2025 Economics Nobel winner reveals secret to growth

A few days before the announcement of the prize, an essay on China’s economic model by Dan Wang and Arthur Kroeber brought Mokyr’s ideas to mind. The two authors wrote about how one of the most subtle sources of strength in that country is the process knowledge embedded in its vast industrial labour force. This was practical knowledge that has been learned from experience, on how to make things and keep improving them.

“This process knowledge enables iterative innovation, or constantly tweaking products so that they can be made more efficiently, at better quality, and with lower costs,” wrote Wang and Kroeber. It also allows Chinese companies to build at scale.

However, the most interesting observation was that process knowledge allows China to create entirely new industries. “A factory worker in Shenzen might assemble iPhones one year and Huawei Mate phones the next year and then move on to build drones for DJI or electric vehicles for CATL”.

Where does Mokyr come into all this? One of his most influential ideas is the distinction between what he calls propositional knowledge and prescriptive knowledge. The former is general theoretical knowledge. The latter is knowledge of technique. Propositional knowledge serves as the epistemic base for prescriptive knowledge. Both are important, and Mokyr has demonstrated in his work that economic accelerations, such as the Industrial Revolution, occur when both types of knowledge build upon each other through feedback loops.

In the ancient world, people often knew how something worked but had little idea of why it worked. That restricted the scope for innovation. As Mokyr put it, it was “a world of engineering without mechanics, iron-making without metallurgy, farming without soil science, mining without geology, water-power without hydraulics, dye-making without organic chemistry, and medical practice without microbiology and immunology”. The result was intermittent rather than sustained technological improvements, and thus short bursts of economic growth rather than a steady rise in productivity.

The underlying lesson is that the type of knowledge available in a society matters. In a lecture he delivered in 2019, Mokyr argued that human capital is not a matter of numbers, where more is better. He explained how British aristocrats invested heavily in the human capital of their children, “but usually taught them the skills of a life of sophisticated leisure” — Latin, fencing, music, hunting. It was much the same with medieval Jewish scholars in Europe.

They were “learned, sophisticated, deeply intellectual” and “the very embodiment of human capital”, yet their contributions to technology and other forms of useful knowledge were at best marginal. It is worth asking whether this was also true of scholarship in medieval India, though that requires the attention of a trained historian.

In contrast, it was the prescriptive knowledge with engineers, instrument makers and millwrights that helped put into practice the new propositional knowledge that came from the scientists of that era in Europe, the catalytic marriage of the how with the why. The result was the Industrial Revolution. The importance of new ideas — and the ability to use them in daily economic life — is often underestimated in standard narratives about economic growth.

Mokyr highlighted another prerequisite for sustained economic growth. Mokyr writes that technological innovation requires not just invention but also social legitimacy, a society that is ready to accept the disruptions that come with economic change. The Enlightenment created a cultural environment in Europe where new ideas about nature, progress, and improvement gained social acceptance.

This “market for ideas” allowed useful knowledge to spread and be implemented, rather than being suppressed by traditional authorities. The acceptance of technological change depends on whether existing power structures—such as guilds, churches, and aristocracies—view innovation as threatening or beneficial. Economic change driven by innovation thus has an important social context.

Mokyr has built his astonishing body of work on a detailed reading of historical sources as well as rigorous statistical analysis. And while his main focus is to look back into history to understand why some parts of the world eventually succeed in maintaining economic growth on a sustained basis, many of his core ideas are useful filters to understand our current challenges as well. Chief among them is his teaching about the types of knowledge, the need for institutional norms that accept change, and the importance of a culture of growth that is embedded in society.

Mokyr, as well as his fellow laureates, have often been described in terms of the Schumpeterian tradition of seeking the key to economic growth in innovation. That is true.

However, Mokyr also shares some broad parallels with Adam Smith, particularly in terms of the focus on culture, institutions, specialisation, competition, trust, and the importance of new ideas. Both view economic transformation as neither an automatic process nor one driven from the top. It is more of an emergent order that depends on the right combination of incentives, institutions, knowledge and social values.