Does innovation ipso facto spur economic growth, and does that, in turn, raise living standards? It’s often tempting to answer in the affirmative. History, however, shows that the links between the three are not straightforward. At a moment when the world is on the cusp of a tech revolution that could upend conventional notions of labour and creativity, raising optimism and creating disruption, the Nobel Committee has honoured three economists who have shone a light on why innovations enhance human well-being. Together, the work of Joel Mokyr at Northwestern University in the US, Philippe Aghion at the London School of Economics and Peter Howitt of Brown University explains why the world began growing at an unprecedented pace over the last two centuries, how societies sustained growth, and what happens when innovation is stifled.
Mokyr, an economic historian, was awarded half of the prize “for having identified the prerequisites for sustained growth through technological progress”. Innovation has been a longstanding feature of human societies, but it became a driver of economic growth only after the Industrial Revolution. As his work shows, technology becomes a harbinger of social prosperity only when there are scientific explanations for how things work. How to sustain that creative impulse? Aghion and Howitt use a mathematical model to explain what they call “creative destruction” — when a new and better product enters the market, companies selling older products lose out. The innovation represents something new and is thus creative. However, it also outcompetes an existing product, and is destructive.
The three laureates show the importance of managing the turbulence that usually follows far-reaching technological changes. Aghion has been a critic of protectionism, and Mokyr emphasised the importance of society being open to new ideas. Their work carries another message — progress is not guaranteed and requires nurturing innovative mechanisms.
