Nobel economics prize goes to 3 researchers for explaining innovation-driven economic growth

Nobel economics prize goes to 3 researchers for explaining innovation-driven economic growth

In other news, he was one of the authors of a key report submitted to President Emanuel M last year outlining how France could take the lead in the field of artificial intelligence. Shidep on Monday shared honors with Joel Mok and Peter Howitt uh for the Nobel economics prize. uh he his explanation of how creative destruction can drive economic growth uh is one of those cornerstones that people are talking about in this age of artificial intelligence. Siobhan Silk has more. Why do humans live so much better now than our ancestors did? That’s the main question tackled by the trio of academics who’ve been awarded the 2025 Nobel Prize in Economics for their work on how innovation drives growth. American Israeli Joel Moier took half the prize for his long-term studies based on historical sources while French economist Phipe Aguion shared the other half with Canadian Peter Howitt for their mathematical model quantifying creative destruction. The idea that innovations destroy older technologies and businesses but in the long run generate stable growth and improve human welfare. It’s particularly timely amid growing anxiety over the AI revolution and its potential to make many jobs obsolete. With the understanding of the mechanisms of creative destruction provided by the laureates and the follow-up research, we have a better chance to make sure growth can continue and be guided in the direction that benefits humankind. Reacting to their win, Howard and Aion warned against the protectionist policies of the current US administration saying they could stifle innovation. Anything that gets in the way of openness is a is is an obstacle to grow. So I see there kind of dark clouds currently, you know, accumulating. The three laurates will each take a share of the 1 million euro prize. Philipe Aon says he intends to invest his part in his research lab at the college de France and INSEAD business school helping to fund young researchers work on AI and green growth. He says he still doesn’t like seeing himself on camera. Vinnipon Nobel economics laurate is with us in our studios. How thanks for joining us here on France. Very nice being you. I I I heard on the radio the other morning uh you giving an interview where you said that the Nobel committee actually asked you for the phone numbers of the other winners. Absolutely. What? Tell us what happened. No, I mean they were not sure because they tried it was not working. So they wanted to double check probably. I think they had some numbers but they wanted to double check. So they asked me to look for I had the the phone number of Peter Rowit although not at hand which is and I didn’t and my assistant had the number of Jok but I could not tell my assistant what it was for that I needed that number. So I had to call my assistant ask her for the the phone number of of Jokia without telling her why why the reason why I needed that number and she didn’t guess why. No. Okay. So you don’t like seeing yourself yet on TV. But here you got to brace yourself, right? Because imagine the next time you’re in the faculty lounge at the college de France, are people going to look at you and say, “Oh, it’s Philipe.” Or are they going to say, “Oh, it’s the Nobel economics laurate.” Remember that the famous philosopher Jean Por refused the Nobel literature prize because he didn’t want to be known as the Nobel winner with for the rest of his life all the time. I think you know yeah I think yeah I I think you can I’m very happy to be to to have received number because it rewards it rewards a whole line of research. I think it’s a it acknowledges you know you know a whole new way of thinking about the growth process. There was a there was a what we used to call the neocclassical growth paradigma. It was the solo model the model of Robert Solo. It was a wonderful man, Robert Solo. But it’s a model whereby growth is you know uh driven by capital accumulation primarily. So that was the paradigm and uh capital accumulates you you produce more GDP more output you can save more and the savings turn into investment into new increasing capital stock and you and you keep growing this way. That was the that was the solo model. Okay. nothing to do with innovation was pure capital accumulation, output, savings, investment, capital accumulation and uh in our paradigm uh you know the really the the the key role is played by enterprises you see I mean the the the the core of our of our paradigm is are the firms the firms that innovate to find new products or to better products or more efficient way to produce and that’s what you know drives Productivity growth is the innovation activities of firms. So firms that uh that innovate is it firms that take big risks and they take of course big risk because they they they need incentives. They try and fail of course and they may fail. So that’s why you need to create a business a favorable business climate for them to be you know to to be willing to invest in innovation which is very risky rather than you know invest in real estate or pension funds or you know when someone puts her own funds or own money into a risky undertaking is not the same as if you put you know your private savings into you know uh bank account or whatever. So it’s a so it’s a world our world is a world where all the time you have new talents new talents become new startups and the new startups come to challenge existing firms you see what I mean and so