Understanding a Century of Change: Why Growth Became the Normal State
Over the last two centuries, global living standards have risen dramatically, driven by a steady stream of technological innovations. This year’s Nobel Prize in Economic Sciences recognizes three scholars—Joel Mokyr, Philippe Aghion, and Peter Howitt—who illuminate the mechanisms behind sustained economic growth and why creative destruction has become a cornerstone of modern prosperity. Their work, though using different methods, converges on a single insight: growth is not a given, but the result of an open, knowledge-producing society that continually replaces old technologies with better ones.
Two Paths to Growth: Propositional and Prescriptive Knowledge
Mokyr advances the historical narrative, arguing that sustained growth rests on a constant flow of useful knowledge. He distinguishes between propositional knowledge (understanding why things work) and prescriptive knowledge (how to build or do things). Before the Industrial Revolution, much innovation relied on prescriptive know-how without a strong grasp of underlying principles. The Scientific Revolution of the 16th and 17th centuries fostered precise measurements, reproducible results, and a stronger feedback loop between theory and practice, enabling a more productive accumulation of useful knowledge.
From Theory to Practice: The British Advantage
Growth did not take off everywhere at once. Mokyr highlights Britain as a key birthplace of sustained growth due to a thriving ecosystem of skilled artisans and engineers who could translate ideas into commercial products. This practical capability, paired with a developing culture of inquiry, lowered barriers to change and allowed innovations to diffuse through the economy.
The Creative Destruction Story: How Innovation Reshapes Economies
Aghion and Howitt formalize the growth narrative with a mathematical model of creative destruction. In this view, firms constantly innovate to outpace rivals, and the best products or processes eventually displace the old. This dynamic competition spurs investment in research and development (R&D), but it also entails a delicate balance: too little competition stifles progress, while excessive disruption can destabilize employment and welfare. The model shows how R&D, monopolistic profits, and general equilibrium—where markets for goods, capital, and savings interact—together determine the pace of innovation and growth.
Policy Implications: When Should Society Support Innovation?
The Aghion–Howitt framework reveals two competing forces. First, societal gains from new knowledge often exceed private returns, suggesting a case for R&D subsidies or policies that nurture knowledge spillovers. Second, “business stealing” effects mean that rapid innovation can temporarily erode the profits of successful firms, complicating welfare analyses. Policymakers must weigh subsidy levels and competition policy to strike a balance that sustains progress without encouraging excessive risk or inequality.
Beyond GDP: The Real Scope of Economic Growth
Measured as GDP increases, growth also encompasses improved medicines, safer transportation, cleaner energy, and faster communications. The laureates remind us that sustained growth is not guaranteed; it depends on openness to change, adaptable institutions, and ongoing investment in human capital. In today’s context, advances like artificial intelligence could accelerate the feedback between theory and practice, potentially boosting the rate at which useful knowledge accumulates.
Facing Modern Challenges: Growth with a Conscience
While sustained growth has empowered billions, it also carries risks. Environmental externalities, rising inequality, and the uneven distribution of benefits require thoughtful policy design. Mokyr, Aghion, and Howitt emphasize that responsible governance—protecting workers as markets reallocate labor, maintaining academic and institutional freedom, and encouraging broad participation in innovation—will be crucial to preserving growth’s benefits for future generations.
Takeaways for Today’s Economies
Key lessons emerge from these laureates’ work: support for R&D can pay off socially, market concentration must be managed to avoid stifling competition, and flexible, inclusive institutions help societies weather the disruptions of creative destruction. By cultivating a steady flow of useful knowledge and embracing change, nations can continue the long arc of innovation-driven growth that has transformed human welfare.
Further Reading
For an accessible deep dive, see the Royal Swedish Academy of Sciences and Nobel Prize websites, which provide the official analyses, press materials, and related exhibitions on this year’s prize in economic sciences.
