Since this week’s Nobel Memorial Prize in the Economic Sciences was awarded “for having explained innovation-driven economic growth” it seemed the obvious choice as the subject for this week’s blog. The prize was split equally for contributions to endogenous growth theory (to Aghion and Howitt and a topic of TP2) and the economic history of technological progress (to Mokyr and a topic of TP1).
Aghion and Howitt’s seminal study focused on how new ideas emerge and how creative destruction turns those ideas into economic change as old firms die and new firms are born. They developed a mathematical model to explain how this seemingly disruptive process of firm creation, destruction, and competition can generate sustained economic growth. In particular, they highlight the critical role R&D plays in that creative destruction process.
Mokyr, who is a historian focused primarily on the 18th and 19th centuries, tries to understand how and why the inventions of the Industrial Revolution led to the sustained economic growth in the West, whereas other societies, such as in China and the Islamic world, did not experience a similarly enduring industrial revolution.
In her FT review of Mokyr’s 2016 book A Culture of Growth, our Cambridge colleague Diane Coyle writes: “Mokyr argues that in western Europe at the time of the Enlightenment, a set of conditions happened to coincide to create a “Republic of Letters”, a ferment of public debate and innovation we might now label as “open science”. Knowledge, from deep scientific insight to more practical technological know-how and tinkering, became a common resource. Leading scientists and thinkers corresponded with counterparts around the continent, and were helped by the political fragmentation of Europe, which led to rulers competing to attract the most prominent intellectual stars to their own territories.”
Taking a step further, writing in the FT last year, John Burn-Murdoch suggests that: “Extending [Mokyr’s] analysis to the present, a striking picture emerges: “over the past 60 years the west has begun to shift away from the culture of progress, and towards one of caution, worry and risk-aversion, with economic growth slowing over the same period. The frequency of terms related to progress, improvement and the future has dropped by about 25 per cent since the 1960s, while those related to threats, risks and worries have become several times more common.”
Despite the theoretical and historical nature of their work, inevitably, commentators (and the laureates themselves!) have weighed in on how these studies intersect with contentious current policy debates, including those over tariffs, AI, industrial policy, and green growth.
What role do you think culture has played in the sustainability of innovation and economic growth, and how might that change going forward?
Are you more inclined towards the thesis and approach of Mokyr or that of Howitt and Aghion?
How do you view the implications of these studies for some of the current policy topics described above?
Obviously, please do pick only one of these topics/questions in your response!