The 2025 Nobel Prizes:
Sparkles of Sustainability
Part III -- Governance
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The Nobel Prize in Economic Science: Pathways Towards a Greener Innovation
On 10 October 2025, the Royal Swedish Academy of Sciences awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2025, more known as the Nobel Prize in Economic Sciences 2025, to Joel Mokyr, Philippe Aghion, and Peter Howitt for their contributions on sustained growth.
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​Joel Mokyr: The Prerequisites for Sustained Growth
In Joel Mokyr’s 1992 work, The Lever of Riches: Technological Creativity and Economic Progress, he identified what led to the sustained growth since the Industrial Revolution. He proposed a theory that centered around a term called “useful knowledge”. Only knowledge or an invention is not enough to prompt sustained long-run economic growth. Instead, Mokyr said, new ideas should be converted to applications and improvements in all fields of life (i.e. to become useful). England, for example, experienced sustained growth the earliest in the world due to its abundance of skilled, creative workers who invented profitable products. Merely inventing the steam engine was not enough. It was its applications, including railway and steamboat, that fueled a sustained economic growth.
Mokyr also stressed the importance of policies on sustained growth. According to him, another force that contributed to England’s economic development is its openness to changes and innovations.
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Philippe Aghion, and Peter Howitt: The Magic of Creative Destruction
Creative destruction, originally proposed in the 19th century, describes the process of a new product replacing a corresponding older or outdated one. In Philippe Aghion and Peter Howitt’s 1992 essay “A Model of Growth Through Creative Destruction”, they built on the concept of creative destruction and offered a more complete and comprehensive model explaining how it promotes sustained growth.
Their model begins with corporations spending money on research and development (R&D) on new products. The new products will displace old ones and push several firms out of the market. The old firms’ positions and market share will be replaced by newcomers and the existing firms that develop those new, innovative products.
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A Simpler way to summarize this:
R&D -- new product -- displace old/outdated firms -- newcomers and new tech
Aghion and Howitt's theory explains why business competitions are essential for economic development. According to the economic principle, as a company’s market share grow larger, the market is more monopolized, competitions decrease, and its incentive to conduct R&D decreases, which will hinder innovation and development.
Their works also emphasizes the importance of R&D and R&D subsidizing in order to sustain development, which is a timely message when R&D subsidies have been cut greatly in some regions around the world. The model of Aghion and Howitt serves as a friendly reminder for policy makers to leave some fund to sustain corporate R&D incentives.
Moreover, their model further emphasizes the amount of R&D subsidies. Under-subsidizing will result in lowered economic incentives and declined research quality; on the other hand, over-subsidizing will sometimes result in firms putting the excess money on other less important fields. In short, to determine the optimal amount of subsidization is also an important issue for local and national governments.
Redefining Sustainability: Resonate with the Environment
As the component of environment gained more attention and concerns over the past few years, how to promote economics development without harming the nature becomes a popular and crucial topic. Can we gain some insights on the awarded works this year?
The answer is yes. According to Mokyr’s work, growth and innovation are, to some extent, able to self-correct -- that is, they can guide themselves to meet the demand of people. We may thus contend that growth and innovation can derail from the “growth-at-all-costs” route and redirect towards a greener and more sustainable way. This is correct to some extent. At times, eco-friendly products are surely favored by the public.
However, according to Aghion and Howitt’s model, green innovation is not guaranteed. “Firms don’t spontaneously do this”, said Aghion. To solve or mediate this problem to the greatest extent, R&D is the key. We need policies that encourage green innovation, social equity, and sustainability. Corporates should work on their governance towards a better, more creative, and more eco-friendly corporate culture and more productive labor structure.
Time: 2025.10.16
Editor: Tian. Qiu