Gaurav Monga's blog: January 2009

Professor Aghion main work has dealt with extending the Schumpetarian "Creative Destruction" model that is at the very heart of a market economy. Creative Destruction takes place when new firms with better ideas overtake established firms in the economy, thereby destroying old market shares and creating new dynamics.

This lecture focused on Growth Policy in Developed Economies. I am a regular reader of Danni Rodrik's blog and admire William Easterly a lot, so this field is one of my main interests.

Since Aghion is French, he unapologetically starts with France and its slow painful reforms that Sarkozy has partly implemented.

To understand all of this jargon, we go through a quick snapshot of the Growth Policy Toolbox at our disposal.

1. Washington Consensus

2. Hausman-Rodrik growth diagnostics (adapt to local conditions, eg Asian growth model has been different to the West)

3. Easterly's Horse Race between Institutions and Policy (long term), where policy loses out to Institutions. Main point: get basic institutions right, then rest follows by itself.

4) Michael Spence's pragmatic approach to the basic ingredients for growth (education, infrastructure, political stability and competitive pressure)

Then, Professor Aghion fervently argues to use new growth theories as INTERACTIONS, not as a horse race (Easterly). Growth regressions are very important in pointing out the way forward.

A French Report by Aghion et al. some time back looked at the basic factors underlying growth in advanced countries. They found -

1)Product market competition

2) Labour market flexibility

3) Higher education

This report also concluded that low trust between the people and their government makes deregulation difficult; lasting structural reforms consequently become very hard to achieve. This observation is very easy to see in France.

The focus of the lecture then goes to looking Higher education using the Shanghai Ranking of top 500 universities.

Few things of interest arise -

1. UK doesn't spend that much on higher education (11,000 $) from the EU mean (8000$) but channels it to top performers like LSE, Imperial and therefore performs well vis-a-vis US that spends around 25000$ per student.

2. Italy and Spain do very badly.

3. Denmark and Sweden's alternative model of giving a lot of money to all universities in conjunction with a lot a autonomy also works.

What does this tell us?

1. There is complementarity between institutions and policies.

2. Several layers of growth policy design

3. More than one model for higher education and growth.

After a long look at dizzying statistics, he concludes the following factors are paramount for Good Governance for Higher Education -

1) High Funding

2)High Autonomy

3) High Competition

This lecture was very entertaining in the beginning with Prof. Aghion blazing though excitement and hysteria about coming back to LSE and dancing around the Stage, literally.

Date: Monday 19 January 2009
Time: 6.30-8pm
Venue: Sheikh Zayed Theatre, New Academic Building
LSE