Technological change is shaking up labour markets and industries at a time when growth is slowing and productivity is stagnating in many countries. Mokyr, Aghion and Howitt offer an answer to a question that applies to all modern economies: why some societies succeed in turning innovation into wealth and others fail. Their work reveals the cultural, institutional and economic structures that make growth a self-feeding process and how creative destruction can be a condition for continued prosperity.
Joel Mokyr showed why the Industrial Revolution in 1700s Britain triggered the first sustained economic growth in history. It was a combination of three factors: the alliance of scientific and practical knowledge, a large pool of talent, and a culture and institutions that allowed change. It was only when society embraced science, experimentation and innovation that technology began to generate wealth from generation to generation.
Philippe Aghion and Peter Howitt developed a model of creative destruction, a process in which new innovations displace old ones. They explain how competition between firms and constant technological change sustain economic growth even as individual firms disappear. Innovation comes from research efforts driven by the expectation of future profits. While old technologies lose value, the economy as a whole benefits from productivity growth. Aghion and Howitt's study also showed that the effect of competition on innovation is in the shape of an inverted U: moderate competition is the most efficient in spurring development.
The Nobel Prize winners' work combines history and theory. Mokyr explains how growth started, and Aghion and Howitt how it can continue. Together they provide the basis for policies that support innovation-led growth through competition, education, research funding and an open society.
