Wikipedia Deep Dive

Philippe Aghion

11 min read

Karl Lagerfeld used to visit for dinner. The young Philippe Aghion grew up in a Paris apartment where fashion designers, artists, and intellectuals drifted through with the regularity of the seasons. His mother, Gaby Aghion, had founded Chloé and is credited with coining the term "prêt-à-porter"—ready-to-wear—a phrase that revolutionized how ordinary people thought about fashion. His father ran an art gallery on the Boulevard Saint-Germain. Both parents came from Jewish families in Alexandria, Egypt, bringing with them that cosmopolitan sensibility that exile sometimes sharpens rather than diminishes.

This background matters because Philippe Aghion would go on to win the Nobel Prize in Economics for a theory about creative destruction—the idea that progress happens when new innovations sweep away the old. He grew up watching his mother do exactly this to the fashion industry.

The Theory That Changed Economics

In 1992, Aghion and his collaborator Peter Howitt published a paper that would eventually win them half of the 2025 Nobel Memorial Prize in Economic Sciences. The Royal Swedish Academy of Sciences cited them "for the theory of sustained growth through creative destruction." The other half went to Joel Mokyr, a historian of technology.

To understand why this matters, you need to step back and ask a deceptively simple question: Why do economies grow?

For most of human history, they didn't—at least not in any meaningful per-person sense. People in 1700 lived roughly as their ancestors had lived in 1000. Then something changed. Starting around 1800, first in Britain and then spreading outward, economies began growing at compound rates that would have seemed miraculous to any earlier generation. What happened?

The traditional answer focused on capital accumulation. Build more factories, buy more machines, and output increases. This is true as far as it goes, but it hits a ceiling. Eventually you have all the factories you need, and adding more doesn't help much.

The deeper answer involves innovation. New ideas create new possibilities. But where do innovations come from? Earlier economic models treated technological progress as something that just happened—a kind of manna falling from heaven at a predictable rate. Economists called it "exogenous," meaning it came from outside the model.

Aghion and Howitt made it endogenous. They showed how innovation emerges from the deliberate choices of firms and individuals responding to incentives.

Creative Destruction as Economic Engine

The phrase "creative destruction" comes from Joseph Schumpeter, an Austrian economist who wrote about it in the 1940s. Schumpeter observed that capitalism advances through a "perennial gale" in which new products and methods constantly displace old ones. The automobile destroyed the horse-and-buggy industry. Digital photography killed film. Streaming services gutted video rental stores.

This destruction is creative because it frees up resources—labor, capital, talent—to flow toward more productive uses. The workers who once manufactured buggy whips found other jobs. The engineers who designed film cameras learned digital technologies. The real estate that housed Blockbuster stores became something else.

What Aghion and Howitt did was formalize this intuition into a rigorous mathematical framework that could be tested against data. Their model explains why firms innovate and how that innovation ripples through an economy.

The key insight involves what economists call rents—profits above the normal return on investment. When a company develops something genuinely new, it temporarily escapes competition. Apple didn't have to compete on price when it introduced the iPhone because nobody else had anything like it. Those extraordinary profits—the rents—are the carrot that motivates innovation.

But there's also a stick. Every successful innovator knows that someone else is working in a garage or a research lab, trying to render their breakthrough obsolete. This threat of being creatively destroyed yourself keeps companies investing in research and development even after they've achieved success.

The model gets genuinely interesting when you consider what happens at different levels of competition.

The Inverted U: When Competition Helps and When It Hurts

Common sense might suggest that more competition always produces more innovation. Companies fight harder when they have rivals nipping at their heels. But common sense might also suggest the opposite: monopolies have deep pockets and long time horizons that let them invest in fundamental research that competitive firms can't afford.

Aghion's research revealed that both intuitions contain partial truths. The relationship between competition and innovation isn't linear—it's shaped like an inverted U.

When competition is very weak, dominant firms have little incentive to innovate. They're already earning comfortable profits. Why rock the boat? They can use their market power to erect barriers that keep potential rivals out. The carrot of future rents is already secured, and the stick of creative destruction has been neutralized. Innovation languishes.

At the other extreme, when competition is cutthroat and profit margins razor-thin, firms can't afford to invest in research. Every dollar goes toward surviving today rather than inventing tomorrow. The carrot has been eaten by competitors, leaving nothing to motivate the risky, expensive work of developing something new.

The sweet spot lies in the middle. Moderate competition—enough to keep firms on their toes, but not so much that it eliminates profits—produces the most innovation. Firms have both the resources and the motivation to invest in the future.

This finding has profound implications for antitrust policy and economic regulation. It suggests that both monopoly and perfect competition can suppress innovation, and that wise policymakers should aim for something in between.

The Middle-Income Trap

Aghion's framework also illuminates a puzzle that has vexed development economists for decades: why do some countries that experience rapid growth suddenly stall out?

Consider the trajectory of many emerging economies. They start poor, with outdated technologies and inefficient industries. Growth comes relatively easily through what economists call "catch-up." You don't need to invent the automobile or the computer—you just need to adopt technologies that richer countries have already developed. You can copy best practices, license patents, train workers in established methods.

This catch-up growth can be spectacular. China's economy expanded at nearly ten percent per year for decades, largely by importing and adapting technologies developed elsewhere. Several East Asian tigers—South Korea, Taiwan, Singapore—followed similar paths.

But eventually the easy gains run out. As countries approach the technological frontier—the cutting edge of what's possible—they can no longer simply imitate. They must innovate. And innovation requires a different set of institutions than imitation does.

Imitation works well with state direction and capital accumulation. You can identify the technologies to adopt, mobilize resources to build factories, and train workers in known methods. Central planning can actually be quite effective at this stage.

