Should supply-side policies be a “race to the top” or a “race to the bottom”?

We draw on the situation of the four largest euro-zone countries to illustrate our analysis. We say that a supply-side policy is a “race to the bottom” when it seeks to improve the supply side of the economy through austerity: reduction in labour costs, reduction in the generosity of social welfare paving the way for corporate tax cuts, etc. This is what was seen in Germany in the early 2000s and has been seen in Spain since the 2009 crisis. We say that a supply-side policy is a “race to the top” when it targets a rise up the value chain, competition, innovation, corporate modernisation and improvement in the education system and in skills. This was also seen in Germany in the early 2000s, and is what France is trying to do today. The absentee from these supply-side policies is Italy. A “race to the top” supply-side policy is clearly preferable one that races to the bottom.