This year's Nobel Prize in economics went to three researchers in innovation-led growth who showed how new technology can drive sustained growth. Among them, Philippe Aghion (69, France), a professor at Collège de France, and Peter Howitt (79, Canada), a professor at Brown University in the United States, who clarified the mechanism of continuous growth, are also closely connected to key aides in the Lee Jae-myung administration.
Professor Philippe Aghion is someone frequently mentioned by Presidential Chief of Staff Kang Hoon-sik. In Oct. 2023, when Kang was a lawmaker, he posted on Facebook, "The ideal capitalism I dream of is a society as innovative as the U.S. system and as protective and inclusive as the Danish system. I think that is possible."
Kang said this was "a passage from Philippe Aghion's book 'The Power of Creative Destruction,'" adding, "A country as innovative as the United States and as protective as Europe. A country where innovation and challenge surge, and where the socially vulnerable can also stand on their own within the community. It may sound too ideal, but I do not want to give up one value by assuming innovation and protection cannot coexist."
Earlier this year, at a forum of Unicorn Farm, a National Assembly startup research group that Kang headed, he said, "While 'a capitalist economy as innovative as the United States and as protective as Europe' may sound idealistic, given Korea's internal and external economic conditions, it is a path that must be pursued," adding, "I think we can find that path together with innovative startups."
In a 1992 paper, Aghion mathematically modeled the process of creative destruction. Innovation is creative in that it creates something new, but destructive in that it simultaneously pushes out existing technologies. The implication is that if the conflicts brought about by creative destruction are not properly managed, it is difficult to sustain innovation.
Kang, in effect, saw a uniquely Korean path of creative destruction that combines America's innovation and Europe's protection through Aghion. A political figure well acquainted with Kang said, "It would not be an overstatement to say Professor Aghion is Kang's mentor."
Ha Joon-kyung, the senior presidential secretary for economic growth, is a student of Professor Peter Howitt, who received the Nobel Prize in economics along with Aghion. Ha earned a Ph.D. in economics at Brown University in the United States, where his doctoral advisor was Howitt.
Ha and Howitt co-authored a 2007 paper analyzing the relationship between long-term research and development (R&D) investment and total factor productivity (TFP) growth rates. The paper verified Schumpeterian growth theory and found that sustaining TFP growth requires investing a certain share of gross domestic product (GDP) in R&D. The Lee Jae-myung administration is pushing a plan to codify investing 5% of GDP in R&D, and the paper by Ha and Howitt supports this.
Professors Aghion and Howitt also argued that innovation is the result of corporations' R&D competition. However, by presenting an "inverted U-shaped innovation" model, they pointed out that if competition is too weak, incentives for innovation are lacking, and if competition is too strong, conversely, R&D is stifled due to reduced profitability. They explained that an appropriate level of competition must be maintained, and in this process the government can adjust it through subsidies, competition policy, and the patent system.