Professors Aghion and Howitt are evidently smart guys, it is Joseph Schumpeter who should have won the Nobel Prize, which he never did in his lifetime. Their work seems entirely derivative of Schumpeter's and not at all original. Even though they stole Schumpeter's "big idea" for their title, they do not seem to have given Schumpeter much credit (I infer this because you do not mention the master in your post.)
Almost a century ago, on page 95 of his deeply prophetic masterpiece "Capitalism, Socialism, and Democracy" Schumpeter wrote, "The important thing is not the number of firms competing in an industry, but the ease with which competitor firms can enter the industry."
For anyone interested, here is an annotated outline of "CSD."
https://charles72f.substack.com/p/schumpeter-in-a-nutshell
Below is one of Schumpeter’s most profound insights. It could only have been perceived by that rare economist who actually understood business, not by a pure academic,
"Competition acts even when it is merely an ever-present threat. It disciplines before it attacks”.
He is saying that the main thing that motivates entrepreneurs is a fear of failure that amounts to abject terror. Keynes’ “radical uncertainty” does not only apply to the future, but also to the competition. One never knows what the competition is up to.
As Andy Grove, co-founder of Intel, understood (and every entrepreneur knows), “Only the paranoid survive.”
The original version of their Creative Destruction paper, which can still be found on NBER, begins:
> "This paper develops a model based on Schumpeter's process of creative destruction."
I'd bet that Aghion and Howitt (whose contribution was to formalize and extend the idea) would agree that Schumpeter deserves a big share of the credit. Alas, Nobels can't be awarded posthumously.
---
For further reading, Robert Solow wrote a 2007 article on Schumpeter's legacy:
https://newrepublic.com/article/61183/heavy-thinker
> "There is a sense in which Schumpeter could claim to have been the progenitor of a torrent of modern research that analyzes the dynamics of profit-driven innovation and innovation-driven economic growth. Even creative destruction has been translated into equations. (The pioneers were Philippe Aghion and Peter Howitt, and others have followed.)"
Have to respectfully disagree on the underlying assumptions of the article. The effort here to protect incumbent tech firms from any regulation or antitrust enforcement is amazing. The entire post is about how innovation is one of the goals that must be sought by antitrust and how competitive markets should be more innovative. Agree on that. However, when you touch on the Google subject, there is an intellectual exercise to distinguish "can be displaced" from "being displaced". You could extend this argument forever and argue that any monopolist can be potentially displaced - even though it never actually happens.
Great article. In my Macro 101 course students always associate free market with a monopolistic seller. I explain that free refers to free entry to supply someone's want. I know it is not as expensive as the breakdown of innovation here, but it is a start for students who have been told for decades that monopolies love free markets because they are free to charge a high price.
Great article! Thanks for the analysis.
Coincidentally I also wrote a piece exploring how Britain relies on “big winner” for growth at the cost of market contestablity
https://substack.com/@eliofang/note/p-173858279?r=30yei1&utm_medium=ios&utm_source=notes-share-action