The recently released "2026 Global Risks Report" by the World Economic Forum points out that the world is entering an "era of competition." In the theory of 2025 Nobel Prize laureate in Economics, Philippe Aghion, "competition" is precisely the key fuel driving the core engine of economic growth: "creative destruction."
In this "era of competition," how can new engines for economic growth be found? How should nations balance ensuring economic security and resilience with maintaining open markets and the flow of knowledge? What is the state of market competition in China? How can both established enterprises and new players be helped to achieve innovation? We spoke with Professor Aghion on the first day of the World Economic Forum's 2026 Annual Meeting.
Professor Aghion pointed out that a healthy innovation economy requires a dynamically balanced "dual-wing" approach: one wing involves cultivating the soil for innovators to grow through industrial policy and a financial ecosystem; the other involves maintaining long-term market openness and vitality through competition policy, preventing vested interests from solidifying barriers.
Currently, with globalization receding, the world is entering a new era marked by rising protectionism and intensified bloc competition. Europe must awaken, vigorously promote "competition-friendly" industrial policies, and innovate its financial ecosystem.
Aghion indicated that the scale effects, knowledge accumulation, and competitive pressures brought by the past era of globalization powerfully drove innovation. However, the world is now turning towards protectionism, with various regions competing against each other, which poses a challenge to innovation-based growth models.
"Europe, in particular, needs to act more assertively," Aghion emphasized. "We used to say we didn't need industrial policy, but now we desperately need it in areas like defense, green transition, and biotechnology." He advocates that Europe should learn from China and the United States, establish "competition-friendly" industrial policy tools, significantly increase long-term investment in basic research (ten-year projects rather than five-year ones), and build a financial ecosystem that genuinely supports long-term innovation.
He issued a specific warning to Europe: "Europe neglected industrial policy in the past, but now it is critically needed in defense, green transition, biotechnology, and other fields." In the new landscape of competing with China and the US, Europe's shortcomings are starkly exposed: cutting-edge research fails to be effectively translated into commercial innovation, there is insufficient long-term funding for basic research, and a lack of an ecosystem—both cultural and financial—that supports disruptive innovation and tolerates failure.
"Europe needs to become a frontier innovator. We have top researchers, but the research isn't converted into frontier innovation." Aghion stated that Europe must "become strong again" within the new framework of competition with China and the US.
However, he also made clear that strengthening oneself and engaging in cooperation are not mutually exclusive. "Europe should also strengthen cooperation with China; Europe and China should establish long-term cooperative relationships on numerous projects."
Aghion believes Europe must cultivate an ecosystem where excellent innovators can thrive; but simultaneously, it must use competition policy to ensure that once they grow powerful, they do not hinder the emergence of a new wave of innovators. Therefore, both an innovative financial ecosystem and competition policy are indispensable. Only in this way can innovative talent continuously emerge, and even after they succeed, the market remains open and dynamic, allowing newcomers to enter and challenge bravely.
Speaking about China, he said, "China is very interesting because you have already established a certain form of competition mechanism. Certainly, competition can be further strengthened, but you have already developed your own path for competition. At the same time, you also possess effective industrial policies. Therefore, you have both."
He compared other major economies: "In Europe, we previously had only competition and lacked industrial policy, which was not ideal. In the United States, they once had both, but now they focus more on the competition aspect and face a worrying trend—the risk of collusion between large enterprises, especially high-tech giants, and the government."
"Such collusion is detrimental to new firms entering the market. For example, when you see Elon Musk bringing his son to the Oval Office in the White House, this is actually a microcosm of the close relationship between big business and government. This is definitely not good news for the competitive environment."
Discussing the booming field of artificial intelligence, Aghion acknowledged its enormous growth potential: "AI makes producing goods and services, and generating new ideas, easier." But he warned of the need to prevent monopolies from stifling innovation. "Strong competition policy is essential to prevent a few firms from dominating the market and hindering new entrants."
He emphasized that to maximize AI's growth potential, it must be accompanied by labor market institutions featuring "flexicurity." Aghion recommended Denmark's "flexicurity" model: the unemployed receive a high percentage of their previous wage as compensation for a certain period, while the state provides retraining and employment assistance. "China could also consider establishing a similar 'flexicurity' system."
He stressed that the effective operation of such a system presupposes a high-quality education system. "In school, you must learn how to learn, mastering basic knowledge like reading and mathematics." Combining good education, a competitive environment, and a "flexicurity" system is necessary to maximize the benefits of the AI revolution and control its social risks.
As a researcher on green transition policies, Professor Aghion's work on green innovation emphasizes "price signals + R&D support" to steer innovation from "dirty technologies" towards "clean technologies."
Aghion believes that Europe previously relied too heavily on carbon pricing mechanisms like carbon taxes, while neglecting green industrial policy. "In Europe, we once thought carbon tax was the only way. But in reality, green industrial policy is equally as important as carbon tax." He metaphorically stated: "You need the carbon tax as a 'whip' to increase the cost of pollution and push old production methods to change. But at the same time, you also need very effective green industrial policy as a 'carrot,' providing viable alternatives, and this is what China is adept at and possesses."
"China has achieved remarkable results mainly by relying on strong green industrial policies, but now it also needs to introduce carbon pricing mechanisms; the ideal approach is to combine both."
Recalling observations from his three visits to China, he particularly praised China's industrial policies in green transition and electric vehicles. "My three visits to Beijing are clear evidence: the first time, the streets were full of bicycles; the second time, twelve years ago, the sky was grey and smoggy; and when I went again two months ago, the sky was blue because electric vehicles have become widespread. China is at the forefront of green innovation."
Regarding the apparent decline in global attention to climate issues, Aghion suggested it might be related to past narrative approaches. "I believe these issues should be prioritized again. The decline in attention might be because a 'punitive' narrative was adopted before, saying 'you must not do this, you must not do that.' We must stop this mode." He advocates for a positive, "non-punitive" policy narrative. "We should say 'do this, it will improve quality of life.' For example, in Beijing, people are happy with electric vehicles, breathing becomes easier. This is a form of non-punitive green policy. It drives change by creating better life experiences, not just through bans and punishments."