it’s a model where you want to encourage firms to innovate because they will get innovation runs but later on they may be tempted to use their rents to prevent subsequent innovations because they don’t want themselves to be subject to creative destruction. So you see that’s there is this contradiction at the heart of the growth process. On the one hand you need innovation runs to induce firms to innovate but on the other hand they are tempted to use their rants to prevent subsequent entry and subsequent innovation because themselves don’t want to be subject to creative destruction. So how do you deal with this contradiction? You see, and you must have had many years of uh I guess I can only call it heartache because 1992 is when you co-author uh this paper. But in fact, we started to work on it 87. Oh, 87 even earlier before we worked on it. We did it in ‘ 87. Nobody in those days had a cell phone or or it was No. No. And and so 1987 uh was the year of a a big uh uh stock market correction. there was uh going to be financial crisis that followed and yet you co-author with Peter uh Howitt this paper in 1992 and for years decades afterwards the jobs that people go to are not the entrepreneurial innovation jobs they’re things like working in the city of London for a big trading firm or for a bank there it’s true that whenever you have waves you know when you have new technological waves uh people tend to go too much into the financial sector so we You need finance, of course, you need venture capital, institutional investors to finance innovation. But sometimes what happens is that there is too much, you know, uh uh you know, attraction for finance at the expense of the real economy. And so, uh you now have this this model. When you talk about innovation, do you understand how some of our viewers might be a little bit intimidated, dare we say scared this notion of uh because you know people feel intimidated when they see new gizmos and and because they’re afraid of losing their jobs for example and that’s why it’s so important and that’s why I advocate a lot kind of the niche system of flex security when you lose your job you get you know 90% of your salary for two years you are retrained and the state helps to find a new job. I think it’s very important, you know, to make creative destruction socially acceptable and to make sure that nobody is left out of the process. It’s very important to have this kind of flex security system that they have in Denmark and it’s also very important to have a good education system because at school you learn to learn at school you learn to be adaptable if you don’t go to good schools you don’t know how to adapt. So I think the combination of good schools of a very good education so for everybody you know like in Finland like in Korea if you have a good education system combined with a good flex security system then there will be less reluctance to the creative destruction you see which is the big the driver of growth. Growth is really economies that are dynamic are those economies where you all the time you have new talents new firms that come in grow and challenge existing firms and existing firms if they want to survive they need to innovate again or if they don’t well they have to uh they are driven out of the market you see what I mean and that’s the that’s what drives growth but then you first you need new talents where do the new talents come from from schooling. So if you don’t have good schools, you have very few new talents. Excuse me, Philipe. You’re French, right? And in France, the schooling is very top down. You uh probably endured like I did sitting on the benches of big amphitheaters where the the the professors who were then called Mandarins sometimes. Yeah, that’s right. Uh that’s that’s not No, no, there are two things we talk here. You talk about universities. I talk about, you know, primary secondary schools, right? uh we need primary secondary school that deliver good test scores you see good pizza tests so I I’m in very much at school in favor of going back to calculus reading dicta dictations is very important that you know high school students really master the basic knowledge you see I think that’s very important and then on top of that you can study history geography but calculus reading basic literature they need manual they need, you know, books, books, don’t use uh use books, read paper books. And and I think that’s very important. And and we are we we used to have a school like that in France and we lost it. Uh we’ve lost it. We lost Well, yeah. The the school we have very good teachers. We have a really devoted fully dedicated uh uh teachers in high schools in France in in sec in primary secondary school. But the the system is organized in such a way that the the public school system in France no longer delivers the promise of opportunity. And why is that? Why is that? Is it because well uh the decision is that the private sector is good and we shouldn’t be putting our money. No, no, no. I mean it’s good to have the private sector. I think you know we had migrations. We had new ways of migration. We we would need we needed classes with you know 15 students at most. we had excessively numerous class you know uh um so lack of funding and so the then then if there was students left behind the teacher doesn’t have time to to care about them so we need schools where there is nobody left behind when anybody is left behind she or he can have tutorship can be helped can the homework done at school all this we didn’t have you see we need to invest in school so that we can really make sure that