New Delhi: The Royal Swedish Academy of Sciences awarded this year’s Sveriges Riksbank Prize in Economic Sciences to Joel Mokyr, Philippe Aghion, and Peter Howitt for “having explained innovation-driven economic growth”.
Half of the prize has been awarded to Mokyr and the other half jointly to Aghion and Howitt. Together, their research explained how technology and new ideas drive continuous economic growth, and the conditions that allow this to happen.
The Nobel committee statement highlighted how stagnation was the norm throughout human history. Growth eventually plateaued despite discoveries that improved standard of living. But over the last two centuries, the world has seen sustained economic growth, which has helped combat poverty and “laid the foundations of our prosperity”.
Mokyr was awarded the prize “for having identified the prerequisites for sustained growth through technological progress”. A professor at Northwestern University in the US, Netherlands-born Mokyr demonstrated the importance of understanding why innovations work — just the fact that they do work wasn’t enough for innovations to succeed one another.
Scientific explanations to why certain innovations worked over others were lacking prior to the industrial revolution, making it difficult to improve on these very innovations. But it was only after certain social and cultural changes — like the Enlightenment — did innovation accelerate economic growth.
Mokyr argues that three conditions are particularly important. The first is around culture, where scientists don’t just invent but people understand why things work through experimentation. The second is around technical expertise — a society of craftsmen and mechanics who can transform ideas into practice. And finally, a society open to new ideas, competition, and the spread of knowledge.
He studied the Industrial Revolution in Europe, trying to understand why some regions like Britain experienced sustained economic growth and others didn’t, despite innovations. He published a book in 1990, The Lever of Riches, which tracked growth and technological advances between the Middle Ages and the Industrial Revolution.
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‘Creative destruction’
Aghion and Howitt were awarded the prize “for the theory of sustained growth through creative destruction”, building upon Mokyr’s idea by showcasing how new technologies drive productivity by displacing outdated ones. They constructed a mathematical model which highlighted how new and better products often drive out older ones when they enter the market.
Aghion, a professor at Collège de France in Paris, at INSEAD, and at the London School of Economics and Political Science, has been working with Howitt, a professor at Brown University in the US, for over three decades. The prize was awarded to them for a paper they published in 1992, titled A Model of Growth Through Creative Destruction.
What made their work groundbreaking was how it treated technological progress — as an economic activity rather than something that takes place outside the confines of the economy. They also brought to light the destructive nature of products — for example how it creates unemployment and drives older companies to oblivion.
The committee noted that all three laureates showcased how “creative destruction” creates conflict that needs to be managed, else innovation will be stifled by the established companies that have a vested interest in the status quo.
“The laureates’ work shows that economic growth cannot be taken for granted. We must uphold the mechanisms that underly creative destruction, so that we do not fall back into stagnation,” said John Hassler, Chair of the Committee for the Prize in Economic Sciences.
(Edited by Aamaan Alam Khan)