Understanding the Impact of Innovation on Economic Growth

Nobel Economics 2025: Creative Destruction AND THE ENGINE OF Growth

Overview

The 2025 Nobel Prize in Economic Sciences was awarded to Philippe Aghion, Peter Howitt, and Joel Mokyr for explaining how Innovation drives long-term economic growth. Their work shows how societies move from economic stagnation to sustained progress through continuous Technological Renewal.

From Stagnation to Growth

For centuries, people lived with little change in living standards. The Industrial Revolution in Britain changed this by linking science to technology and creating an endless cycle of innovation. Growth became the “new normal,” leading to better health, longer lives, and rising incomes.

Creative Destruction: The Cycle of Renewal

Aghion and Howitt described growth as a process of creative destruction — where new ideas replace old ones.

Globally: The shift from steam engines to electricity, from typewriters to computers, and from physical stores to e-commerce transformed industries and created millions of new jobs while ending others.

In India:

• The IT revolution of the 1990s replaced manual accounting and paperwork with digital systems.
• The mobile payments boom led by UPI displaced cash transactions and traditional banking patterns.
• The renewable energy sector is slowly replacing coal-based power.
• Ola and Uber disrupted local taxi systems; Swiggy and Zomato reshaped the food industry.
• Aadhaar and Digital India replaced older bureaucratic models with data-based governance.

Creative destruction is “creative” because it builds new opportunities, but “destructive” because it ends outdated ones. Yet this churn keeps the economy dynamic and innovative.

Balancing Innovation and Policy

The laureates emphasize that governments and institutions must manage this change wisely:

• Support R&D through funding and education.
• Maintain competition so that dominant firms do not block new entrants.
• Protect workers, not jobs, by promoting retraining and mobility.
• Encourage innovation in both urban and rural sectors to make growth inclusive.

India and the Age of AI

For India, the next wave of creative destruction will be driven by Artificial Intelligence (AI):

• AI in healthcare: startups using algorithms for early disease detection.
• Agritech: drones and sensors improving crop planning and yield.
• Fintech: AI-based credit scoring expanding financial inclusion.
• Education: adaptive learning platforms changing classroom models.

Like the steam engine in the 18th century, AI today connects science with practice, multiplying innovation possibilities.

Synopsis

The Nobel laureates teach that economic progress is not automatic — it depends on societies that welcome change. When innovation is continuous, supported by good policy and social openness, growth becomes sustainable. India’s success in digital transformation and AI shows that creative destruction remains the true engine of prosperity.