The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2025 has been awarded to Joel Mokyr, Philippe Aghion, and Peter Howitt for having explained innovation-driven economic growth. This recognition underscores the critical role of innovation in shaping long-term economic progress, highlighting how knowledge creation, technological advancement, and the continuous cycle of new and obsolete products drive prosperity.
From Stagnation to Sustained Growth
For most parts of the human history, economic stagnation was the norm. Despite important discoveries that temporarily improved living standards, the growth eventually stopped. Income levels in countries like Sweden and Britain from the early 14th century to the 19th century illustrate this pattern. Innovations existed; however, they did not evolve into a continuous flow, limiting long-term development. Mokyr’s research shows that a feedback loop between practical and theoretical knowledge was largely missing, preventing sustained growth.
The Industrial Revolution, beginning in Britain over two centuries ago, fundamentally altered this pattern. Technological innovation and scientific progress generated a continuous cycle of improvement rather than isolated advances. This led to sustained growth across the industrialised nations. Countries experienced almost uninterrupted annual growth of approximately two per cent. Such sustained growth doubles income over a person’s working life, profoundly transforming quality of life and economic structures.
According to the prize committee, the laureates show ‘how new products and production methods replace old ones in a never-ending cycle’—the basis for sustained economic growth. The committee further emphasise that this dynamic is fragile: growth cannot be taken for granted, unless the structures enabling it are preserved.
Joel Mokyr and the Role of Useful Knowledge
Joey Mokyr’s research focuses on the historical mechanisms, enabling technological progress to sustain growth. He demonstrates that continual accumulation of useful knowledge is necessary. This knowledge has two components:
- Propositional knowledge, which refers to systematic understanding of why something works in the natural world.
- Prescriptive knowledge, which consists of practical instructions, drawings, or recipes, explaining how to make something function.
Before the Industrial Revolution, technological innovation relied heavily on prescriptive knowledge, while propositional understanding lacked practical application, limiting progress.
The Scientific Revolution of the 16th and 17th centuries created a shift. Scientists emphasised precise measurement, controlled experiments, and reproducibility, improving the feedback between propositional and prescriptive knowledge. This union increased the accumulation of knowledge applicable in production, exemplified by improvements in the steam engine and steel production.
Mokyr emphasises that practical, technical, and commercial knowledge is essential for transforming ideas into reality. Even brilliant concepts such as Leonardo da Vinci’s helicopter designs remained unrealised without skilled artisans and engineers. Sustained growth first emerged in Britain due to the availability of skilled labour, capable of translating knowledge into commercial products. Additionally, Mokyr identifies openness to change as a prerequisite. Technological progress creates winners and losers, and established interests often resist innovations that threaten their privileges. Institutional frameworks, such as the British Parliament during the Enlightenment, mitigated such resistance by enabling compromise and negotiation, fostering an environment conducive to growth.
Philippe Aghion, Peter Howitt and Creative Destruction
Philippe Aghion and Peter Howitt approached sustained growth through a mathematical lens. In their seminal 1992 publication A Model of Growth through Creative Destruction, they developed a model explaining how firms invest in improved production processes and better-quality products, while companies producing older products are outcompeted. This process, termed creative destruction, is both innovative and disruptive. New technologies create market opportunities but simultaneously render existing products and firms obsolete.
Their model describes an economy where firms with advanced technology obtain patents, generating temporary monopolies and profits. Other companies invest in research and development (R&D) to create superior products. If successful, these innovations replace incumbents, transferring profits to new market leaders. The potential for monopoly profits incentivises R&D investment, while competition drives further innovation. Household savings finance R&D, and interest rates, influenced by the economy’s growth rate, link production, financial markets, and investment in a general equilibrium framework.
The model highlights the welfare implications of R&D. First, when an innovation is replaced, its benefits persist for the society even if the originating firm loses profits, implying that private incentives may understate societal gains. This supports subsidising R&D to ensure continued investment. Second, when a new innovation replaces an older one, the profits accrued by the innovating firm could exceed the societal gains, suggesting that excessive investment may be socially suboptimal. The balance between these forces varies across markets and time periods, informing policies on optimal R&D levels and support.
