Human history provides numerous examples of what economists term “creative destruction,” a vital process of innovation that drives economic growth. The Nobel Prize in Economic Sciences 2025 has been awarded to Joel Mokyr, a professor at Northwestern University in the United States, alongside Philippe Aghion from Collège de France, and Peter Howitt of Brown University. This recognition is for their contributions to understanding how innovation fosters sustained economic growth through the concept of creative destruction, which is considered a fundamental characteristic of capitalist economies.
According to the Royal Swedish Academy of Sciences, the prize was divided, with Mokyr receiving half for elucidating the significance of technological innovation, while Aghion and Howitt were honored for their identification of technology as a key factor driving long-term economic advancement and for their development of a mathematical model of creative destruction.
The term “creative” signifies the introduction of new innovations into the market, whereas “destruction” pertains to the obsolescence of outdated products and processes replaced by these innovations. This dynamic invariably generates both winners and losers, as advancements render older technologies obsolete. A pertinent example includes the transition from landlines and payphones to smartphones, which have also replaced alarm clocks and cameras. The evolution of transportation—from the use of animals to the invention of the wheel, railways, and ultimately, the airplane—illustrates this ongoing journey of developing newer, more efficient means of travel while dismantling outdated methods.
In Indian mythology, the concept of creative destruction is embodied by Shiva-Nataraj, the King of Dancers, whose eternal dance of creation and destruction governs the cosmos. While Werner Sombart first introduced the term, it was popularized by Austrian economist Joseph Schumpeter in 1942. Sombart initially used it in 1913 to explain how destruction can stimulate creation, highlighting how the scarcity of wood led to the invention of substitutes and new heating methods.
Both Karl Marx and Schumpeter employed the notion of creative destruction to portray the inherent instability within capitalism, though their conclusions diverged. In “Capitalism, Socialism and Democracy” (1942), Schumpeter depicted the process where new innovations supplant outdated systems and technologies, contrasting with Marx”s perspective that the forces unleashed by capitalism would ultimately lead to its collapse.
The research conducted by Mokyr, Aghion, and Howitt underscores the importance of qualitative progress, which encompasses advancements in medicine, safer transportation, cleaner energy, improved food quality, and faster communication, all contributing to enhanced human well-being. Nevertheless, it is crucial to recognize that many nations, including India, have historically emphasized GDP growth as the sole indicator of national progress, often neglecting the qualitative improvements in citizens” lives.
It is essential to differentiate between sustained growth and sustainable growth. A focus on continuous GDP growth can lead to adverse effects such as increased pollution, rising inequality, and unsustainable resource exploitation. Mokyr suggests that technology can help address these challenges, but only if supported by robust and well-structured public policies.
The findings of the Nobel laureates highlight the necessity to recognize and mitigate potential threats to ongoing growth. These threats may arise from monopolistic market dominance by a few companies, constraints on academic freedom, the proliferation of knowledge at regional instead of global levels, and impediments posed by disadvantaged groups. Failure to tackle these threats could lead to a stagnation of the very mechanism that has facilitated sustained growth through creative destruction. Mokyr”s extensive research in economic history illustrates that a continuous flow of useful knowledge is imperative.
A global movement is emerging to shift focus from a narrow economic output perspective towards a more comprehensive understanding of well-being. Achieving sustainable growth that harmonizes economic viability with environmental stewardship and social equity is now more crucial than ever.
