Rethinking Growth in a New Era

The 2025 Nobel Prize in Economic Sciences has been awarded jointly to Joel Mokyr, Philippe Aghion, and Peter Howitt for their transformative contributions to understanding the interplay between innovation, institutions, and long-term economic growth. Their collective work bridges the history of technology and modern growth theory, reinvigorating one of the most enduring questions in economics: “What sustains prosperity over time?”

This year’s Nobel recognises ideas that have shaped both policy and academic thinking. Mokyr’s historical insights reveal how knowledge, culture, and institutions interact to create fertile grounds for technological progress. Aghion and Howitt’s formal models of “endogenous growth” and “creative destruction” explain how innovation reshapes economies from within. Together, their work provides a framework for understanding how nations can foster innovation without compromising stability or inclusion – a question central to 21st-century economic governance.

Joel Mokyr: The Historical Foundations of Innovation

Joel Mokyr’s work offers a deep historical understanding of how societies sustain technological progress. His seminal books, The Lever of Riches and The Gifts of Athena, trace the emergence of modern growth to Europe’s unique cultural and institutional setting during the Industrial Revolution. Mokyr argues that innovation stems not just from capital accumulation or inventors, but from practical knowledge – a codified understanding that can be applied to productive ends.

Mokyr’s central claim is that economic growth depends on the interplay between knowledge and institutions. When societies value inquiry, reward experimentation, and allow the free flow of ideas, innovation flourishes. Conversely, when knowledge is suppressed by orthodoxy, rigid hierarchies, or monopolistic power, progress stalls. He highlights the importance of the “Republic of Letters,” a community of thinkers and experimenters who advanced the Enlightenment’s empirical spirit.

This perspective complements modern growth theory, reminding us that technology requires cultural legitimacy, institutional support, and social trust to evolve. Mokyr’s work suggests innovation policies must nurture education, openness, and public belief in progress. His research gives economics historical depth, showing ideas drive development, not just capital or labour.

Aghion and Howitt: Creative Destruction and Endogenous Growth

If Mokyr provided the narrative of innovation’s past, Philippe Aghion and Peter Howitt gave it a mathematical structure. Their pioneering work in the early 1990s formalised Schumpeter’s concept of creative destruction – the process by which innovations displace old technologies, creating progress and disruption. In their endogenous growth model, innovation is generated within the economy, driven by firms’ incentives to invest in R&D.

Unlike earlier models, which treated technological progress as an external factor, Aghion and Howitt showed that innovation responds to competition, policy, and institutional incentives. When firms compete to innovate, they drive growth; when they face barriers or monopolistic control, stagnation sets in. Their framework explains why growth can be self-sustaining in open, competitive economies but fragile in those that suppress change.

Aghion and Howitt also highlight innovation’s darker side. “Creative destruction” implies displacement – workers lose jobs, firms fail, and sectors vanish. Their model offers a nuanced policy insight: societies must balance “innovation” and “inclusion”. Governments encouraging competition should invest in social safety nets, education, and retraining to help individuals adapt to technological change. This dual emphasis on dynamism and protection shapes debates on automation, AI, and the future of work.

Why This Nobel Matters Today

The 2025 Nobel comes at a time when global growth is slowing, productivity gaps are widening, and technology is disrupting established production and employment structures. The laureates’ insights are profoundly relevant to today’s world.

Their work emphasises that innovation is not an automatic outcome of capitalism. It depends on institutional frameworks – laws protecting intellectual property, education fostering critical thinking, and markets rewarding risk-taking. Economic stagnation is not inevitable; it’s often a result of institutional complacency.

The laureates’ research helps policymakers understand innovation quality. Not all technological change boosts growth. Some innovations increase market concentration, erode competition, or widen inequality. Aghion and Howitt’s model highlights the need for policies promoting “disruptive innovation” over rent-seeking behaviour. Mokyr’s historical lessons remind us that societies stifling dissent or neglecting knowledge systems risk long-term decline.

Their work invites a humanistic understanding of economics. Growth reflects how societies organise creativity, collaboration, and competition. The laureates’ scholarship restores the moral and institutional dimensions of economic progress, often neglected in technical models.

Implications for Developing Economies

Mokyr, Aghion, and Howitt’s insights are particularly significant for developing economies like India. India’s digital transformation and startup ecosystem signal a shift towards innovation-driven growth, but institutional gaps remain. Weak IP enforcement, bureaucratic inertia, and skill mismatches limit sustained technological progress.

Mokyr’s perspective suggests India’s success depends on cultivating a culture of openness and intellectual curiosity, valuing experimentation and tolerating failure. Aghion and Howitt’s models highlight the need to encourage competition while supporting workers displaced by technological change. This means aligning innovation policy with education reform, vocational training, and digital literacy initiatives.

Their framework warns against complacency. Economies relying on imitation or low-cost labour without investing in indigenous innovation risk stagnation. As creative destruction accelerates through AI and automation, emerging economies must position themselves as active contributors to the global knowledge economy, not passive recipients of technology.

Innovation as Continuous Renewal

The 2025 Nobel Prize in Economics is more than academic recognition – it’s a timely reflection on the conditions sustaining growth in an uncertain world. Honouring Mokyr, Aghion, and Howitt celebrates a vision of economics that’s dynamic, interdisciplinary, and human. Their work underscores innovation as a continuous renewal process, shaped by competition, guided by institutions, and anchored in curiosity and openness.

In an age of technological change, the laureates’ message is clear: progress depends on inventing new tools and cultivating societies using them wisely. This Nobel reminds us that the true wealth of nations lies in people’s creativity and institutions empower them to imagine, experiment, and rebuild.

Views expressed are personal. John Felix Raj is the Vice Chancellor, Sovik Mukherjee is an Assistant Professor of Economics, both at St. Xavier’s University, Kolkata