Economic and Social Implications
Creative destruction is inherently transformative, affecting both firms and employment. In the US, over 10 per cent of companies exit the market annually, while an equivalent number of new firms emerge. High growth requires active creative destruction, which could lead to job losses. Protecting workers rather than specific jobs is essential, allowing labour to transition to more productive employment. Mechanisms such as flexicurity and combining labour mobility with social protection may effectively manage the social costs of innovation.
The laureates emphasise social mobility. Societies that allow skilled innovators and entrepreneurs to thrive, independent of family background, foster greater innovation and sustained growth. Conversely, restrictions on academic freedom, dominance by a few companies or regionalised knowledge accumulation could threaten long-term growth.
Modern Applications: Artificial Intelligence
The insights of Mokyr, Aghion, and Howitt are increasingly relevant in the age of artificial Intelligence (AI). Mokyr’s work suggests that AI could accelerate the feedback loop between propositional and prescriptive knowledge, enhancing the pace of useful knowledge accumulation. Aghion and Howitt’s model provides a framework to understand AI-driven creative destruction. Unlike previous general-purpose technologies, AI influences knowledge creation itself, compressing the time between understanding why something works and developing practical applications. Algorithms capable of predicting protein structures or designing new materials can exemplify this accelerated cycle.
However, lessons from creative destruction further caution that rapid technological advancement could exacerbate inequalities and market dominance. Aghion and Howitt’s research indicates that both excessive concentration and insufficient competition can hinder innovation. Policy measures must ensure balanced market structures, support R&D where societal benefits exceed private incentives and provide social protection to those affected by rapid technological change.
Historical and Contemporary Context
The Nobel recognition situates their work within a broader historical and intellectual framework. The concept is usually associated with economist Joseph Schumpeter, who in his book Capitalism, Socialism and Democracy in 1942 conceptualised creative destruction as an evolutionary aspect of capitalism. He argued that innovation continually displaces older technologies and firms. Mokyr provided the historical context, showing why sustained growth emerged after centuries of stagnation, while Aghion and Howitt formalised these processes mathematically through endogenous growth theory, emphasising the role of competition, private incentives, and innovation, arising within the economy rather than from external shocks.
The timing of the 2025 prize reflects contemporary challenges. Rising protectionism, politicisation of science and institutional fragility threaten the mechanisms that underpin sustained growth. The laureates’ work underscores the importance of maintaining open markets, fostering scientific freedom, and ensure that institutions channel conflicts constructively. These conditions remain essential for democracies to harness innovation and sustain economic progress in an increasingly complex global environment.
Profile, Work, and Prize Amount of the Laureates
The 2025 Nobel Prize in Economic Sciences, carries a total award of 11 million Swedish kronor. One half of the prize goes to Joel Mokyr, Professor at Northwestern University, Evanston, Illinois, USA, and the Eitan Berglas School of Economics, Tel Aviv University, Israel, for having identified the prerequisites for sustained growth through technological progress. Born in 1946 in Leiden, the Netherlands, Mokyr earned his Ph.D. from Yale University, New Haven, Connecticut, USA, in 1974, and has profoundly influenced the understanding of how knowledge accumulation and institutional openness foster continuous innovation.
The other half of the prize is shared by Philippe Aghion and Peter Howitt for their pioneering theory of sustained growth through creative destruction. Aghion, born in 1956 in Paris, received a Ph.D. from Harvard University, Cambridge, USA, in 1987, and is a Professor at College de France, INSEAD, Paris, France, and the London School of Economics and Political Science, UK. Howitt, born in 1946 in Canada, received his Ph.D. from Northwestern University, Evanston, Illinois, USA, in 1973 and serves as a professor at Brown University, Rhode Island, USA.
Conclusion
Together, their work formalised how technological competition, innovation, and market dynamics drive long-term economic prosperity. The laureates’ research emphasises that economic dynamism depends on institutions capability of fostering creativity, managing conflict, and enabling technological progress to benefit society at large.
The prize reminds us that for more than 200 years, growth has transformed human societies—improving living standards, health, and quality of life. Yet, history also shows that stagnation was once the norm and without careful attention to the conditions enabling innovation, it could re-emerge. Sustained economic growth, propelled by technological progress, remains a delicate achievement, requiring the continuous interplay of knowledge, creativity, competition, and institutional support.
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