Editorial 2: Evolution, revolution

Context

The Economics Nobel celebrates the power of freedom and the spirit of innovation.

Introduction

The 2025 Nobel Prize in Economic Sciences honours Philippe Aghion, Peter Howitt, and Joel Mokyr for explaining how innovation drives growth through creative destruction. Their work links history, culture, and mathematics to show how progress replaces the old with the new. It also reminds us that innovation depends on both market freedom and state direction.

The 2025 Nobel Prize in Economic Sciences

Understanding the Award

The 2025 Nobel Prize in Economics went to Philippe Aghion, Peter Howitt, and Joel Mokyr.
Together, they explored why human progress has grown so fast in the last 200 years.
Joel Mokyr studied the historical and cultural roots of innovation.
Aghion and Howitt developed a mathematical model called “creative destruction.”

Economist	Contribution	Focus
Joel Mokyr	Historical and cultural roots of innovation	Long-term progress
Aghion & Howitt	Formalised “creative destruction” model	Mathematical theory of growth

The Idea of Creative Destruction

The idea comes from Joseph Schumpeter, who saw capitalism as an evolving system.
He said innovation replaces old technologies and industries — a process that’s both creative and destructive.
Schumpeter believed this worked best when markets are free, competition is open, and the state only enables, not directs, innovation.
But history shows that states like the USSR and China also drove innovation through planning and direction.

Model	Key Belief	Example	Limitation
Schumpeter’s Capitalism	Innovation through free markets	20th-century Western economies	Ignores state’s role
State-led Innovation	Government directs growth	Soviet Union, China	Limits individual freedom

The Endogenous Growth Theory

In the 1990s, Aghion and Howitt refined Schumpeter’s idea during the rise of neoliberalism.
Their endogenous growth theory said that long-term growth comes from innovation, education, and researchwithin the economy.
It focused on private competition and market incentives, not central planning.

Theory	Core Driver	Outcome
Endogenous Growth	Innovation, research, education	Self-sustained growth
Exogenous Growth	External factors (like aid, population)	Short-term growth only

Challenges to the Model Today

The Nobel came at a time when these ideas face new challenges.
Under Donald Trump, the U.S. turned protectionist, politicised science and trade, and reduced global openness.
The model fits neoliberal capitalism but fails to explain state-led innovations in China’s economy.
It also overlooks how geopolitics, inequality, and weak institutions affect innovation.

Issue	Example	Effect
Trade weaponisation	U.S.–China trade war	Disrupts global innovation chains
Inequality	Wealth gaps in Global North	Limits creative participation
Institutional control	State dominance in China	Challenges free-market models

The Nobel’s Deeper Message

The award is also a warning to liberal democracies.
The ideals of open markets, scientific freedom, and institutional independence are weakening.
To keep innovation alive, nations must protect freedoms within a state-enabled, inclusive capitalism.

Principle	Needed Action	Purpose
Openness	Encourage free ideas and trade	Boost creativity
Freedom of research	Protect science from politics	Sustain innovation
Balanced capitalism	Combine state guidance with liberty	Ensure fair growth

Conclusion

The Nobel recognition celebrates the power of innovation, yet warns that its foundations are weakening. As trade wars, protectionism, and state control reshape economies, nations must find balance. True progress demands free inquiry, fair competition, and inclusive growth. Only by blending state guidance with institutional freedom can the world sustain the creative energy that fuels human advancement.

16 Oct 2025 : Evolution, revolution

Context