Nobel Prize winners make powerful case for optimism amid technological change – Reason Foundation

Report on the 2025 Nobel Memorial Prize in Economic Science and its Implications for Sustainable Development Goals

The 2025 Nobel Memorial Prize in Economic Science has been awarded to economists Joel Mokyr, Philippe Aghion, and Peter Howitt. Their collective work establishes that innovation and the open exchange of ideas are the primary drivers of sustained, long-term economic growth. This finding provides a foundational framework for achieving several key Sustainable Development Goals (SDGs), particularly SDG 8 (Decent Work and Economic Growth) and SDG 9 (Industry, Innovation, and Infrastructure).

Analysis of Laureates’ Contributions to Economic Theory

Joel Mokyr: The Historical Genesis of Innovation-Driven Growth

Joel Mokyr’s research addresses the historical origins of the rapid and sustained global economic growth that began in the early 19th century, often visualized as a “hockey stick” graph. He posits that the preceding centuries of scientific and intellectual blossoming during the Enlightenment created the necessary conditions for this takeoff. His analysis highlights the critical role of knowledge accumulation and dissemination, which directly supports the objectives of SDG 4 (Quality Education) and SDG 9.

• Propositional Knowledge: Mokyr identifies the development of a critical mass of scientific and foundational understanding of the world, fostered by institutions like the Royal Society and collaborative networks he terms the “Republic of Letters.” This underscores the importance of scientific research as outlined in SDG Target 9.5.
• Prescriptive Knowledge: He explains how this foundational knowledge was translated into practical applications—the “how-to” of making and doing useful things. The application of inventions like the steam engine and power loom catalyzed the Industrial Revolution, demonstrating the link between scientific progress and industrialization central to SDG 9.

Mokyr’s work concludes that this period established a new paradigm where cumulative innovation became the engine of economic growth, a process essential for achieving the sustained growth targeted by SDG 8.

Philippe Aghion and Peter Howitt: The Modern Paradigm of Creative Destruction

Philippe Aghion and Peter Howitt developed mathematical models to demonstrate that the process of innovation continues to drive modern economies through a mechanism of “creative destruction.” Their work explains the dynamic and often disruptive nature of contemporary economic progress, providing a modern lens through which to view the targets of SDG 8 and SDG 9.

The process they model shows how innovation fuels the productivity gains necessary for SDG Target 8.2 (achieve higher levels of economic productivity through diversification, technological upgrading and innovation).

1. Discontinuous Breakthroughs: Innovation occurs in sudden jumps within specific sectors, such as the introduction of streaming services displacing physical media or smartphones replacing earlier mobile devices.
2. Market Disruption: These breakthroughs lead to the decline of incumbent firms and technologies, a process that, while disruptive to specific labor markets, is essential for progress.
3. Resource Reallocation: Capital and labor are reallocated from obsolete sectors to new, more productive ones, driving overall economic dynamism.

Their research explains the paradox of a relatively smooth macroeconomic growth trend emerging from constant, chaotic, and unpredictable microeconomic upheaval. This framework is vital for understanding how to foster resilient infrastructure and promote inclusive and sustainable industrialization (SDG 9).

Relevance to the Sustainable Development Agenda

Core Alignment with SDG 8 and SDG 9

The laureates’ combined research places innovation at the epicenter of sustainable economic development. It confirms that policies and investments aimed at fostering technological progress, scientific research, and entrepreneurship are not merely beneficial but are prerequisites for achieving the goals of:

• SDG 8 (Decent Work and Economic Growth): By identifying innovation as the engine of long-term productivity gains, their work provides the theoretical basis for policies aimed at achieving sustained and inclusive economic growth.
• SDG 9 (Industry, Innovation, and Infrastructure): The concept of creative destruction and the historical importance of knowledge transfer directly inform the need to build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation (Target 9.b).

Implications for SDG 4, SDG 10, and SDG 17

The laureates’ findings extend to other interconnected goals.

• SDG 4 (Quality Education) and SDG 17 (Partnerships for the Goals): Mokyr’s “Republic of Letters” serves as a historical model for the global partnerships and knowledge-sharing mechanisms promoted by SDG 17. It reinforces that a foundation of quality education and open scientific collaboration is essential for creating the knowledge base that fuels innovation.
• SDG 10 (Reduced Inequalities): While creative destruction can cause short-term disruptions and increase inequality, the laureates’ work also explains the mechanism for “catch-up” growth. By adopting and adapting innovations, developing economies can achieve rapid growth, providing a pathway to reducing global inequalities, provided it is supported by investments in education and effective governance.

Conclusion

The work of the 2025 Nobel laureates provides a compelling case that a societal framework promoting the free exchange of ideas and embracing the disruptive process of innovation is fundamental to achieving long-term prosperity. This perspective is critical for the 2030 Agenda for Sustainable Development, as it clarifies that the path to achieving goals related to economic growth, industrialization, and poverty reduction is inherently linked to navigating the challenges and opportunities of technological change. The messy, uncertain, but ultimately productive process of creative destruction is presented as the indispensable mechanism for building a more prosperous and sustainable global economy.

