Nobel Prize 2025 Highlights Innovation, Creative Destruction in AI Era

This year’s Nobel Prize in economics highlights how creative destruction drives growth and why AI, green transition and market openness will shape the future (Photo by JONATHAN NACKSTRAND/AFP via Getty Images)

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I work with AI policy. The question I get asked most often at cocktail parties is whether artificial intelligence will destroy humankind. I do not think so. There is always a theoretical risk that machines run amok in a paper clip scenario, but my main concern lies elsewhere. The fast pace of AI adoption may not give societies time to adjust.

Institutions, labor markets and political systems tend to evolve more slowly than technologies. If those frictions build, they can lead to social unrest and instability. That is how dystopian futures begin. This year’s Nobel Prize in Economics, awarded to Joel Mokyr, Philippe Aghion and Peter Howitt, underscores the idea. Their work shows how innovation drives growth but also creates conflict that must be managed constructively.

Doomers, Luddites And Accelerationists

The tension between technological advances and social disruption is not new. During the Industrial Revolution, English textile workers known as Luddites destroyed machines they believed threatened their livelihoods. Their movement was less about opposing technology itself and more about resisting the upheaval of working conditions and loss of bargaining power. The broader lesson was that innovation creates winners and losers, and the losers often resist.

Fast forward to today, and debates around AI carry similar echoes. On one side stand doomers, who fear existential risk from powerful systems that may escape human control. They often invoke scenarios of superintelligent entities optimizing goals harmful to humanity. On the other side are accelerationists, who see rapid AI deployment as both inevitable and desirable. For them, slowing down risks ceding advantage to rivals or missing opportunities for breakthroughs in science, medicine and productivity.

Between these lies a pragmatic concern: the ability of societies to adapt. Jobs will change, institutions will strain and power may concentrate in a handful of firms controlling computing and data. Managing this transition is less about choosing between optimism and pessimism and more about modernizing governance to keep pace with innovation.

Inside the 2025 Nobel Prize Announcement

The Nobel Committee awarded the 2025 economics prize to Mokyr of Northwestern University, Aghion of Collège de France, INSEAD and the London School of Economics and Howitt of Brown University for explaining innovation-driven economic growth. Their collective work illustrates why the past two centuries, unlike most of human history, produced sustained growth.

Mokyr highlighted in his scholarship how cultural openness to new ideas and scientific knowledge helped spark the Industrial Revolution and sustain growth in Europe. Aghion and Howitt formalized the process in their influential 1992 model of creative destruction, showing how innovation both creates and destroys and how new products and methods displace old ones, forcing continuous renewal.

At the ceremony, Professor Kerstin Enflo of Lund University, presenting the prize, highlighted how these theories explain prosperity but also show that while innovation fuels progress, entrenched interests and weak institutions can block it.

What Could Stop Growth After 200 Years?

In his post-announcement interview, Aghion stressed that growth cannot be taken for granted. Societies must safeguard the conditions for creative destruction to continue. He identified three pressing challenges: keeping markets open, ensuring sustainability and preventing excessive concentration of power in AI firms. Without attention to these areas, the cycle of growth that has lasted 200 years could stall.

First, the need for open markets. Innovation thrives when firms and entrepreneurs can enter markets, compete and replace incumbents. Tariffs and protectionist barriers slow this churn. In the 1980s, Japanese automakers like Toyota and Honda disrupted the U.S. auto market with efficient cars, but tariffs and quotas to protect domestic firms slowed competition and innovation.

If governments prioritize shielding domestic firms at the expense of competition, they undermine the very process of creative destruction. History shows that open economies have been more dynamic, while closed ones stagnate. For instance, postwar South Korea embraced open trade and became a hub of innovation, while North Korea’s closed economy stagnated under protectionism. Aghion reminds us that preserving openness is essential to continued growth.

The second risk comes from environmental limits. Sustained growth requires not only technological progress but also the ability to align it with planetary boundaries. Climate change, resource depletion and environmental degradation threaten to derail prosperity if growth remains tied to fossil fuel consumption. Aghion argues that innovation must be steered toward green technologies — renewable energy, clean production methods and sustainable infrastructure. Without this pivot, long-term growth could falter under ecological constraints. The rapid expansion of AI itself highlights this issue, as training and running large models consume vast amounts of electricity and water, raising questions about sustainability.

He warned that a third challenge lies in the concentration of power in a few companies controlling artificial intelligence. Innovation depends on competition. If the resources needed for AI — data, compute, talent — become locked in monopolistic structures, the dynamism of creative destruction will falter. Instead of a cycle in which new entrants replace incumbents, societies risk a scenario of entrenched power, with a small set of firms dictating the pace and direction of technology.

Safeguarding Growth in an Era of AI Disruption

The economics Nobel Prize this year underscores that innovation is not self-executing. It requires institutions, policies and cultural conditions that allow ideas to flourish while managing the disruption they create. The work of Mokyr, Aghion and Howitt shows that prosperity depends on balancing creation and destruction, openness and stability, progress and equity.

For AI, the challenge is particularly urgent. Unlike previous technologies, AI evolves rapidly, diffuses globally and intersects with every domain of life. Governments must adapt. That adaptation requires modernizing institutions, including regulatory frameworks that are flexible yet enforceable, educational systems that prepare workers for shifting skills and competition policies that prevent concentration.

At the same time, public investment in research is critical. Many breakthroughs in AI and related fields stemmed from publicly funded institutions and basic science. The internet began as ARPANET, a U.S. government–funded project, and much of modern AI builds on research supported by public grants at universities like Stanford and MIT. Continued funding ensures that innovation serves broad societal needs in addition to narrow corporate interests.

Progress requires neither freezing innovation nor embracing it unchecked, but governing it wisely. That means creating guardrails without stifling discovery, promoting competition without ignoring risks and aligning technological progress with sustainability and social cohesion.

The Nobel Prize discussions this year remind us that growth is not guaranteed. It must be cultivated, safeguarded and shared. The test for our generation is whether we can manage the next wave of creative destruction in a way that strengthens, rather than fractures, the societies we live in.