No, we will not all die. What the Nobel Prize in Economics was awarded for this year

Strictly speaking, the economics prize is awarded on behalf of the Swedish central bank and is called the Alfred Nobel Memorial Prize – the founder himself did not pay attention to economists. Nevertheless, the decision to award it is also made by the Nobel Committee. This time, they chose the American-Israeli scholar Joel Mokyr (Northwestern University, Illinois and Tel Aviv University), Philippe Aghion (Collège de France and INSEAD, France), and Peter Howitt (Brown University, USA). The first is awarded “for defining the prerequisites for sustainable growth through technological progress,” while the others are recognized “for the theory of sustainable growth through creative destruction.”

“For the past two centuries, for the first time in history, the world has witnessed sustained economic growth. This has helped a huge number of people escape poverty and laid the foundation for our prosperity. This year’s Nobel laureates in economics, Joel Mokyr, Philippe Aghion, and Peter Howitt, explain how innovation serves as a stimulus for further progress,” states the press release of the Nobel Committee.

What did the laureates discover?

The decision was quite unexpected – primarily because last year the Nobel in economics was awarded to American scholars Daron Acemoglu, Simon Johnson from MIT, and James Robinson from the University of Chicago, whose research on social institutions and welfare (most fully presented in the book “Why Nations Fail”) was based precisely on the works of Mokyr and the Aghion-Howitt model. Professor Konstantin Sonin from the University of Chicago, who publishes his annual forecast on the economic Nobel, was somewhat surprised – the Nobel Committee rarely awards prizes consecutively in the same field. Perhaps this is because the works of this year’s laureates are very relevant in light of today’s fears.

There are two main fears. One: that a rapidly rising China will overtake the USA and become the economic – and therefore political – leader of the world. Moral panic about the “Chinification” of everything – first goods, then employers, and finally political regimes – has existed for several years. But it was this year that this fear culminated in US President Donald Trump making confrontation with China his main priority. The second fear intensified this year when “large language models” – that is, artificial intelligence – became available to all citizens of the world. This fear has reached such a level that some are seriously preparing for an AI apocalypse.

Mokyr, Aghion, and Howitt help dispel these fears with their work.

Joel Mokyr, using historical sources, explained why the Industrial Revolution happened two centuries ago and why it happened in Europe.

For those interested, there is an excellent article by Mokyr translated into Russian, written very clearly and simply. In short, two necessary conditions came together in Europe. On one hand, politically fragmented Europe fiercely competed for minds, attracting scientists, thinkers, and later inventors and engineers. On the other hand, the scientific and technical world of Europe was unified: ideas and their carriers migrated from country to country, universities were founded on similar principles, and innovations were created immediately for universal application across borders. As a result, the same discovery could appear as an idea in one country, be developed in another, implemented as an innovative product in a third – and become available to all, simultaneously becoming a reason for further innovations in various sectors that also spread globally.

It was political competition and scientific-technical globalism that made Europe the place where innovation became the foundation of progress. As a result, economic growth, which until then had followed the accumulation of labor and capital slowly, suddenly took on an exponential character that continues to this day.

“Technologies develop rapidly and affect all of us: new products and production methods constantly replace old ones. This is the basis of sustainable economic growth, which leads to improved living standards, health, and quality of life worldwide. However, this was not always the case. On the contrary, stagnation was the norm for most of human history. Despite periodic important discoveries that sometimes improved living conditions and increased incomes, growth always eventually stabilized. Joel Mokyr used historical sources as one way to reveal why sustained growth becomes the new norm. He demonstrated that for innovations to follow one another in a self-generating process, we need not only to know that something works but also to have a scientific explanation of why it does. The latter was often missing before the Industrial Revolution, which hindered the development of new discoveries and inventions. He also emphasized the importance of society’s openness to new ideas and readiness for change,” the Nobel Committee’s press release states.

The “creative destruction” model of Aghion-Howitt, expressed in mathematical formulas, showed that every innovation entering the market destroys old businesses. Therefore, old businesses can resist the introduction of new innovations, and if not helped to adapt, they can, with sufficient political and/or scientific power, kill the innovation.

Aghion and Howitt divided business into three tiers: final, intermediate, and R&D. In their model, innovations originate in R&D and are implemented in the intermediate tier (goods used as inputs for producing other goods, including final goods). While the final tier operates under free competition, the intermediate tier features monopolistic competition with a limited number of sellers. They possess great market power and, when faced with an innovation that could destroy them, may resist its adoption.

Hence, attention – including from the state – should be focused on this intermediate tier: it is necessary to give the players at this level the opportunity to restructure their business.

Why is this important today?

Thanks to Mokyr, we can understand why it is so important to create an attractive scientific and creative environment, to ensure the free flow of people and ideas between countries – alongside fierce competition between states. Therefore, China is unlikely to conquer the world: it still has problems with the free flow of brains and ideas, and stealing ideas and copying cannot become the basis of innovation. However, China is trying, although it has slowed somewhat in recent years.

Europe, in turn, has today ceded primacy to the USA precisely because competition was sacrificed for social peace – a pleasant phenomenon, of course, but unfortunately not conducive to progress. The USA, with its current crackdown on migrants, which affects scientific personnel and workers in innovative sectors alike (consider the rising cost of work visas), risks losing its current advantage in the innovation race.

For Russia, the laureates’ works contain an answer to why a country with so many talented scientists and engineers lags behind in this race.

It’s simple: free migration of people and ideas is increasingly restricted (consider the mass arrests of scientists “for espionage”), and the intermediate tier is not only monopolized but also wields market and political power.

One can recall how Gazprom for a long time convinced the government and public that shale developments in the USA were nonsense and a waste of money, and that liquefied gas would never compete with pipeline gas. For Gazprom’s top managers, this policy was profitable – they earned well from endless pipeline construction. But for the country and the sector itself, it was disastrous because innovations were not adopted in time. Today, LNG projects in Russia depend on foreign equipment and technology, while US shale fields play an increasingly important role in the global oil market.

Regarding AI, the Aghion-Howitt model suggests that the new technology is unlikely to threaten human extinction. Rather, by transforming from a final tier to an intermediate one, AI will give a push to a new wave of progress, just as the steam engine’s discovery did in its time. Mokyr suggests what needs to be done so that millions of people do not end up on the streets and humanity does not become dumber or enslaved by AI.

And the main conclusion was voiced by John Hassler, Chair of the Prize Committee for Economic Sciences: “The laureates’ works show that economic growth cannot be taken for granted. We must support the mechanisms underlying creative destruction to avoid slipping into stagnation.”