Nobel Prize in Economics 2025 

Why in News ?

• The 2025 Nobel Prize in Economic Sciences was awarded jointly to Joel Mokyr, Philippe Aghion, and Peter Howitt.
• Awarded for their pioneering research on the role of technological change, creative destruction, and knowledge diffusion in driving long-run economic growth.

Relevance:

GS 3 – Economy & Science–Tech Interface
• Endogenous growth theory – knowledge as capital (Aghion, Howitt)
• Innovation ecosystems and R&D policy in India
• Education, skill development, and inclusive technological diffusion
• Role of AI, automation, and human capital formation
• India’s innovation bottlenecks – inequality, institutional weaknesses

GS 2 – Governance
• Role of State in promoting innovation-led growth (NITI Aayog, NEP 2020)
• Public–private partnerships in research and technology diffusion

About the Laureates

• Joel Mokyr (Northwestern University) – Historian of economics; studied how knowledge, culture, and institutions drive technological progress.
• Philippe Aghion (Collège de France & LSE) and Peter Howitt (Brown University) – Developed the Schumpeterian model of creative destruction, explaining how innovation by new firms disrupts old ones, sustaining productivity growth.

Mokyr’s Model of Knowledge and Growth

• Two Types of Knowledge:
  • Propositional knowledge – Theoretical or scientific understanding (“knowing why”).
  • Prescriptive knowledge – Practical or technical know-how (“knowing how”).
• Core Idea: Economic growth accelerates when both kinds of knowledge expand and when societies freely share and apply knowledge.
• Social Prerequisite:
  Growth thrives where:
  • Knowledge is accessible to the majority, not monopolised by elites.
  • Cultural and institutional norms promote exchange of ideas and open inquiry.
• Key Implication:
  Technological progress is not purely economic — it is a social and cultural process shaped by inclusivity and the freedom to learn, share, and apply.

Contemporary Relevance for India

• Caste and Knowledge Restriction:
  • Historically, the caste system confined knowledge to a few upper groups.
  • Violence and exclusion limited access to education and technical learning.
  • Despite reservations post-Independence, access to quality education remains skewed toward the elite.
  • Data:
    • Only 27% of SC and 16% of ST students access higher education (AISHE 2022).
    • Over 60% of rural youth cannot afford private college tuition.
  • Implication: Restricting educational access = restricting innovation, as fewer can tinker, experiment, and invent.

Automation and Job Polarisation

• Current Challenge: AI-driven automation reshapes labour markets.
• Job Polarisation: Middle-skill routine jobs decline; growth in low-skill services and high-skill tech roles.
  • ILO (2023): Up to 25% of routine jobs globally face automation risk.
  • India: Sectors like manufacturing and BPOs most exposed.
• Problem:
  • Fewer workers gain hands-on technical knowledge (“prescriptive knowledge”).
  • Loss of on-the-job learning limits diffusion of practical know-how.
  • Long-term result: decline in innovation potential, even if short-term productivity rises.

Creative Destruction and Economic Growth (Aghion–Howitt Framework)

• Schumpeterian principle: Innovation destroys old technologies and creates new industries.
• Key insight: Sustainable growth depends on continuous innovation, entrepreneurial dynamism, and inclusive knowledge systems.
• Policy takeaway: Growth cannot rely only on markets; it requires education, competition, and R&D ecosystems that allow new ideas to emerge.

Policy Implications for India

1. Democratisation of Education:
   1. Invest in public higher education, not just elite IIT/IIM clusters.
   2. Implement reservations in private universities or fee subsidies for equity.
   3. UNESCO (2023): India spends only 2.9% of GDP on education, below global average of 4.4%.
2. Bridging Skill Gaps in Automation Era:
   1. Promote re-skilling programs and technical apprenticeships.
   2. Incentivise firms to train workers in emerging technologies.
3. Breaking Caste Barriers:
   1. Strengthen social inclusion policies and affirmative educational funding.
   2. Encourage inter-community innovation networks to broaden idea sharing.
4. Encourage Knowledge Ecosystems:
   1. Link academia–industry–state collaboration.
   2. Fund open innovation platforms to democratise R&D participation.
5. Balanced State Role:
   1. Neither excessive control nor complete laissez-faire — a “facilitating state” that ensures equal knowledge access.

Key Takeaways

• Knowledge diffusion — not mere accumulation — drives sustained growth.
• Social institutions (like caste) and economic structures (like automation) shape how knowledge circulates.
• Democratizing access to education and technology is essential for inclusive and sustainable economic progress.
• As Mokyr’s thesis suggests, a society with inaccessible knowledge is as stagnant as one with none.

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