Innovation is different. Nobody knows in advance which experiments will succeed. You need decentralized decision-making, tolerance for failure, flexible labor markets, and intellectual property protection that rewards risk-takers. Countries whose institutions are optimized for imitation often struggle to make this transition.

This is the middle-income trap. Nations get stuck: too rich for catch-up growth, but institutionally unprepared for frontier innovation. Argentina has been middle-income for a century. Brazil keeps promising to become a developed economy next decade. Mexico grows, but not fast enough to close the gap with its northern neighbor.

Aghion's work suggests that escaping the trap requires institutional reform—not just more investment, but different kinds of institutions that support the messy, unpredictable process of genuine innovation.

From Communist Sympathizer to Macron Supporter

As a student, Aghion sympathized with communism. This isn't unusual for French intellectuals of his generation—Paris in the 1970s was a hotbed of leftist thought, and the Communist Party remained a significant political force.

But his intellectual trajectory moved him toward a more nuanced position. By 2012, he was signing open letters in support of François Hollande, the Socialist Party candidate for president. By 2017, he had shifted further, publicly supporting Emmanuel Macron—a centrist who explicitly positioned himself as neither traditionally left nor right.

This evolution makes sense in light of Aghion's research. Pure market economies may produce inequality and instability. Pure command economies suppress the creative destruction that drives growth. The challenge is finding the institutional arrangements that harness market incentives while addressing their failures.

Aghion's policy work reflects this balancing act. He has advised the United Nations, the World Bank, the International Monetary Fund, and various national governments. His recommendations typically involve strengthening competition policy, reforming education and research institutions, and creating conditions for innovation—rather than either laissez-faire capitalism or heavy-handed state control.

The University Question

In 2010, the French Minister of Higher Education Valérie Pécresse asked Aghion to lead a working group on university reform. The resulting report drew on comparisons with Harvard, the Massachusetts Institute of Technology, Oxford, and Cambridge—institutions that consistently rank among the world's best.

Aghion's group found no single model of successful university governance. But they identified common elements: substantial autonomy from government interference, balanced governance structures, and accountability for results.

The report recommended creating two governing bodies at French universities. A board of directors, composed mainly of external members, would appoint a president with genuine executive authority. An academic senate would serve as a forum for scientific and pedagogical input. This dual structure would balance professional management with scholarly self-governance.

The underlying argument connects to Aghion's broader work on innovation. Universities are where frontier research happens. If they're too tightly controlled by the state, they become bureaucratic and risk-averse. If they're completely autonomous, they may drift away from societal needs. The challenge is designing institutions that support creative destruction in the realm of ideas.

Recognition

Aghion's career has accumulated the honors that mark a successful academic economist. He was elected to the American Academy of Arts and Sciences in 2009. France made him a Knight of the Legion of Honour in 2012 and an Officer of the Ordre national du Mérite in 2018. In 2019, he and Howitt received the BBVA Foundation Frontiers of Knowledge Award in Economics.

But the Nobel Prize, when it came in 2025, represented something more. The Swedish Academy doesn't just reward clever models—it recognizes work that has changed how economists think about fundamental questions. By making innovation endogenous, by showing how creative destruction drives growth, by revealing the inverted-U relationship between competition and progress, Aghion had reshaped his field.

He shared the prize with Peter Howitt, his long-time collaborator, and Joel Mokyr, whose historical work complemented their theoretical framework. Mokyr had documented how the Industrial Revolution actually unfolded—the specific innovations, the institutional changes, the cultural shifts that made sustained growth possible. Together, theory and history provided a richer understanding than either could offer alone.

Critics and Limitations

No economic framework survives unscathed, and Aghion's work has attracted its share of criticism.

Some environmentalists argue that he places too much faith in economic growth as the solution to problems that growth itself creates. If climate change, biodiversity loss, and resource depletion stem partly from relentless economic expansion, then a theory that treats growth as unambiguously good may be part of the problem rather than the solution. Creative destruction might destroy things we need to preserve.

Others question whether Gross Domestic Product—the standard measure of economic output—adequately captures human wellbeing. GDP counts pollution cleanup as positive economic activity. It ignores unpaid work like childcare and housekeeping. It measures market transactions, not happiness or health or social cohesion. A theory built around maximizing GDP growth may optimize for the wrong target.

Aghion has engaged with some of these criticisms, arguing that innovation can address environmental challenges through cleaner technologies and more efficient resource use. But critics respond that this "techno-optimism" underestimates the scale and complexity of environmental crises.

These debates aren't really about Aghion specifically—they're about the direction of economics as a discipline and its relationship to broader social and environmental concerns. His framework provides powerful tools for understanding certain phenomena, but like all models, it illuminates some aspects of reality while leaving others in shadow.

The Fashion Designer's Son

Return, finally, to that Paris apartment where the young Philippe watched his mother transform the fashion industry. Gaby Aghion had a simple but revolutionary insight: women wanted beautiful clothes they could actually wear—not the formal, expensive, made-to-measure garments that haute couture produced, but stylish pieces manufactured in standard sizes and sold in regular stores.

Prêt-à-porter creatively destroyed the old fashion model. It put the established couture houses on notice that they must innovate or perish. It freed up resources—designers, factories, distribution networks—to serve a vastly larger market. It generated the rents that attracted new entrants and financed further experimentation.

The son grew up to formalize what the mother had lived. Economic growth, Aghion would eventually prove, works the same way. Progress requires not just accumulating more of what we have, but replacing the old with the new. The destruction is the point, not the regrettable side effect. And the institutions that govern this creative destruction—competition policy, intellectual property rights, university governance, the balance between markets and states—determine whether societies flourish or stagnate.

Understanding this may not tell us everything about how to live, but it tells us something important about how economies work—and why some societies generate the innovations that improve human life while others remain trapped in the middle.