What’s the Big Idea Behind This Year’s Nobel Prize?
On October 13, 2025, three economists won the Nobel Prize for answering a huge question: Why has the world gotten so much richer in the last 200 years?
The winners were Joel Mokyr, Philippe Aghion, and Peter Howitt. They shared the prize for explaining how our economy grows through innovation.
For most of history, life didn’t change much. But as Professor Mokyr says, “The last 150 years have been absolutely miraculous”. We’ve seen incredible progress that lifted billions of people out of poverty.
So, what’s the secret? Many people think economic growth is a slow and steady climb. These economists showed it’s actually a messy, constant cycle of new ideas replacing old ones. They call this “creative destruction,” and it’s powered by a culture that loves new ideas.
You can see this in real life with the smartphone in your pocket. It’s a perfect example of how innovation creates new things while making old ones disappear.
Understanding the Winning Theories: The Engine and the Fuel
To really get it, you need to understand two big ideas. Think of it like a car. One theory explains the engine of growth, and the other explains the fuel that makes it run.
The Engine: Aghion & Howitt’s "Creative Destruction"
Philippe Aghion and Peter Howitt built the engine. They showed that economic growth comes from inside the economy, not from some magical outside force.
It’s all driven by a simple idea first mentioned by economist Joseph Schumpeter: “creative destruction”.
Here’s how it works in a nutshell:
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Companies want to win. They spend money on research (R&D) to create something new and better. The prize? They get to be the market leader for a while.
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Winning means big profits. This temporary monopoly lets them earn huge profits, which is a powerful reason to innovate in the first place.
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New things are created, old things are destroyed. The new technology is creative because it’s a step forward for everyone. But it’s also destructive because it makes the old technology obsolete. The companies making the old stuff go out of business, and jobs are lost.
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The race starts all over again. The new winner enjoys its success, but now every other company is racing to create the next big thing to take its place.
So, growth isn’t a smooth ride. It’s a constant cycle of renewal, where the economy only moves forward by destroying parts of itself.
The Fuel: Mokyr’s "Culture of Growth"
So if that’s the engine, what’s the fuel? Economic historian Joel Mokyr figured that out. He explained why this engine finally kicked into high gear during the Industrial Revolution.
He says that growth is “cultural before it becomes economic”. For innovation to really take off, a society needs two things.
First, it needs "useful knowledge." It’s not enough to know that something works; you need to know why it works. Before the 18th century, we didn’t have a deep scientific understanding of things. An invention was often a one-off trick. But with science, innovators could build on each other’s work, creating a chain reaction of progress.
Second, a society has to be open to change. Innovation is messy and threatens the old way of doing things. If powerful companies or governments are afraid of change, they’ll block new ideas, and the engine of growth will stall. This is why it matters.
Together, these ideas give us a full picture. Mokyr explains the cultural fuel, while Aghion and Howitt describe the economic engine that uses it.
A World in Your Pocket: The Smartphone Example
These theories might sound abstract, but you can see them clearly with the smartphone. It’s the perfect example of creative destruction at work. It created brand-new industries while wiping out old ones.
The "Destruction": Industries the Smartphone Replaced
The smartphone didn’t just compete with one product—it replaced dozens. This wasn’t a slow decline; it was a total collapse for some once-huge industries.
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MP3 Players: Remember the iPod? Before 2007, it was a massive market. But once smartphones could play and stream music, nobody needed a separate MP3 player. In the U.S., sales fell from $2.93 billion in 2013 to just $77 million in 2018—a 97.5% drop.
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Digital Cameras: For years, everyone had a small digital camera. But as phone cameras got better and better, the market for simple point-and-shoot cameras disappeared. Global camera shipments dropped from 121 million in 2010 to just 8 million in 2021. That’s a 93% decline.
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GPS Devices: Companies like Garmin and TomTom used to rule the road. In 2008, Garmin shipped 16.9 million GPS devices. Then the iPhone came with Google Maps, and everything changed. Garmin’s stock fell by almost 80% in a year.
Here’s a quick look at the numbers:
| Displaced Technology | Peak Market Data | Post-Smartphone Market Data | Implied Market Contraction |
| MP3 Players |
$2.93 billion (U.S. wholesale sales, 2013) |
$91.3 million (Global market value, 2024) |
>95% decline in the U.S. market segment |
| Personal Navigation Devices (PNDs) |
Garmin held 36% of the global market (2008) |
The standalone PND is a niche within the $138.9 billion global GPS market (2025) |
Shift from dominant product to niche application |
| Digital Cameras | ~121 million units shipped globally (2010) |
~8 million units shipped globally (2021) |
~93% decline in unit shipments |
The "Creation": The New App Economy
But the smartphone also created something massive: the app economy. This industry didn’t even exist before 2008.
Today, the global app economy is worth an incredible $6.3 trillion. It has also created millions of jobs. In the U.S. alone, over 2.56 million jobs are tied to the app ecosystem.
The smartphone also enabled huge new industries like the "sharing economy." Think about it—companies like Uber and Airbnb couldn’t exist without our phones.
This is why the smartphone is such a powerful example. It didn’t just replace one thing with another. It was a platform that wiped out several industries at once, while creating a new economy that was bigger than all of them combined.
