Global | Innovate to grow

If there is one thing we have learned over the past two centuries of ups and downs, it is that the key to overcoming turbulent times is strong and shared economic growth.

Key points

• Key points:
• This lesson is not lost on the European Commission, which has commissioned two prestigious economists, Enrico Letta and Mario Draghi, to prepare two reports plotting out a roadmap to make the European Union more productive and competitive.
• To understand the direction these reports are taking (Letta’s is already published), it is useful to look back at how economic orthodoxy views long-term growth. Classical economists, including Marx, already identified innovation as the key to economic progress.
• Market competition is essential, but in itself tends to generate insufficient ideas, innovation and, therefore, growth. Hence the need for efficient regulation (such as a proper patent system, which is still fragmented in Europe), coupled with the promotion of investment, including direct public investment.
• An optimal policy is no easy task. Notably, we have a success story nearby: Over the past three decades, the U.S. has expanded its output frontier significantly more than Europe has managed to do. Inspired by the U.S. Department of Defense’s (DoD) investment in early-stage innovation projects (the origin of many new technologies), the European Commission is following suit by investing nearly 100 billion euros in the Horizon Europe fund.And to emulate its sophisticated venture capital market, Europe is advancing towards a single capital market.

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