The 2025 Nobel Prize in Economics recognizes Joel Mokyr, Philippe Aghion, and Peter Howitt for fundamentally transforming our understanding of how innovation and ‘creative destruction’ drive sustained economic progress. Their groundbreaking research, from historical prerequisites to mathematical models, provides a vital framework for navigating today’s technological revolutions and shaping policies that foster growth while managing disruption in fields like AI and green energy.
On October 13, 2025, the Royal Swedish Academy of Sciences announced that the Nobel Memorial Prize in Economic Sciences for 2025 would be shared by three distinguished researchers: Joel Mokyr, Philippe Aghion, and Peter Howitt. Their collective work has provided an unparalleled understanding of the mechanisms behind economic progress, particularly how technological innovation drives long-term prosperity. The committee recognized them “for having explained innovation-driven economic growth,” fundamentally reshaping how economists and policymakers approach development.
Understanding the Foundations of Sustained Growth
One half of the prestigious 11 million Swedish Kroner prize (approximately $1.0 – $1.8 million) was awarded to Joel Mokyr, an economic historian at Northwestern University, “for having identified the prerequisites for sustained growth through technological progress.” Mokyr, a Dutch-Israeli-American scholar, delved into historical evidence to explain how societies transition from periods of stagnation to continuous economic expansion. His research highlighted that sustained technological progress isn’t accidental; it blossoms when innovations are nurtured by a culture that values knowledge, rigorous experimentation, and an openness to change.
Mokyr’s studies notably linked the transformative period of the Industrial Revolution in Europe to a society that became increasingly curious and tolerant of novel ideas. He posited that true innovation flourishes when individuals not only grasp “how” things work, but also “why” they work. This deeper scientific comprehension, which he termed “useful knowledge,” enabled societies to build upon past discoveries, ensuring progress across generations. As economist Diane Coyle of the University of Cambridge noted, their work “underlines the importance in investing in science for innovation and long-term economic growth,” a sentiment echoed by innovation policy researcher Richard Jones, who stressed the need for economists to understand the conditions for technological progress, as reported by Nature magazine.
The Dynamic Theory of Creative Destruction
The other half of the prize was jointly awarded to Philippe Aghion of the Collège de France and the London School of Economics, and Peter Howitt of Brown University, “for the theory of sustained growth through creative destruction.” Drawing inspiration from economist Joseph Schumpeter’s original concept, Aghion and Howitt formalized this influential theory in their 1992 paper. Their model eloquently demonstrates how economic growth unfolds as a continuous cycle where new innovations and companies inevitably replace older technologies, products, and even entire industries. This dynamic process, while sometimes disruptive, fuels long-term growth by fostering relentless innovation and competition.
The concept of creative destruction is now a cornerstone for explaining major technological revolutions—from streaming platforms replacing DVDs and smartphones displacing older devices, to the ongoing shifts driven by artificial intelligence, renewable energy, and biotechnology. These shifts, though they can lead to job displacement and the failure of incumbent firms, ultimately translate into higher productivity, increased incomes, and improved living standards across society, provided supportive policies are in place.
Policy Implications and Modern Challenges
The laureates’ research carries profound implications for policymakers grappling with contemporary economic challenges. Their work underscores that economies thrive when they protect competition, invest robustly in basic science and human capital, and actively prevent the entrenchment of monopolies. Conversely, policies such as protectionism and weak antitrust enforcement can stifle the very churn that is essential for progress.
During the awards announcement, Philippe Aghion voiced concerns about potential roadblocks to future advances, specifically mentioning protectionist trade policies. “Openness is a driver of growth,” Aghion stated. “Anything that gets in the way of openness is an obstacle to growth. So I see dark clouds currently accumulating, pushing for barriers to trade and openness.” He also emphasized the urgent need to reconcile economic growth with environmental preservation, advocating for policies like a carbon tax to redirect innovation towards greener technologies, as “firms do not spontaneously innovate green.”
Furthermore, Aghion cautioned about the burgeoning field of artificial intelligence. While recognizing its vast potential, he warned that without careful regulation and policing, “superstar” firms could dominate the sector, effectively blocking the entry of future competitors and hindering innovation. Ufuk Akcigit, an economist at the University of Chicago, elaborated on this, stating that “unless we replace inefficient firms from the economy, we cannot make space for newcomers with new ideas and better technologies.” He added that new entrepreneurs are incentivized to innovate, but incumbents often lose that drive, making constant competition crucial.
A Timely Reminder: Progress is Not Guaranteed
The Nobel Committee member, Kerstin Enflo, underscored a central message from the laureates’ work: “The laureates’ work reminds us we should not take progress for granted.” She highlighted that while the last 200 years have seen unprecedented economic growth, this period is relatively short compared to the long history of human stagnation. Their findings are particularly timely given current global debates on funding scientific research and managing the social consequences of rapid technological change. Mokyr’s historical analysis, for instance, showed that early mechanization during the Industrial Revolution, despite initial fears, often led to the creation of new jobs.
The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, though not one of the original Nobel Prizes, was established in 1968 and has been awarded 56 times to 96 laureates since 1969. It is presented annually alongside the original prizes on December 10, the anniversary of Alfred Nobel’s death. Last year, the 2024 prize recognized Daron Acemoglu, Simon Johnson, and James A. Robinson for their research on inclusive institutions and national prosperity, underscoring the ongoing Nobel focus on the fundamental drivers of global development. The official Nobel Prize announcement highlighted the trio’s groundbreaking impact on understanding economic progress.
