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Neither austerity nor Keynesianism

13th June 2013

ResPublica Director Phillip Blond writes for Le Monde

Here are two thinkers who want to reform the state for making more accurate and more efficient. But one, Philippe Aghion, close to the socialists, wants to make intelligent, the other, Phillip Blond , who inspired the concept of “Big Society” British Conservative, wants to reduce it to its bare minimum. Confrontation.

-Think you that states are responsible for the crisis? Or is it that these are the companies that are wrong?

Phillip Blond In any complex system, the system as a whole is responsible.Public and private spheres intermingle much more than we think. The system collapsed, and everyone is guilty. It is undeniable that we have socialized losses and privatized gains. And those who have benefited are a very small part of the population.

Philippe Aghion The answer depends on what one considers to be the source of growth. During the “thirty glorious years” France and its European neighbors were catching-up economies. The traditional welfare state was so well suited. Industrial policy based on major public companies and subsidies to national champions. The policy was essentially social to supplement low wages because there was no unemployment.

But from the 1980s, the economy has globalized, so that innovation has become our main engine of growth. But innovation involves the creation and ongoing businesses and destroying jobs. It is then necessary to reinvent the industrial policy to make more bottom (“bottom-up”) and “pro-competition”.
Social policy must also change to put more emphasis on career security for aid workers to bounce back from a job to another. In other words, we must replace the welfare state by state strategist investing in human capital, innovation and career security.

A state that manages the cycle by supply rather than demand, helping companies and individuals to maintain their innovative investments in a recession: Keynesian must become “Schumpeterian”.

PB I agree. Keynesianism reward incumbents and their lack of innovation. It only increases the gap between the current situation and that it would reach to have a competitive economy. So the system collapses. Neither austerity nor Keynesianism not work.

But politicians do not understand innovation. We need new players, visionaries, to conduct breakthrough innovations. And countries come together to carry out a brave project.

Mr. Brown, your proposed “Big Society”, which transfers powers from the state to citizens and local organizations, was just an innovative project, dubbed by the British Prime Minister David Cameron . But is it a success?

PB Yes! This project is more and more followers. While the Conservatives wasted. They adopted the ideas of social project, but not the economic measures.What strangled all because one does not work without the other. But Labour’s Adopt!

It starts from the premise that the state project fails with the principle of universal benefit. It spends billions without solving anything. It fails to address the lack of qualified people, nor the ravages of alcoholism. Because it takes more individualized aids. Being closer to the people. That services are provided locally.

That people support what they need. The return on investment is so much greater because it eliminates bureaucracy. An example: if you give an offender a group social , association, rather than put on probation under the supervision of the State, the recurrence rate of 66% to 15%.

PA While decentralization can reduce structural deficits: I think especially the administrative yarrow and Medicare. But should not it creates more inequality.

In Finland , local authorities define some educational programs, but the central government sets the basic curriculum, monitor the quality of teachers in the territories and to ensure that every student receives tutoring necessary not to lose foot. The same goes for health. In Sweden , health has been decentralized. But the big interventions remain centralized.

PB This is not the process that must be evaluated. But the results. For example, fund associations job search based on the number of people who find work through them.

PA I agree to the cultivation of the evaluation and results. This becomes all the more important for a quarterback State is obliged to focus its investments and give priority to the most promising sectors and growth activities.

Mr. Aghion, your idea of ​​a strategist State confirms instead the essential role of the state, provided that implement the new far away from the welfare state principles. Can you elaborate?

PA The challenge facing the countries of the euro zone, especially southern Europe, is to reduce the public deficit while investing in long-term growth without wearing undermine social cohesion.
This requires a “smart state” that invests in a targeted way in education, research, support to innovative SMEs, and the revitalization of the labor market. And also a state whose investments transform governance: for example, the universities of excellence, standards of international governance that have emerged due to the large loan.

PB Having strategists States is not enough. It takes actions that extend from the base (“bottom-up”) to get this social recession. Our business model creates workers who receive less of the pie that is the GDP, although it doubles in size, as is the case since the 1960s.

There is more to have a welfare state, but a state distributes education, culture, excellence, character. I mean by “character” discipline, resilience, the ability to meet. Sociological studies have shown that the poorer you are, the more you lack the discipline to have that character.

Mr. Brown, you be for the development of SMEs, local shops, supermarkets and cons! Do not you think that large companies have a key role to play?

PB What my problem is not that large groups are great, but they prevent the entry of new players in the market. They have monopoly rents, not innovative. This system works with some leaders and many people behind. The cost to innovate is too high for those who are far behind.

PA It is a fact that large companies do not innovate as much as SMEs because they are more afraid to see alternative products compete with their existing ranges.

In addition, innovation challenges their same organization. It is not for nothing that the great innovations are often outside of large companies, although often driven by former employees of these companies just leave them to innovate. That said, the company‘s large have an advantage, including innovation in sectors with high fixed costs, such as network industries and industry aviation.

But they should not prevent small businesses to grow. However, in Europe, many barriers impede the growth of SMEs. Compared to the United States, the labor market is too rigid, the credit market is not enough, there is not enough venture capital. In addition, in France, large groups do not have enough help SMEs, which inhibits innovation.

What should be done to encourage the creation and development of businesses?
PA delete administrative barriers, make the most simple tax incentive, and less uncertain. In addition, it should liberalize the labor market, to the order in the banking system, create a Small Business Act, as in the United States.

PB If I were the boss of a large group, I would invest in SMEs to innovate. Otherwise, large groups will not survive globalization. And if I was boss of SMEs, I try to create a chain of small businesses that would compete with the big ones.

In Italy , SMEs lend to each other. It is a very resilient system. It also requires a decentralized banking system. Otherwise, the banks will not lend to SMEs because they do not know how to distinguish between good and bad. They do not have the necessary information. They do qu’agréger data from a group of companies, are averages and conclude that it’s not worth it to invest in this group.They lend themselves to, and none can therefore develop.

PA That is why we need a government that favors the targeting of said horizontal investment: research, creation of incubator facilitate the transition from ideas to their realization, grant laboratory equipment and other innovative means of funding venture capital.

And when the state is the vertical targeting, it should focus on growth sectors an ensure to safeguard competition and the entry of new firms in these sectors to stimulate more innovation, precisely because we innovate to escape competition.We must also break the public procurement system. Taking into account the social value of suppliers, estimate what they bring to the economy and local employment.

Le Monde Article

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