For over 99% of human history, economic life was a treadmill. Generations were born, toiled, and died in conditions barely distinguishable from those of their ancestors. A farmer in 1200 lived no better than one in 800; a craftsman in 1600 earned no more than his counterpart in 1400. Technological advances—like the waterwheel, the compass, or even early gunpowder—brought temporary gains, but never triggered a lasting upward spiral. Prosperity remained elusive, fragile, and fleeting.
Then, around 1820, something unprecedented began in Britain—and soon spread across Europe, North America, and eventually the globe. Incomes started rising year after year, decade after decade, not in fits and starts, but with astonishing consistency. Life expectancy doubled. Literacy soared. Cities lit up at night. Goods once reserved for kings became available to clerks and shopkeepers.
This wasn’t just progress. It was a permanent break from the past—the birth of sustained economic growth. And this year, the Royal Swedish Academy of Sciences awarded the Nobel Memorial Prize in Economic Sciences to three scholars whose work explains how this miracle happened—and why it could vanish if we’re not careful.
The great divergence: When the world split in two
Economic historians call it “the Great Divergence.” Before the 19th century, global per capita income hovered around $1,000 (in today’s dollars) for centuries. But by 1900, industrialised nations had surged ahead; by 2000, the gap was chasmic.
What changed? Not just machines—but ideas about ideas.
Joel Mokyr, an economic historian at Northwestern University, argues that the true catalyst wasn’t the steam engine itself, but a cultural and intellectual revolution that preceded it: the Enlightenment. For the first time, societies began to believe that knowledge could be systematically improved—and that such improvement should serve human welfare.
Mokyr distinguishes between two types of knowledge:
Prescriptive knowledge: practical know-how (“add more coal to make the boiler hotter”).
Propositional knowledge: scientific understanding (“heat is the motion of molecules”).
In earlier eras, these remained siloed. Alchemists sought gold without understanding chemistry; inventors built machines through trial and error, often repeating the same mistakes for generations. But during the 17th and 18th centuries, institutions like the Royal Society in London began bridging the gap. Scientists published reproducible experiments; engineers read them and applied the principles. The result? A self-reinforcing cycle: better science → better technology → more wealth → more investment in science.
Critically, Mokyr stresses that this only worked in societies open to disruption. In places where guilds, monarchs, or religious authorities could veto change, innovation stalled. Britain succeeded not just because of its coal or colonies, but because its political institutions—however imperfect—allowed new ideas to challenge old powers.
“Growth requires losers,” Mokyr writes. “And losers have votes, influence, and armies.”
The engine of creative destruction: A mathematical revolution
While Mokyr looked backward through history, economists Philippe Aghion (of the Collège de France and Harvard) and Peter Howitt (of Brown University) built a forward-looking model that captured the chaotic heartbeat of modern capitalism.
In their seminal 1992 paper, they formalised Joseph Schumpeter’s concept of “creative destruction” into the first general-equilibrium macroeconomic model of innovation-driven growth. Their insight? Growth isn’t smooth—it’s a battlefield.
Here’s how it works:
A firm invents a better product—say, a more efficient solar panel—and patents it.
It enjoys temporary monopoly profits, recouping its R&D costs.
But this success attracts rivals. Another firm improves the design, leapfrogging the leader.
The old champion is dethroned. Its factories may close. Workers lose jobs.
Yet society gains: cheaper energy, cleaner air, new industries.
This cycle repeats endlessly. In the U.S. alone, over 4 million jobs are created and destroyed every quarter. The churn is brutal—but necessary.
Aghion and Howitt showed that the speed of this process determines long-run growth. And it hinges on delicate balances:
Too little competition? Monopolies rest on their laurels (think: stagnant telecom giants).
Too much? Firms won’t invest if they can’t reap rewards (as in markets with rampant IP theft).
Their model also revealed a paradox: markets often underinvest in truly transformative ideas (like basic research) because private returns are lower than social benefits. But they may overinvest in incremental tweaks that merely steal market share. Hence, smart policy—like R&D tax credits or antitrust enforcement—is essential.
Why growth slows and what we can do
Despite the digital revolution, productivity growth has decelerated since the 1970s. In the U.S., annual GDP per capita growth has fallen from ~2.2% (1950–1973) to ~1.3% (2005–2023). Similar trends appear in Europe and Japan.
Aghion and Howitt’s framework helps explain why. Market concentration has risen sharply: a handful of tech firms dominate search, social media, and e-commerce. With less fear of being overtaken, they may innovate less aggressively. Meanwhile, regulatory barriers and NIMBYism stifle new entrants.
Mokyr adds another warning: the global knowledge commons is fragmenting. Scientific collaboration across borders is declining. In some countries, academic freedom is under threat. If propositional knowledge stops flowing freely, prescriptive innovation will wither.
And then there’s the elephant in the room: unsustainable growth. The same engine that lifted billions from poverty now threatens the planet. Climate change, biodiversity loss, and resource depletion show that “more” isn’t always “better.”
Yet the laureates are not pessimists. They see pathways forward:
Invest in education and social mobility so talent isn’t wasted.
Adopt “flexicurity” models (like Denmark’s) that protect workers, not outdated jobs.
Use AI to accelerate discovery—by linking scientific papers, lab data, and engineering specs in real time.
Price externalities (like carbon) so markets internalise true social costs.
The lesson for our time
The Nobel Committee’s message is clear: sustained growth is not a law of nature—it’s a social achievement. It emerged from a rare confluence of open inquiry, competitive markets, and institutional adaptability. And it can unravel just as easily.
Today, as democracies face populism, innovation faces regulation, and cooperation faces fragmentation, the laureates’ work is more urgent than ever. They remind us that the alternative to managed creative destruction isn’t stability—it’s stagnation.
For most of history, humanity was trapped in a cage of scarcity. We found the key. Now, we must choose: will we keep turning it—or let the door swing shut again?
“The greatest danger,” Mokyr once said, “is not that we’ll run out of oil or silicon. It’s that we’ll run out of curiosity.”
In an age of algorithmic echo chambers and geopolitical rivalry, that warning echoes louder than ever.