Celebrate creative destruction but spare a thought for its impact beyond GDP growth

For four decades, these economists have chronicled the machinery of modern progress. Mokyr, the historian, traced how Europe’s “industrial enlightenment” transformed curiosity into capital.

Aghion and Howitt built the mathematics of that insight into a model of ‘creative destruction,’ where each wave of discovery replaces the last.

Together, they gave economics its most optimistic parable: that ideas, unlike oil or land, are infinite. But optimism, like economic growth, is a resource that depletes.

This Nobel, therefore, is a call to address the conflicts and inconsistencies that currently characterize innovation in the 21st century, raising the question of whether the same forces that propelled earlier industrial revolutions can continue to propel growth in a world beset by institutional strain, growing inequality and climate constraints.

The sputtering machinery of discovery: The optimism in the three laureates’ work is what makes it so appealing. Innovation can be managed and accelerated if it can be modelled. However, this promise conceals a more subdued contradiction and progress itself is becoming more difficult to maintain.

Once self-sufficient, the machinery of discovery requires increasing amounts of energy to operate. A 2020 NBER study by Nicholas Bloom, Charles Jones, John Van Reenen and Michael Webb found research productivity has fallen 5-7% each year for decades.

In semiconductors, doubling chip density now takes 18 times more researchers than it did in the 1970s. We are, as they put it, running faster just to stay in place.

Governments are responding with efforts to create a new industrial age. In the US, the CHIPS and Science Act and the Inflation Reduction Act collectively invest more than $420 billion in clean energy and semiconductors, not only for expansion, but also to preserve technological superiority.

Since 2023, Washington has tightened its export restrictions on sophisticated AI chips to China, intensifying a geopolitical competition for innovation. In response, China launched Big Fund III, a $47 billion government-backed initiative to increase domestic chip manufacturing.

This trend is reflected in the EU’s Green Deal Industrial Plan, which loosens subsidy regulations to support clean-tech sectors.

The use of an industrial strategy is changing the economic landscape in the Global South. India’s production-linked incentive (PLI) scheme has reportedly created over a million jobs and attracted over ₹1.76 trillion in investment.

After the covid pandemic began to reshape global supply chains, a silent redistribution of manufacturing nodes across Asia, with Vietnam and Indonesia key hubs, has been attracting significant foreign direct investment (FDI).

The human aspect of progress: Aghion and Howitt’s model, while elegant, has always been under a moral shadow. Creative destruction captures the pulse of capitalism, but not the human suffering caused.

Autor, Dorn and Hanson estimate that between 1999 and 2011, import competition from China eliminated roughly 2.4 million manufacturing jobs in the US, many of which never came back. This ‘China shock’ left the country with long-lasting scars.

In China, job openings have decreased while innovation increases. When youth unemployment reached a record 21.3% in the middle of 2023, officials halted the release of this data.

In Europe, farmers from Warsaw to Paris have taken to highways and capitals, protesting environmental rules that threaten to make their way of life economically unviable.

What’s clear is that across continents, the costs of progress are unevenly shared. Innovation may be global, but its dislocations remain stubbornly local.

The planet’s red line: The planet itself has limitations that the laureates never fully modelled. The biosphere is currently being gnawed at by the same creative destruction that once created steel mills and railroads.

Including both direct and indirect exhaust, industrial activity continues to account for about 25% of global greenhouse gas emissions and nearly half of the increase in emissions since 2000, according to the IPCC’s Sixth Assessment Report.

Scientists caution that if current trends continue, the ‘carbon budget’ available for the world to limit global warming to 1.5° Celsius above pre-industrial levels may be depleted by 2028 or soon after.

In the 21st century, we must learn to survive through dismantling, even though previous centuries created prosperity through destruction. Coal, plastics and carbon-heavy transport must be ‘destroyed’ not to clear the way for new markets, but to make space for life itself.

Let’s govern progress with humility: This year’s Nobel is a warning as well as a tribute. Although it arrives with contradictions, it honours the architecture of long-haul growth.

But we must balance the three imperatives of dynamism, inclusion and restraint to govern innovation effectively.

As demonstrated by antitrust cases against Big Tech firms in the US and the EU, competition policy must preserve the rewards of innovation long enough to incentivize it, while preventing innovators from solidifying into monopolies.

The diffusion of knowledge and its inventive power must be combined in industrial policy to guarantee that all areas and social classes can benefit from advances.

Above all, the climate crisis should make us re-assess the moral logic of innovation. Right now, the planet requires the destruction of certain industries, but markets do not. In other words, we have a problem of misalignment.

To deal with it, we must learn to temper reason with humility, just as the Enlightenment taught us to use reason against superstition.

We have a language for long-term progress, thanks to Mokyr, Aghion and Howitt. It is up to us to make sure it stays humane and is guided by justice and foresight, not just economic efficiency.

Progress will come not from the glow of new machines, but our collective ability to use them with wisdom and restraint. This means we must have the grace to stop before the light burns out.

The author is professor and dean, O.P. Jindal Global University.