We recently inaugurated The Veles Group with two posts exploring the value of knowledge in society. Last week, we learned that the Nobel Prize in Economic Sciences was awarded to three economists whose work has profoundly transformed our understanding of how technological innovation drives and hinders sustained economic growth. The groundbreaking research of Joel Mokyr, along with the team of Philippe Aghion and Peter Howitt, has illuminated the mechanisms of creative destruction, the factors essential for continued growth, and the intricate political and societal dynamics that both foster and constrain economic progress through discovery.
A brilliant summary and background of their work underpinning transformational role of innovation in society was presented by the The Royal Swedish Academy of Sciences.
Joel Mokyr emphasized the concept of “useful knowledge,” describing the synergy between propositional (theoretical) and prescriptive (practical) knowledge as a catalyst for sustained growth. He underscored the importance of open societies that welcome change and innovation.
Philippe Aghion and Peter Howitt developed a mathematical model of creative destruction—the process by which innovation produces new and improved products and processes, rendering older ones obsolete leading to market upheavals and resets. Intriguingly, their work suggests that both excessive and insufficient creative destruction can hinder innovation. In fact, despite rapid advances in technology, growth has fallen in recent decades, emphasizing the lack of a simple linear relationship between discovery and economic gains. Together, Mokyr, Aghion and Howitt outlined the complex relationships between innovation and socioeconomic factors. One such socioeconomic factor is when a small number of companies marketing technological innovations become too dominant, implying that more assertive policies may be needed to counteract market concentration that ultimately limits the creative-destructive forces. This observation is especially timely, given the small number of technology companies now dominating both research investment and major markets in the United States.
Collectively, the laureates provide critical policy context linking innovation and creative destruction to the fortunes of companies and their employees. Their work highlights the importance of supporting workers through turbulent transitions and suggests that protecting workers—but not specific jobs—may be key. For example, Denmark’s flexicurity system, introduced in the 1990s, combines social insurance with labor market flexibility to promote sustained growth and unleash the forces of creative destruction.
The key question in my mind is whether policymakers will heed the lessons from this extraordinary scholarship? Will they foster the free and open societies necessary for sustained economic growth, recognize that unchecked market dominance stifles innovation, and commit to protecting workers from the inevitable upheavals of creative destruction? The choices made in response to these questions, not only by policy makers, but also by workers, corporations, and the research community will significantly influence the trajectory of our society.
