This year’s Nobel is a nod to the role of innovation and creative destruction in an economy: Think AI
The 2025 economics Nobel was won by a trio of professors who studied the role of innovation in driving growth. Often, it involves creative destruction. In the face of a paradigm shift driven by AI, we must weigh its ‘creative’ and ‘destructive’ aspects carefully—and never take growth for granted.
Over the last two centuries, the world has seen sustained economic growth that has lifted vast numbers out of poverty. How much did technology contribute to this remarkable achievement? A great deal, according to the Nobel Prize Committee.
In recognition of the role of technology in “creating new products and production methods, replacing old ones in a never-ending cycle, providing the ‘basis for sustained economic growth,’ resulting in a better standard of living, health and quality of life for people around the globe," the Nobel Foundation on Monday awarded this year’s Sveriges Riksbank Prize in Economic Sciences to a trio. Joel Mokyr, Philippe Aghion and Peter Howitt won for academic work that explains how innovation drives progress.
Mokyr, a professor at Northwestern University, US, used historical sources to show how sustained growth became the new normal by demonstrating that if innovations are to succeed one another in a self-generative process, we not only need to know that something works, but also why it does—i.e., the science of it. This was often scarce before the industrial revolution, making it hard to build upon new discoveries and inventions.
Mokyr shares half the prize money with the other two awardees, who split it equally: Aghion, a professor at Collège de France and Insead, Paris, and The London School of Economics and Political Science, UK, and Peter Howitt, a professor at Brown University, US. They both studied mechanisms behind sustained growth. In a 1992 article, they built a mathematical model for ‘creative destruction.’
This coinage is attributed to economist Joseph Schumpeter (1883-1950) and refers to a process by which new and better ideas, methods, technologies and products shake older ones out of the market, creating fresh avenues for growth while destroying what cannot compete. Innovations often result in exactly that.
The destructive bit, controversially so. As the citation puts it, “In different ways, the laureates show how creative destruction creates conflicts that must be managed in a constructive manner. Otherwise, innovation will be blocked by established companies and interest groups that risk being put at a disadvantage."
While Nobel awards are given every year to those who “shall have conferred the greatest benefit to mankind," they have never been very far from controversy. Like beauty, what’s good for humanity is often subjective. In this case, the facts are beyond dispute. The role of technology in our lives is obvious. We see it not just in the realm of commerce, but in every aspect of our lives. Indeed, the pace of technological change has quickened over the past few years.
What remains open to debate, however, is the role of a particular technology in today’s context: artificial intelligence (AI). Given how it could effect a paradigm shift greater than what tech advances of the past did, AI’s creative impact must be weighed against its destructive potential with that much more care. As with other powerful technologies (think of nuclear power), where AI takes us depends on how we humans use it. Deployed well, it could foster a creative boom.
For those of us who take economic growth as a given, John Hassler, chair of the panel for this prize, had a word of caution. “Economic growth cannot be taken for granted. We must uphold the mechanisms that underlie creative destruction, so that we do not fall back into stagnation." Growth is not on auto-pilot. Nor should it be.
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