The 2025 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel has been awarded to three pioneering researchers whose work fundamentally explains how technological innovation and scientific advancement drive sustained economic growth. The award recognizes decades of research that has transformed our understanding of the relationship between knowledge creation, market competition, and economic development.
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Meet the 2025 Nobel Laureates in Economics
The prestigious award has been divided between three exceptional economists whose complementary research approaches have illuminated different aspects of economic growth. One half of the prize goes to economic historian Joel Mokyr of Northwestern University, while the other half is shared between economic theorists Philippe Aghion of the Collège de France and London School of Economics and Peter Howitt of Brown University.
“I can’t find the words to express what I feel,” Aghion remarked upon receiving the news. The French economist indicated he would use the prize money to support research at his laboratory at the Collège de France, continuing his investigation into the dynamics of innovation and growth.
The Significance of Useful Knowledge in Historical Growth
Joel Mokyr’s groundbreaking work focuses on why sustained economic growth emerged when it did, despite technological innovations appearing throughout human history. His research demonstrates that the key difference lies in what he terms “useful knowledge” – innovations grounded in scientific understanding rather than mere trial and error.
Mokyr showed that while technologies like windmills and printing presses emerged in earlier eras, systematic economic growth averaging 1-2% annually only became possible when innovations could be systematically developed and improved. His analysis of the Industrial Revolution reveals how steam engine improvements became systematic rather than haphazard, creating the conditions for sustained growth. This historical perspective helps explain why some societies successfully translate technological potential into economic advancement while others do not.
Creative Destruction and Market Mechanisms
Aghion and Howitt’s influential 1992 model introduced the concept of “creative destruction” into mainstream economic theory, showing how competition between companies drives innovation by replacing older products with newer, superior alternatives. Their work clarifies the market mechanisms behind sustained growth in modern economies, demonstrating how the constant churn of businesses and products underlies economic advancement.
The researchers demonstrated how companies strategically invest in research and development to improve their chances of discovering breakthrough products. Their model predicts optimal R&D investment levels and reveals how market structure influences innovation incentives. According to University of Chicago economist Ufuk Akcigit, their work highlights a crucial insight: “Unless we replace inefficient firms from the economy, we cannot make space for newcomers with new ideas and better technologies.”
The Role of Policy in Sustaining Innovation
Aghion and Howitt’s research reveals a critical paradox: as companies grow and dominate their markets, their incentive to invest in radical innovation diminishes. “When a new entrepreneur emerges, they have every incentive to come up with a radical new technology,” Akcigit explains. “As soon as they become an incumbent, their incentive vanishes.”
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This insight suggests that market forces alone may not sustain the level of innovation needed for long-term societal benefit. Their model indicates that government support for R&D becomes essential, particularly for funding research that promises transformative rather than incremental advances. This perspective comes at a crucial time when research funding faces challenges globally, and when breakthrough innovations like the Antarctic microorganism compound revolutionizing food production demonstrate the potential of sustained scientific investment.
Social Consequences and Safety Nets
The laureates’ work acknowledges the complex social consequences of economic growth and technological change. During the Industrial Revolution, concerns about mechanization causing unemployment mirrored contemporary worries about AI replacing human labor. However, Mokyr’s historical analysis shows that early mechanization ultimately created new job categories even as it displaced existing ones.
Aghion and Howitt emphasize that creative destruction inevitably leads to business failures and job losses, requiring robust social safety nets and constructive conflict resolution mechanisms. As University of Cambridge economist Diane Coyle notes, “The idea that a country’s productivity level increases by companies going bust and new ones coming in is a difficult sell, but the evidence that that’s part of the mechanism is pretty strong.” This reality underscores the importance of policies that manage technological transitions, much like recent developments in Titan Mining’s graphite production facilities that balance economic and environmental considerations.
Contemporary Relevance and Policy Implications
The award arrives during significant global challenges to research funding and increasing protectionist tendencies. “It’s a very timely message when we’re seeing the United States undermining so much of its science base,” Coyle observes. Aghion expressed concern about “the protectionist wave in the US,” noting that “openness is a driver of growth. I see dark clouds accumulating” regarding the ability to translate high-tech innovations into market value.
However, Nobel committee member Kerstin Enflo denied the award carried political messaging, stating at the press conference that “It is only about celebrating the work the laureates have done.” The timing nevertheless highlights how their research informs current debates about innovation policy, including responses to challenges like those seen in Meta’s recent content moderation decisions that affect information ecosystems crucial for innovation.
Green Growth and Sustainable Innovation
Recent years have seen growing questioning of “growth-at-all-costs” narratives, particularly given environmental degradation and climate change. “How can we make sure we innovate greener?” Aghion asked. “Firms don’t spontaneously do this. So how can we redirect growth towards green?”
Mokyr’s work suggests that growth can sometimes be self-correcting, producing innovations needed to solve environmental problems. However, this outcome is not automatic and requires carefully designed policies that nurture innovation while minimizing inequality and environmental harm. “We need to harness the productivity potential and minimize the negative effects,” Aghion emphasized, highlighting the ongoing relevance of their research for contemporary sustainability challenges.
Enduring Impact and Academic Recognition
The three laureates have long been considered strong candidates for the Nobel prize, with their work fundamentally reshaping how economists understand technological progress and economic development. As Richard Jones, innovation policy researcher at the University of Manchester, notes: “It’s important that economists understand the conditions that lead to technological progress.” Their integrated approach – combining historical analysis, theoretical modeling, and policy insights – provides a comprehensive framework for understanding how societies can foster innovation-driven growth that benefits all citizens while addressing pressing global challenges.
