Disruptive Innovation: The Core of the 2025 Nobel Prize in Economics and an Analysis of the Future of the AI Economy

Dr Colin Lee
Oct 16
5 min read

In 2025, the Nobel Memorial Prize in Economic Sciences was awarded to Joel Mokyr, Philippe Aghion, and Peter Howitt in recognition of their outstanding research on "innovation-driven economic growth." The work of these three scholars not only deepens our understanding of "Creative Destruction" but also provides a crucial frame of reference for the future of the AI economy. This article will explore the economic implications of disruptive innovation and, by integrating the development of AI technology, analyze its potential impact on the future economy.

I. The Economic Foundations of Disruptive Innovation

1. The Core Concept of Creative Destruction

"Creative Destruction" is a classic concept proposed by the Austrian economist Joseph Schumpeter. It refers to the process by which new technologies, new products, or new industries emerge, replacing old technological and industrial structures. While this process causes short-term economic and social turmoil, in the long run, it is the core engine driving economic growth.

The mathematical model published by Aghion and Howitt in 1992 further refined the concept of creative destruction, clarifying how the emergence of new products renders old ones obsolete and drives sustained economic growth. Their theory posits that the essence of economic growth stems not merely from the accumulation of capital or labor, but more fundamentally from the continuous iteration of technological progress and innovation.

2. Mokyr's Historical Perspective

From the perspective of economic history, Mokyr analyzed how the Industrial Revolution served as a turning point for economic growth. He proposed that the key to technological progress lies in the interaction between two types of knowledge:

Prescriptive Knowledge: Practical, "how-to" knowledge, such as blueprints and operational manuals.
Propositional Knowledge: Scientific principles concerning "why it works," such as the theoretical foundations behind a technology.

Mokyr emphasizes that when a society can effectively integrate scientific research with practical techniques and establish an open environment that encourages innovation and knowledge exchange, economic growth can transition from fleeting prosperity to a sustained "new normal."

Laureates and Contributions

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1. Joel Mokyr

Background: A dual citizen of the United States and Israel, currently a professor at Northwestern University in the U.S., focusing on economic history and technological progress.
Contribution: Mokyr's research reveals the historical conditions for sustained economic growth, particularly the "hockey-stick curve" since the Industrial Revolution—a period of rapid growth following long-term economic stagnation. He proposed that the interplay between prescriptive knowledge (the "how") and propositional knowledge (the "why") is crucial for fostering technological progress and economic growth.

2. Philippe Aghion and Peter Howitt

Background:
- Aghion: A French scholar, currently teaching at the Collège de France, INSEAD, and the London School of Economics and Political Science.
- Howitt: A Canadian scholar, currently a professor at Brown University in the U.S.
Contribution: In 1992, the pair proposed a theoretical model centered on "creative destruction" to explain how new products displace old ones, thereby driving economic growth. Their work expanded upon the concept of "creative destruction" introduced by Joseph Schumpeter, providing a precise description using a mathematical model.

II. The Future of the AI Economy: An Extension of Creative Destruction

1. AI: The New Industrial Revolution

Artificial Intelligence (AI) is regarded as a "new industrial revolution" in the current economy. Just as the steam engine and electricity transformed economic structures in the past, AI is reshaping the labor market, corporate operational models, and overall economic efficiency in a comprehensive manner.

(1) The Economic Advantages of AI

Productivity Enhancement: AI can significantly boost production efficiency through process automation and intelligent decision-making. For example, AI applications in healthcare, finance, and manufacturing have already substantially shortened workflows and reduced costs.
Market Innovation: New products and services driven by AI (such as smart homes and autonomous vehicles) are creating entirely new market opportunities.

(2) The Economic Challenges of AI

Risk of Unemployment: Like previous technological shifts, AI-driven automation may replace certain segments of the workforce, particularly those in repetitive, low-skill jobs, leading to structural unemployment.
Economic Inequality: The benefits of AI innovation may be concentrated in the hands of a few tech giants and high-skilled workers, further widening the wealth gap.
Ethical and Policy Issues: The rapid development of AI is accompanied by challenges related to privacy, bias, and data security, which require regulation by policymakers.

2. The Interaction Between Creative Destruction and AI

The development of AI technology is a contemporary manifestation of creative destruction. While AI applications can bring about overall economic growth, they inevitably render old industries obsolete. For example:

Traditional Automotive Industry vs. Electric Vehicles and Autonomous Driving: Giants of the traditional auto industry are facing immense pressure from electric vehicle technology. The conservative stance of the Japanese automotive industry is a microcosm of this phenomenon.
Retail vs. E-commerce: E-commerce platforms leverage AI to enhance efficiency and consumer experience, posing a disruptive challenge to the traditional retail sector.

III. Policy Implications: How to Address the Challenges of the AI Economy

1. Encourage Innovation, Avoid Obstruction

Governments should formulate policies that support the research, development, and application of new technologies like AI, and cultivate a market environment conducive to innovation. At the same time, they should avoid excessive restrictions that could hinder the growth of emerging industries.

2. Mitigate the Negative Impacts of Innovation

Although creative destruction drives economic growth, its associated social costs cannot be ignored:

Unemployment Issues: Governments should strengthen vocational training and re-education programs to help affected workers adapt to the new economic landscape.
Social Safety Net: Strengthening social welfare measures can alleviate the short-term pain caused by innovation and prevent a "winner-take-all" scenario.

3. Promote Education and Infrastructure

The widespread adoption of AI technology requires long-term investment in education and infrastructure. From academic research to industrial application, governments should encourage cross-disciplinary collaboration to provide fertile ground for AI's development.

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IV. Conclusion: A Future Vision for the AI Economy

The economics of creative destruction teaches us that technological innovation is the core driver of economic growth, but the process is not smooth and is fraught with challenges. In an era of burgeoning AI technology, how to balance innovation with social welfare will be a key challenge for future economic policy.

The research of the 2025 Nobel laureates in economics reminds us of the deep mechanisms and historical patterns behind technological progress. As the next generation of disruptive innovation, AI will continue to transform the world's economic and social structures. We must embrace this revolution with an open and proactive attitude, and with wisdom and foresight, guide humanity toward a more prosperous future.

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