Institutional redesign in order for economic change

The Nobel Prize in economics was awarded both this year and last year to scholars who, in different ways, emphasised the importance of institutions to economic growth.

- Diane Coyle

Calculators for sale in a market in Bangkok. Generative AI models are closing in on human mathematicians' skills — achieving gold-level scores for the first time this year at a prestigious global competition.

(AFP)

Joel Mokyr, a 2025 laureate, used historical sources to demonstrate that societies prosper when they allow new ideas to be put into practice. Philippe Aghion and Peter Howitt, his co-laureates, identified the role of creative destruction — and the institutions that enable new entrants to replace incumbent companies and technologies — in driving sustained growth. For the 2024 laureates — Daron Acemoglu, Simon Johnson, and James A Robinson — the key to economic prosperity lies in the rule of law and enabling institutions.

Economics has broadly recognised these realities, especially now that emerging technologies are transforming the structure of production. But there is an odd disconnect between this consensus and the current economic-policy debate, which focuses mainly on narrow issues like investment in Al infrastructure and corporate taxes. When questions of institutional design emerge, they tend to be restricted to specific bodies, such as central banks. Rarely do policymakers think about what kind of institutional climate enables innovation and experimentation.