nobody is left out. The problem with this French schooling system, there are a lot of waste, a lot of children who get out of it barely knowing how to read and write. And that’s not right. That’s not that’s not good. They should it should be maybe cold comfort, but you compare the United States to Europe. And you say the uh US does poorly on inequality on the social safety net that you’re describing there. And Europe does poorly on innovation. Exactly. You know, you that’s right. And so is is this is this trend going to continue? Well, I hope not. There is a draggy report. You know, Mario Draggy recommends that we we wake up and we try to revert trend. I mean the the European per capita GDP is declining compared to the US per capita GDP. We need to get our acts together and become a frontier innovator uh space. So we need a single market a truly single market you know for goods and services which we don’t have you know too many goldplating uh each country each member state in Europe as its own regulation on top of the European regulation we need a good financial ecosystem of innovation venture capital institutional investors we don’t have like in the US and we don’t have the equivalent of the DARPA defense advanced project agency this very prompetition way of doing industrial policy you have that in the US you don’t have that in Europe so I think on all those dimensions we can improve a lot in Europe to to become more innovative and uh and on top of that I would add the education and the flex security to make sure that you know the creative destruction that we generate is socially acceptable but that’s where Europe needs to wake up. All right creative destruction that term sounds a little bit like when Mark Zuckerberg talked about move fast and and break things to people. Yeah. that break things in a way which does not endanger social, you know, social safety. We need social safety nets. You see, we want to make sure that people feel comfortable with it. Right now, like in Denmark, in Denmark, there is no negative effect on health of you or losing your job. There’s been studies on that by my friend Alexander Roule. No negative effect on health in Denmark of losing your job. In in US, you have the death of despair phenomenon which and case and Angus Don have pinpointed so well. So that’s the big difference is that you we need on top of the drug recommendation we need to have good education system and good flex security system to really to make sure we don’t run into populism. You see you see why where why do you do have Trump or or Mrs. Leen on the doorsteps of Elise and Matin because there were many people in France or in our countries left out of the process you see abandoned that felt abandoned. Nobody should be left abandoned, should be left out of this, you know, uh uh quest for more innovation and more innovation based growth. More innovation. One final question. Feedon, we’re talking about uh artificial intelligence now and you’ve argued that it can be a factor for that uh for that innovation. Absolutely. It’s a driver. this interview if it’s a transcript of it AI will will will eat it’ll digest it and for some that’s not that’s not innovation that’s theft and they they’re taking people’s uh I know that’s right but there is a good and bad use but the good use of AI taking people’s content their copyright that’s why you need regulations but you need more but too many regulations can get in the way of competition so you need the right regulation but avoid overregulating because when you have too many regulations incumbent firms know how to cope with them. New entrance don’t. So you want to make sure you have the right regulations but not too many regulations because then you you it stifles competition and we know that the big problem with it is that it boosted growth initially but then you had a growth decline because you had the emergence of superstar firms that were that that discouraged new entry you see and because competition policy was not adequate. We let we let those firms grow unboundedly through merger and acquisition. Uh and now we have to be very careful. Competition policy has to be there to make sure that the ID that the AI revolution will not end up having two or three dominant firms that will deter any innovation by anybody else. You see it’s always this thing I need to have always newcomers. I don’t want some kings a few superstar to just discourage all potential new entrance. And that’s that’s where competition policy is so important. Competition, education, flex security, those are pillars of a successful growth through creative destruction. And we look forward to hearing your speech in Stockholm on December the 10th. Congratulations again on your Nobel economics prize. And thank you so much.

Three researchers who probed the process of business innovation won the Nobel memorial prize in economics Monday for explaining how new products and inventions promote economic growth and human welfare, even as they leave older companies in the dust.

Their work was credited with helping economists better understand how ideas and technology succeed by disrupting established ways — a process as old as steam locomotives replacing horse-drawn wagons and as contemporary as e-commerce shuttering shopping malls.

The award was shared by Dutch-born Joel Mokyr, 79, who is at Northwestern University; Philippe Aghion, 69, who works at the Collège de France and the London School of Economics; and Canadian-born Peter Howitt, 79, who is at Brown University.
#France #PhilippeAghion #pensionreform

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