A Nobel for innovation: Without a creative culture, growth will not happen

Unlike the Nobel Peace Prize, the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel is not generally considered a deeply political award. But it definitely does reflect broader trends in how economic policy is viewed in the mainstream. In the early years of the prize, from 1969 onwards, the development- and welfare-focused mentality of the policy profession was honoured. During the high tide of the Washington Consensus, the Chicago School archpriests of the neoclassical model were honoured one by one. More recently, the post-financial crisis turn to scepticism about perfect competition and concern about labour markets have led to a spate of honourees with relevant work. Now, for two successive years, the Royal Swedish Academy of Sciences has decided to award work that focuses on institutions, innovations, and culture. The 2025 recipients — Joel Mokyr, Philippe Aghion, and Peter Howitt — are best known for studying the ways in which economies and societies respond to innovation, and why innovative cultures take hold. This almost certainly reflects a broader malaise in the policymaking system about the sources of future growth — particularly in the West, which is concerned about losing a technological race to China.

 

While Prof Mokyr is an economic historian, Profs Aghion and Howitt use more traditional neoclassical methods. Their most cited paper, however, builds on the work of Joseph Schumpeter, one of the most influential economists of the early 20th century. They formalised Schumpeter’s theory of “creative destruction” being at the heart of the capitalist growth process — in which old processes and technologies were continually replaced by new ones, leading to growth as a consequence — and linked it tightly to growth and investment rates. They basically demonstrated that long-term growth comes from innovation; that innovation comes from entrepreneurs seeking monopoly profits; and that new technology must displace old technology for growth to occur. There is a fundamental conflict between those who are rich today, earning profits from the status quo, and the putative entrepreneurs who seek to replace them. 

Prof Mokyr’s work, meanwhile, examines how and when the winners of growth can prevail over the losers. Only one previous Nobel — in 1993 — has been received by academics who identify themselves primarily as economic historians. The 1993 prize was awarded also for the study of past innovations and property rights; this year’s award is in some ways a sequel to that one. Prof Mokyr complicates the Aghion-Howitt story by pointing out that it is culture — the status of new ideas and innovators in society, the prevalence of institutions that allow innovations to disseminate, a political belief in the need for change and creativity — that allow for innovators to triumph over the set of losers from growth. He applies this through painstaking studies of societies that have grown — such as Britain in the 1800s — and those that did not, although they should have — like China in the centuries immediately preceding that. 

The lesson from last year’s Nobel, which was awarded to scholars of institutional economics, was that long-term growth emerges from the institutional basis of an economy. If Indian policymakers are searching for a similar lesson from this year’s award, then it is this: Innovation is the only way for societies to prosper, and that will not happen unless a predisposition to take risks and upend the status quo takes hold. If that is true, then the natural corollary is that India and its companies spend too little on research, and our reform process is too gradual and solicitous of those with a vested interest in the status quo.