The Global Innovation Race
Mokyr’s idea of a “culture of growth” isn’t just history. You can see it today by looking at how much countries spend on research and development (R&D). It’s like a global race to create the future.
Who’s Investing in the Future?
A country’s R&D spending as a percentage of its GDP shows how serious it is about innovation. The data from 2023 shows some surprising leaders.
| Rank | Country/Region | R&D Expenditure (% of GDP, 2023) |
| 1 | South Korea |
4.96% |
| 2 | Sweden |
3.64% |
| 3 | United States |
3.45% |
| 4 | Japan |
3.44% |
| 5 | Belgium |
3.27% |
| 6 | Austria |
3.26% |
| 7 | Germany |
3.13% |
| ... | Selected Others | |
| China |
2.58% |
|
| EU Average |
2.26% |
As you can see, South Korea is way ahead, spending nearly 5% of its GDP on R&D. That’s a lot more than the U.S. (3.45%) or the EU average (2.26%). It shows that a country’s size doesn’t matter as much as its strategy.
Where Are New Ideas Coming From?
If R&D spending is the investment, patents are the result. And the patent data shows that the world of innovation is changing fast.
In 2023, a record 3.55 million patent applications were filed worldwide. That’s more than triple the number from 1995.
But the big story is where these patents are coming from. In 2021, Asia accounted for 67.6% of all patent applications, up from 54.6% a decade earlier. During that same time, North America’s share fell from 25% to 18.5%.
China is leading this shift, filing over 1.6 million patents a year—more than double the U.S.. This shows that the "culture of growth" can be built anywhere, and the center of global innovation is moving east.
The Human Side: Jobs Gained and Jobs Lost
Creative destruction is great for the economy as a whole, but it can be really tough for individuals. As Professor Howitt puts it, progress creates “great benefits for most of society,” but it also causes “a lot of harm for certain people” whose skills become obsolete.
This isn’t a side effect—it’s part of the process.
You can see this clearly with automation and AI. On one hand, the numbers on job loss are real. Since 2000, automation has eliminated 1.7 million manufacturing jobs in the U.S.. Some experts predict AI could impact 300 million jobs worldwide.
But on the other hand, innovation also creates new jobs. The World Economic Forum predicts that while 92 million jobs might be displaced by 2030, 170 million new ones will be created. Think about jobs like AI specialists or data scientists—they barely existed a decade ago.
Here’s the problem: the pain of job loss is immediate and hits specific communities hard. The creation of new jobs is slow and spread out.
This is why it matters. People who lose their jobs might want to block the new technologies that replaced them. If that happens, the whole engine of growth can stop.
That’s why many believe we need a safety net. Professor Aghion points to Denmark’s “flexicurity” model. In Denmark, it’s easy for companies to adapt, but if you lose your job, the government gives you up to 90% of your salary for two years and helps you retrain for a new one. Policies like this help society handle the turbulence of creative destruction.
Today’s Disruptors: EVs and mRNA Vaccines
This theory isn’t just about the past. You can use it to understand what’s happening right now with electric vehicles (EVs) and mRNA vaccines.
The Electric Vehicle Revolution
The car industry is going through a classic, slow-motion disruption. EVs are challenging the gas-powered engine, and it’s a huge deal.
EV sales are growing fast. In 2024, more than one in five cars sold worldwide was electric. By 2025, that’s expected to be 24% of the market. But this change is happening at different speeds. In China, EVs could make up 60% of sales in 2025, while in the U.S., it’s closer to 10%. This is putting huge pressure on old-school car companies to adapt or get left behind.
The mRNA Vaccine Breakthrough
Unlike the slow shift to EVs, mRNA vaccines were a super-fast, radical disruption. They weren’t just a small improvement; they were a whole new way of making vaccines, cutting development time from years to months.
The economic impact was massive. One study estimated that a global vaccination effort could generate $9 trillion in economic benefits by letting the world get back to normal.
In the U.S., another study found that vaccinating everyone over 65 was cost-saving—it saved more in medical costs than the program cost to run. For every 100,000 seniors vaccinated, 43 deaths were prevented.
These two examples show that innovation comes in different forms. EVs are a slow, steady change in a big industry. mRNA vaccines were a lightning-fast breakthrough driven by science. The Nobel winners’ theory helps us understand both.
Conclusion: Growth Isn't a Guarantee
The work of Mokyr, Aghion, and Howitt gives us a powerful way to understand where modern prosperity comes from. It’s not something we can take for granted. It’s a messy, ongoing process of renewal.
But there’s a puzzle. Even with all this innovation, productivity growth in many rich countries has been slow for years. In fact, it fell from over 2% a year before 2002 to less than 1% in the decade after 2012.
Why is this happening? It could be that we’re not measuring the benefits of the digital world correctly. Or maybe other things, like aging populations, are holding us back. It also just takes time for big new technologies like AI to fully change how we work.
In the end, this year’s Nobel Prize is a lesson for all of us. To keep moving forward, we have to do two things. We need to keep investing in science and new ideas. And we also need to find ways to support people through the disruptions that change always brings.
Because growth isn’t something we inherit—it’s something we have to keep creating.
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