Nobel Prize in economics, 2025
D. Indumathi, Chennai
The Royal Swedish Academy of Sciences has decided to award the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2025 to Joel Mokyr, Philippe Aghion and Peter Howitt “for having explained innovation-driven economic growth” with one half to Joel Mokyr (Northwestern University, USA, and Tel Aviv University, Israel), “for having identified the prerequisites for sustained growth through technological progress” and the other half jointly to Philippe Aghion (Collège de France and INSEAD, Paris, France, and The London School of Economics and Political Science, UK), and Peter Howitt ( Brown University, USA) “for the theory of sustained growth through creative destruction”.
For most of humankind’s history, living standards did not change considerably from one generation to the next. This was true in spite of occasional important discoveries. These sometimes led to improved quality of life, but growth always stopped eventually.

GDP and Growth
GDP (Gross Domestic Product) is the total monetary value of all final goods and services produced within a country in a year. This is the primary indicator of a nation's economic health. It is a complicated calculation that takes into account consumption, investment, government spending, and net exports (exports minus imports). The GDP of a country shows if its economy is growing, shrinking, or stable. This helps policymakers, investors, and economists to assess its economic strength. The GDP measures not just financial prosperity, but many other factors; see figure.
For the first time in human history, the world has seen sustained economic growth over the last two hundred years. This can be seen from the graph for the GDP of countries United Kingdom and Sweden over the last 200 years. While nearly flat till about 1900, the quick rise for both countries is due to the development of various technologies as shown.
This growth marked the beginning of the industrial revolution, when technology made life easier for most people. Vast numbers of people were lifted out of poverty. This laid the foundation for the prosperity of much of the civilised world. This is because of the constant flow of technological innovation. Sustained economic growth occurs when new technologies replace old ones as part of the process known as creative destruction. So innovation provides the impetus for further progress.
This year’s Nobel laureates explain, using different methods, why this development was possible and what is necessary for continued growth. They have taught us that such sustained and continuous growth cannot be taken for granted: we must be aware of, and counteract, threats to continued growth.

How to sustain growth
Joel Mokyr used historical sources as one means to understand the causes of such sustained growth. He showed 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 it works. He also emphasised the importance of society being open to new ideas and allowing change.
This is because 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.

Creative Destruction
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 outdated may be forced to shut down. Hence the name creative destruction.
Aghion and Howitt constructed a mathematical economic model that shows how technological advancement leads to sustained growth. This approach was different from Mokyr's, but fundamentally they deal with the same questions. They show how new technology can drive sustained growth.

Managing the outcomes
The question therefore is, how to improve quality of life with new technology, without destroying older ones? This is important: if a well-established, successful company knows that another newer company is going to overtake them, they may use unethical methods to shut it down. This will block innovation and hence growth. The Nobel laureates realised that such conflicts must be resolved in a constructive manner.
The model that Aghion and Howitt constructed has led to new research. It shows that
. it is important to study the number of companies that compete with each other. Concentrations that are both too high and too low are bad for the innovation process. It can lead to some companies becoming too dominant, which will reduce growth.
. innovation creates winners and losers. When more jobs disappear (high unemployment) it is important to support people who are affected. So protecting workers, but not jobs, may be the right solution. (That is, jobs are naturally lost during creative destruction, but workers must be able to move to new jobs so they are not affected).
In the long run, sustained growth is important for human wellbeing. Innovations can have significant negative side effects. It is equally important to find solutions to these problems, making technological development a self-correcting process. Clearly, this requires well-designed policies, such as in the areas of climate change, pollution, antibiotic resistance, increasing inequality and the unsustainable use of natural resources.
Source:www.nobelprize.org