The Royal Swedish Academy of Sciences has awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to three distinguished researchers: Joel Mokyr, Philippe Aghion, and Peter Howitt.
From left, Philippe Aghion, Peter Howitt and Joel Mokyr. Pic: Brown University AP/Northwestern University
The three men won the Nobel Memorial Prize in Economic Sciences on Monday for their research into the impact of innovation on economic growth and how new technologies replace older ones—a key economic concept known as “creative destruction.”
The winners represent contrasting but complementary approaches to economics. Mokyr is an economic historian who delved into long-term trends using historical sources, while Howitt and Aghion relied on mathematical modelling to explain how creative destruction works. Dutch-born Mokyr, , is from Northwestern University; Aghion, , is from the Collège de France and the London School of Economics; and Canadian-born Howitt, , is from Brown University.
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The committee decided to award one half of the prize’s -million Swedish kronor (nearly million) to Mokyr, “for having identified the prerequisites for sustained growth through technological progress,” with the other half shared by Aghion and Howitt.
Mokyr, who was still trying to get his morning coffee when reached on the phone by an AP reporter, expressed genuine surprise at the honor. “People always say this, but in this case I am being truthful – I had no clue that anything like this was going to happen,” he said. He recalled telling his students that he was “more likely to be elected Pope than to win the Nobel Prize in Economic Sciences – and I am Jewish by the way.”
The Nobel Prize in Economic Sciences committee said Mokyr demonstrated that if innovations are to succeed one another, we not only need to know that something works, but we also need to have scientific explanations for why. This required a societal openness to change. Mokyr, who will turn next summer, confirmed he has no plans to retire, stating, “This is the type of job that I dreamed about my entire life.”
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Aghion, Howitt, and the Mathematics of Creative Destruction
Aghion and Howitt studied the core mechanisms behind sustained economic growth, constructing a complex mathematical model for creative destruction in a seminal article. They were credited with better explaining and quantifying this concept, which refers to the process in which beneficial innovations replace—and thus destroy—older technologies and businesses. The concept itself is traditionally associated with economist Joseph Schumpeter.
Creative Destruction in Action: Digital Photography
The core principle of creative destruction describes the fundamental process of capitalism: old ways are constantly destroyed to make room for new, more efficient ones. It’s a never-ending cycle of innovation that causes turmoil in the short term but delivers massive economic progress over the long term.
A perfect modern example of this transition is the shift from traditional film photography to digital and smartphone cameras.
| Destruction | Creation | Economic Outcome |
|---|---|---|
| Film Companies: Giants like Kodak, which dominated the global photography market, saw their core business model (selling film, chemicals, and photo paper) destroyed. They failed to fully adapt and eventually filed for bankruptcy. | Digital Imaging: New companies like Canon and Nikon developed digital cameras. More significantly, Apple and Google popularized high-quality smartphone photography, leading to new app ecosystems, cloud storage services (like Google Photos), and social media platforms (like Instagram). | Net Growth and Modernization: While millions of jobs in film manufacturing and photo developing were lost, the creation of the smartphone economy, social media, and digital imaging created hundreds of millions of new jobs and trillions of dollars in wealth. Consumers gained immense value: cheaper, instant, unlimited photos without a trip to the store. The entire economy was radically modernized. |
In this case, the destruction was the collapse of the film industry, and the creation was the explosion of the digital and mobile technology industries. The laureates’ work explains how to model this process mathematically and ensure the “creation” side is robust enough to keep the entire economy moving forward.
Applying Creative Destruction to the AI Revolution
Aghion, who said he was shocked by the honor, plans to invest his prize money in his research laboratory. He also weighed in on current global policy, cautioning that protectionism is detrimental to future expansion. “I am not welcoming the protectionist way in the US. That is not good for… world growth and innovation,” he stated. Furthermore, Aghion has significant public policy experience, having helped shape French President Emmanuel Macron’s economic program in and later co-chairing the Artificial Intelligence Commission in .
The mathematical models developed by Aghion and Howitt offer a powerful lens through which to view modern Artificial Intelligence development, arguably the most powerful engine of creative destruction in the century.
Their models, known as Schumpeterian growth theory, focus on endogenous growth—the idea that sustained growth is driven by the internal incentives of firms to innovate (the “creation” part). AI fits this perfectly: it represents a general-purpose technology that simultaneously displaces existing jobs and processes (the “destruction” part) while creating entirely new, often unimaginable, economic sectors and increasing overall productivity.
The models highlight two critical policy challenges that AI poses:
- Incentives vs. Displacement: How a society ensure sufficient competition and intellectual property rights (patents, copyrights) to encourage massive AI investment, while simultaneously managing the social and political costs of rapid labour displacement?
- Appropriate Policy: Aghion’s recent work, especially through the French AI Commission, suggests that governments should not focus on slowing down innovation but on ensuring widespread access to AI-driven productivity gains and implementing supportive measures—like massive investments in education and retraining—to help workers transition from the “destroyed” sectors to the “created” ones.
The laureates’ framework suggests that the long-term economic gains from AI will be vast, but only if policymakers actively manage the short-term disruption to prevent a societal backlash that could lead to “stagnation,” the outcome the models predict if innovation is stifled.
The economics prize is formally known as the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel. The central bank established it in as a memorial to Nobel, the -century Swedish businessman and chemist who invented dynamite and established the five Nobel Prizes.
While Nobel purists stress that the economics prize is technically not a Nobel Prize, it is always presented together with the others on December , the anniversary of Nobel’s death. Since , it has been awarded to a total of laureates, though only three of the winners have been women. Winners also receive an -carat gold medal and a diploma. Nobel honours were announced last week in medicine, physics, chemistry, literature, and peace. You can read more about their work on the official Nobel Foundation website.
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