STOCKHOLM (AP) — Three researchers who studied the process of business innovation were awarded the Nobel Prize in economics Monday for explaining how new products and inventions foster economic growth and human well-being, even while displacing old companies.
Their work is credited with helping economists better understand how ideas and technologies succeed by disrupting established methods. This process is as old as steam locomotives replacing horse-drawn carriages and as modern as e-commerce closing shopping malls.
Joel Mokyr, 79, born in the Netherlands, is enrolled at Northwestern University. Philippe Aghion, 69, works at the Collège de France and the London School of Economics. Canadian-born Peter Howitt, 79, is enrolled at Brown University.
Understanding “creative destruction” more clearly
The winners were recognized for better explaining and quantifying “creative destruction,” an important concept in economics that refers to the process by which beneficial new innovations displace and thereby disrupt older technologies and businesses.
The concept is usually associated with economist Joseph Schumpeter, who outlined it in his 1942 book Capitalism, Socialism, and Democracy. Schumpeter called this concept “the essential fact about capitalism.”
The Nobel Prize committee said Mokyr “demonstrated that for innovation to be a self-generating process of success, we not only need to know that something works, but we also need a scientific explanation of why.”
Aghion and Howitt studied the mechanisms behind sustained growth, including a 1992 paper that provided a complex mathematical model for creative destruction that added new dimensions not included in previous models.
Examples of disruption include e-commerce that disrupts retail, streaming services that replace videocassette and DVD rentals, and Internet advertising that undermines newspaper advertising.
Processes are the key to economic growth and human welfare
“The laureates’ work shows that economic growth cannot be taken for granted, and we must protect the underlying mechanisms of creative destruction to avoid falling into stagnation again,” said John Hassler, chair of the Economics Prize.
Mokyr has long been known as an optimist about recent technological innovations. About a decade ago, many economists took a more pessimistic view, arguing that inventions such as smartphones and the Internet had a smaller economic impact than previous developments such as airplanes and automobiles.
Mr. Mokyr responded that because many new services are cheap or free, their impact is not reflected in economic data, but they still provide significant benefits.
In a 2015 interview with The Associated Press, he cited the music streaming service Spotify as an example of an “absolutely amazing” innovation that economists have had difficulty measuring. Mokil said he once owned more than 1,000 CDs and before that, “I spent a lot of my graduate school budget on vinyl.” But now you can access a huge library of music for a small monthly fee.
Mokyr acknowledged that disruptions caused by new inventions often caused workers to lose jobs or lose income, at least in the short term, but like many economists, he argued that innovations also created unexpected new jobs that provided new opportunities.
“Workers in newly industrialized parts of the economy had legitimate concerns about wages, living standards, and inequality,” he wrote in a 2015 paper. Still, he writes, new factories and machinery created new jobs, at least for their descendants: “The children of exiled handloom weavers had the option of working in machine-intensive cotton mills as well as becoming trained engineers and telegraphers.”
The Nobel Committee pointed out that for most of human history, economic stagnation, not economic growth, had been the norm. However, beginning with the Industrial Revolution in the 18th century, Europe and later other economies began to grow steadily.
Mokyr acknowledged that the relationship between knowledge, technology and growth is “very self-evident,” but noted that economists “have rarely really dealt with it explicitly.”
Innovation and how to foster it are urgent issues in Europe, with a report by former European Central Bank President Mario Draghi arguing that Europe faces a widening productivity gap with the United States in digital technology. Aghion said the challenge for Europe is to keep up with the United States and China in innovation and foster research and venture capital funding to turn ideas into businesses.
“We have great basic research…but we need to harness the full power of innovation,” he said.
early morning surprise
Mokyr was still trying to buy his morning coffee when he was contacted by an Associated Press reporter. He said he was shocked to receive the award.
“People say this all the time, but in this case I’m being honest. I had no idea something like this would happen,” he said.
He said students have asked him about his chances of winning the Nobel Prize. “I told them I had a better chance of being elected Pope than winning the Nobel Prize in economics. I’m Jewish, by the way.”
Mokyr will turn 80 next summer, but said he has no plans to retire. “This is the type of job I’ve dreamed of my whole life,” he said.
Then he hung up to go walk his dog.
What exactly did the three economists win?
Half of the 11 million Swedish krona (approximately $1.2 million) prize money will go to Mr. Mokyr, and the other half will be shared between Mr. Aghion and Mr. Howitt. The winner will also receive an 18-carat gold medal and a certificate.
The Prize in Economics is officially known as the Bank of Sweden Prize in Economic Sciences in memory of Alfred Nobel. The central bank was established in 1968 as a monument to Nobel, the 19th century Swedish businessman and chemist who invented dynamite and won five Nobel Prizes.
Since then, the award has been presented 57 times to a total of 99 recipients. Only three of the winners are women.
Nobel purists stress that although the economics prize is not technically a Nobel Prize, it is always awarded along with other prizes on December 10, the anniversary of Nobel’s death in 1896.
Last week, Nobel Prizes were announced in the fields of medicine, physics, chemistry, literature, and peace.
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Mr. McHugh reported from Frankfurt, Germany, Mr. Lugaber from Washington state, and Mr. Corder from The Hague, Netherlands.
