What this year’s Economics Nobel prize means for India

Two centuries of sustained growth has transformed living standards. In the US and UK, GDP per capita more than doubled every generation, a cumulative twentyfold increase. What accounts for such massive growth? Technological change.

- PRACHI MISHRA

Consider telephones: from rotary dials to smartphones, each leap has been creative. But it’s also destructive, as each new phone outmodes its predecessor. This year’s Nobel Prize in Economics honours the scholars who decoded this paradox. How did sustained economic growth begin and how did it continue despite the disruption it causes? The answers carry profound implications.

Laureate Joel Mokyr notes that technological innovation alone can't explain economic growth because technological change predates sustained growth. For millennia before the Industrial Revolution, major innovations took place: the heavy plough, printing press, etc. Yet, GDP per capita in England, Sweden et al barely budged for four centuries. Mokyr identified the crucial prerequisites.

First, “useful knowledge” must combine prescriptive knowledge (instructions for operating a technology) and propositional knowledge (scientific understanding of why it works). Second, skilled mechanics and engineers were needed to translate ideas into economic reality. Finally, societies required ‘openness to change: institutions that let competing interests negotiate and come up with mutually beneficial compromises, unlike the resistance of Luddites, for example, who destroyed textile machinery.