3 win Nobel economics prize for work on innovation and growth

• The Royal Swedish Academy of Sciences has decided to award the 2025 Nobel Prize in Economic Sciences to Joel Mokyr, Philippe Aghion and Peter Howitt “for having explained innovation-driven economic growth”.

• The Prize, formally known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, is the last of this year’s crop of Nobel Prizes.

The winners:

a) Joel Mokyr was born in 1946 in Leiden, the Netherlands. He is a professor at Northwestern University, Evanston, USA.

b) Philippe Aghion was born in 1956 in Paris. He is a professor at College de France and INSEAD, Paris, France and The London School of Economics and Political Science, UK.

c) Peter Howitt was born in 1946 in Canada. He is a professor at Brown University, Providence RI, USA.

• The prize amount is 11 million Swedish crowns ($1.2 million), with one half to Joel Mokyr and the other half jointly to Philippe Aghion and Peter Howitt.

Sustained growth based on technological innovation

• Over the last two centuries, for the first time in history, the world has seen sustained economic growth. This has lifted vast numbers of people out of poverty and laid the foundation of our prosperity. 

• This year’s prize relates to the explanations for sustained growth based on technological innovation.

• Technology advances rapidly and affects us all, with new products and production methods replacing old ones in a never-ending cycle. This is the basis for sustained economic growth, which results in a better standard of living, health and quality of life for people around the globe.

• However, this was not always the case. Stagnation was the norm throughout most of human history. 

• Despite important discoveries now and again, which sometimes led to improved living conditions and higher incomes, growth always eventually levelled off.

• Through his research in economic history, Joel Mokyr demonstrated that a continual flow of ‘useful knowledge’ is necessary. This ‘useful knowledge’ has two parts. 

• The first is what Mokyr refers to as ‘propositional knowledge’, a systematic description of regularities in the natural world that demonstrate why something works. 

• The second is ‘prescriptive knowledge’, such as practical instructions, drawings or recipes that describe what is necessary for something to work.

• Mokyr used historical sources as one means to uncover the causes of sustained growth becoming the new normal. He demonstrated that if innovations are to succeed one another in a self-generating process, we not only need to know that something works, but we also need to have scientific explanations for why. 

• The latter was often lacking prior to the industrial revolution, which made it difficult to build upon new discoveries and inventions. He also emphasised the importance of society being open to new ideas and allowing change.

• Philippe Aghion and Peter Howitt also studied the mechanisms behind sustained growth. In an article from 1992, they constructed a mathematical model for what is called creative destruction: when a new and better product enters the market, the companies selling the older products lose out. 

• The innovation represents something new and is thus creative. However, it is also destructive, as the company whose technology becomes passé is outcompeted.

• In different ways, the laureates showed how creative destruction creates conflicts that must be managed in a constructive manner. 

• Their research helps us to understand contemporary trends and how we can deal with important problems. 

• For example, Mokyr’s work shows that AI could reinforce the feedback between propositional and prescriptive knowledge, and increase the rate at which useful knowledge is accumulated.

• It is apparent that, in the long run, sustained growth does not only have positive consequences for human wellbeing. 

• First, sustained growth is not synonymous with sustainable growth. Innovations can have significant negative side effects. 

• Mokyr argues that such negative effects sometimes initiate processes that uncover solutions to problems, making technological development a self-correcting process. 

• However, this often requires well-designed policies, such as in the areas of climate change, pollution, antibiotic resistance, increasing inequality and the unsustainable use of natural resources.

• The laureates have taught us that sustained growth cannot be taken for granted. 

• Economic stagnation, not growth, has been the norm for most of human history. Their work shows that we must be aware of, and counteract, threats to continued growth. 

• These threats may come from a few companies being allowed to dominate the market, restrictions on academic freedom, expanding knowledge at regional rather than global levels, and blockades from potentially disadvantaged groups. 

• If we fail to respond to these threats, the machine that has given us sustained growth, creative destruction, may cease working, and we would once again need to become accustomed to stagnation.