2025 Nobel: Growth Through Technology and Culture

Today,

the Nobel Prize in Economics

was awarded to Joel Mokyr (Northwestern University), Philippe Aghion (London School of Economics), and Peter Howitt (Brown University) “for their contributions to understanding innovation-driven economic growth.” This reflects a pattern where the Committee has begun to favor economics related to growth, following in the footsteps of Acemoglou, Johnson, and Robinson in 2024 and Kremer, Duflo, and Banerjee in 2019. Due to constraints of time and space, I cannot delve into a thorough analysis of their theories, but each is vital for grasping economic principles.

One of the intriguing puzzles of human history is the phenomenon often referred to as the “hockey-stick of prosperity.” For a significant part of human existence, there was little to no change in living standards. The average Roman citizen in 1 AD lived a life not markedly different from that of a British citizen in 1700. Yet, starting in the 1700s, standards of living began to soar.

Between 1 AD and 1700 AD, progress stagnated: sails and animal-drawn transport were ubiquitous, medical science remained rudimentary, and mechanization was virtually nonexistent. However, from 1700 to 1800, the foundation for change was laid as mechanical engines emerged and the Industrial Revolution commenced. The century from 1800 to 1900 witnessed a transformation from horse-drawn carriages to steam engines, while from 1900 to 1960, humanity progressed from cars to airplanes and ultimately to landing on the moon. Various diseases were conquered, and overall quality of life improved. Real poverty plummeted from nearly 90% of the global populace to under 10%. This unprecedented change continued, leaving even the most optimistic economic theorists of the era bewildered.

Then came the insights of Mokyr, Aghion, and Howitt, whose combined research elucidates not only the reasons behind this growth but also its geographical contexts and sustainability.

Mokyr posits that the benefits reaped from the Industrial Revolution were not mere fortuitous accidents but rather the fruits of institutional frameworks. He distinguishes between two forms of knowledge that drive economic growth: propositional knowledge (which explains how and why things operate) and prescriptive knowledge (the practical know-how required to implement these mechanisms, such as establishing supportive institutions). These two types of knowledge interplay, enhancing each other to fuel economic development. For instance, economic theory (propositional knowledge) may clarify the origins of prices and the coordination of human behavior, which in turn informs what kinds of institutions (prescriptive knowledge) are essential to nurture these trends.

Moreover, Europe’s fragmented political landscape catalyzed the Industrial Revolution. With various nations vying for supremacy, individuals could relocate if their ideas were stifled. In contrast, vast, unified states like China and India, which shared a similar level of technological advancement during the pre-industrial period, tended to suppress innovative ideas and offered limited avenues for dissidents to escape. This fragmentation fostered technological advancement by countering ideological repression, a phenomenon observable even within individual states, as evidenced by Scotland’s unexpected rise during the Industrial Revolution despite relative neglect from the London elite.

Mokyr refers to this dynamic as the culture of growth (the title of his insightful 2016 book). He maintains that technological progress is not random; it necessitates a culture that encourages innovation alongside a marketplace for ideas.

Aghion and Howitt approached the issue from a different angle. Their groundbreaking paper “

A Model of Growth Through Creative Destruction

” (Econometrica, 60(2)) formulates a mathematical framework based on Joseph Schumpeter’s theory of creative destruction. They illustrate how firms are driven by both the potential rewards (the carrot) available from innovation and the pressures (the stick) that arise from the constant threat of competition. Through this creative process, outdated technologies face obsolescence, allowing firms to capture market share and related profits (rents).

However, Aghion and Howitt also identified certain constraints. When these economic rents become disproportionately large, established firms can erect barriers that inhibit new entrants, diminishing competitive pressure. Once firms have secured substantial rents, their incentive to innovate can wane. Variability in firm characteristics, market conditions, and legislative environments can explain the stark contrasts in innovation levels across different industries.

All three laureates interconnect economic growth with technology and culture in its broadest sense. My brief overview does not intend to encapsulate the entirety of their work, and I highly encourage readers to check out the

Nobel Committee’s summary of their contributions

.

Congratulations to Joel Mokyr, Philippe Aghion, and Peter Howitt for receiving this well-deserved recognition!

[1] Let’s refrain from saying “There is no Nobel Prize in Economics. It’s the ‘Sveriges Riksbank in Economic Sciences in Memory of Alfred Nobel.’ We all understand.

[2] On a lighter note, I find the story of the space program utterly fascinating. Imagine a group of scientists proposing to airmen like Chuck Yeager, “We have a plan: let’s repurpose missiles, remove the warheads, add a few seats, and launch you toward the Moon,” and those brave aviators responding, “Sure! Count me in!”

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