Analysis of Sustainable Development Goals in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 8: Decent Work and Economic Growth

  The article’s central theme is the cause of “lasting high rates of economic growth.” It discusses the historical “takeoff in global economic growth” and analyzes the factors, such as innovation and free markets, that continue to drive economic prosperity and productivity. The concept of “creative destruction” also directly addresses the dynamics of the labor market, including job creation and destruction.

• SDG 9: Industry, Innovation and Infrastructure

  This goal is directly addressed as the article identifies “innovation and the free exchange of ideas” as the most critical factors for economic growth. It provides historical examples like the steam engine and power loom, and modern ones like e-commerce, social media, and AI. The article emphasizes how scientific research, technological advancement, and the ability to put ideas to productive use are fundamental to industrial and economic development.

• SDG 4: Quality Education

  The article implicitly connects to SDG 4 by highlighting the importance of knowledge as a foundation for innovation. It references the accumulation of “propositional knowledge—the math, science, and other basic understandings of the world” during the Enlightenment. It also points to the rise of a “skilled middle class as well as wealthy and educated entrepreneurs” as a key element in translating knowledge into economic activity, underscoring the need for education and skills relevant to employment and entrepreneurship.

2. What specific targets under those SDGs can be identified based on the article’s content?

1. SDG 8: Decent Work and Economic Growth

   • Target 8.1: Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7 per cent gross domestic product growth per annum in the least developed countries.
     
     Explanation: The article is fundamentally about explaining the “hockey stick” of “global gross domestic product (GDP) over time,” which represents a sustained increase in per capita economic growth since the Industrial Revolution.
   • Target 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading and innovation, including through a focus on high-value added and labour-intensive sectors.
     
     Explanation: The core argument of the Nobel laureates’ work is that “innovation and creative destruction” are the primary drivers of modern economic growth and productivity. The article mentions technological revolutions like e-commerce and AI as contemporary examples.
   • Target 8.5: By 2030, achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities, and equal pay for work of equal value.
     
     Explanation: The article discusses the dynamic nature of modern labor markets resulting from innovation, citing that “we also had over 7 million jobs destroyed in that same period” that “8 million jobs created” occurred. This “labor market churns” is a direct consequence of the economic forces described and relates to the dynamics of achieving productive employment.

2. SDG 9: Industry, Innovation and Infrastructure

   • Target 9.5: Enhance scientific research, upgrade the technological capabilities of industrial sectors in all countries, in particular developing countries, including, by 2030, encouraging innovation and substantially increasing the number of research and development workers per 1 million people and public and private research and development spending.
     
     Explanation: The article describes the “blossoming of science and invention” in 17th and 18th century Europe, the establishment of “research institutions like the Royal Society,” and the continuous process of “fresh rounds of innovation” as the engine of growth. This directly aligns with the goal of enhancing scientific research and encouraging innovation.
   • Target 9.b: Support domestic technology development, research and innovation in developing countries, including by ensuring a conducive policy environment for, inter alia, industrial diversification and value addition to commodities.
     
     Explanation: The article states that for “poorer parts of the world” to experience growth, it “requires improvements in education, governance, and integration with the world economy.” This implies that by adopting policies that foster these conditions, developing countries can leverage global knowledge and innovation without having to “recreat[e] the Republic of Letters from scratch.”

3. SDG 4: Quality Education

   • Target 4.4: By 2030, substantially increase the number of youth and adults who have relevant skills, including technical and vocational skills, for employment, decent jobs and entrepreneurship.
     
     Explanation: The article explains that the Industrial Revolution took off when a “growing skilled middle class as well as wealthy and educated entrepreneurs” were able to put “prescriptive knowledge—how to make and do useful things” into practice. This highlights the critical link between having a population with relevant skills and the ability to drive economic growth through innovation.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

1. Indicator for Target 8.1

   • Indicator 8.1.1: Annual growth rate of real GDP per capita.
     
     Explanation: The article explicitly discusses the measurement of “global gross domestic product (GDP) over time” and features a “hockey stick” graph, which is a visual representation of this exact indicator over a long historical period.

2. Indicator for Target 8.5

   • Job creation and destruction rates.
     
     Explanation: While not an official SDG indicator, this is a key metric for understanding employment dynamics. The article provides specific figures: “8 million jobs created in the last quarter of 2024” and “over 7 million jobs destroyed in that same period,” directly implying the measurement of job churn as a feature of the economy.

3. Indicator for Target 9.5

   • Indicator 9.5.1: Research and development expenditure as a proportion of GDP.
     
     Explanation: The article does not provide a numerical value for this indicator, but it strongly implies its importance. The discussion of the “blossoming of science and invention,” the creation of “research institutions like the Royal Society,” and the central role of innovation in the economy all point to the underlying importance of investment in research and development activities.

4. Summary Table of SDGs, Targets, and Indicators

Source: reason.org