The Nobel Prize in Economics goes to 3 researchers for their explanation of economic growth based on innovation

STOCKHOLM (AP) — Three researchers who investigated the process of business innovation won the Nobel Memorial Prize in Economics on Monday for explaining how new products and inventions boost economic growth and human well-being, even when they leave old companies in the dust.

Their work has helped economists better understand how ideas and technology can succeed by disrupting established methods — a process as old as steam locomotives replacing horse-drawn carriages and as contemporary as the closure of e-commerce malls.

The award was shared by Dutch-born Joel Mokyr, 79, who teaches at Northwestern University; Philippe Aghion, 69, who works at the College de France and the London School of Economics; and Canadian-born Peter Hoyt, 79, who teaches at Brown University.

A clearer understanding of “creative destruction”

The winners were credited with best explaining and measuring “creative destruction,” a key concept in economics that refers to the process by which new innovations replace old technologies and companies.

This concept is usually associated with economist Joseph Schumpeter, who explained it in his 1942 book, Capitalism, Socialism, and Democracy. Schumpeter described this concept as “the fundamental truth about capitalism.”

The Nobel committee said Mokyr “showed that if innovations are to succeed each other in a self-generating process, we not only need to know that something works, but we also need to have scientific explanations for why it does.”

Aghion and Hoyt studied the mechanisms behind sustainable growth, including a 1992 article that presented a complex mathematical model of creative destruction that added new aspects not included in previous models.

Examples of creative disruption include e-commerce disrupting retail, streaming services replacing videotape and DVD rentals, and online advertising undermining newspaper advertising. A classic example of this is the carriage whip makers being put out of business by automobiles.

Process is the key to economic growth and human well-being

John Hassler, Chair of the Prize Committee in Economic Sciences, said: “The laureates’ work shows that economic growth cannot be taken for granted. We must support the mechanisms that underlie creative destruction, so that we do not return to stagnation.”

Hoyt and Aghion’s model showed that markets with too few dominant firms can hinder innovation and growth—a concern that has been raised about industries such as telecommunications, social media platforms, and airlines.

They found it important to support people affected by the changes while facilitating the transition to more productive workplaces – to protect workers more than specific jobs. They also stressed the importance of social mobility, as a person’s profession or trade is not determined by the identity of his or her parents.

Mokyr has long been known as an optimist about technological innovation. About a decade ago, many economists took a more pessimistic view, arguing that inventions such as smartphones or even the Internet had less economic impact than previous developments such as the airplane or automobile.

Mokyr responded that because many of the new services were either cheap or free, their impact was not evident in the economic data, but they still provided enormous benefits.

In an interview with The Associated Press in 2015, he cited the music streaming service Spotify as an example of “absolutely amazing” innovation that economists had difficulty measuring. Mokyr noted that he previously owned more than 1,000 CDs and numerous vinyl records, but now he has access to a huge music library for a small monthly fee.

He acknowledged that new inventions often cause at least short-term job losses or reduced incomes for workers. Like many economists, he said innovations also created unexpected jobs and provided new opportunities.

The Nobel Committee noted that economic stagnation, not growth, has been the norm for most of human history. Starting with the Industrial Revolution in the 18th century, the European and other subsequent economies began to grow.

Innovation – and how to foster it – is a pressing issue in Europe, with a report by former European Central Bank President Mario Draghi stating that Europe faces an increasingly widening productivity gap with the United States in digital technology. Aghion said the challenge for Europe is to keep pace with the United States and China in innovation by boosting research and venture capital funding to turn ideas into businesses.

“We have to wake up,” he told the AP. “Because you know who will win this competition? Those who innovate.”

Effects of artificial intelligence

Aghion said he believes AI has “tremendous growth potential, but it all depends on the institutions and policies we put in place.” He said policies need to promote competition because the big players already in the sector know how to manage regulations, and this may discourage new entrants.

The idea that artificial intelligence is a “monstrosity” that will drive humans to extinction comes from “people who read a lot of dystopian fiction. Nothing like that would ever happen,” Mokyr said.

Instead, he said at a news conference at Northwestern University that he views her “primarily as a great research assistant” who can gather and process information quickly.

He also opposed the idea of ​​machines replacing humans. “They move us into more interesting and more challenging work,” he said.

Early morning surprises

Mokyr said he woke up around 5 a.m. and opened his laptop to find several congratulatory messages, which confused him. He checked his phone and saw a message from a Swedish number. He called him and was told that he had won the prize.

“I think I sat there for 15 minutes, like I was in a daze,” he told the AP in an interview at his home in Skokie, Illinois. He will turn 80 next summer, but he said he has no plans to retire.

“This is the kind of work I’ve dreamed of doing my whole life,” he said.

Hewitt said he found out he had won the Nobel Prize when a Swedish reporter called him while he was waking up. At first, he thought it was a hoax.

“We didn’t have champagne in the fridge. We didn’t expect this,” he joked to reporters.

Aghion said the Nobel Prize committee did not have contact information for the co-laureates, so they asked him for it.

“It is truly a dream award, with the people I dreamed of getting it with,” Aghion said.

What exactly did the three economists win?

Half of the 11 million Swedish krona (about $1.2 million) prize goes to Mokyr, while the other half is shared by Aghion and Hewitt. Winners also receive an 18-karat gold medal and a diploma.

The Economics Prize is officially known as the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel. It was established by the central bank in 1968 as a memorial to Nobel, the 19th-century Swedish businessman and chemist who invented dynamite and established the five Nobel Prizes.

Since then, it has been awarded 57 times to a total of 99 winners. Only three of the winners were women.

Nobel purists maintain that the Economics Prize is not technically a Nobel Prize, but is always awarded with the other prizes on December 10, the anniversary of Nobel’s death in 1896.

Last week, the Nobel Prizes in Medicine, Physics, Chemistry, Literature and Peace were announced.

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McHugh reported from Frankfurt, Germany. Rugaber reported from Washington and Corder from The Hague, Netherlands. Associated Press journalists John Lester and Oleg Cetinek in Paris, Laura Bargfield in Skokie, Illinois, and Kimberly Crossey in Providence, Rhode Island, contributed to this report.