Nobel nod to innovation drivers

Economics Nobel provides a reminder of the importance of innovation for material progress and that of openness and competition for innovation

- NIRVIKAR SINGH Professor of Economics, University of California, Santa Cruz

THIS YEAR'S PRIZE in economics in honour of Alfred Nobel went to economic historian Joel Mokyr and economic theorists Philippe Aghion and Peter Howitt. Their work shares the theme of trying to understand the role of innovation in growth. Economic historians look at the past. Economic theorists build abstract models. Does any of this work have lessons for India as it seeks to become an advanced economy in just over two decades?

Mokyr is one of several economic historians who have documented the role that technological progress played in economic growth, especially the unprecedented growth that came with the industrial revolution. In some sense, it is unsurprising that innovation is what matters for sustained, rapid economic growth. But the precise mechanisms matter. Discoveries can languish, or even be rejected. Innovations can have temporary impacts if they are not followed by further innovations. Mokyr’s research highlighted the importance of a society having a critical mass of people with education, skills, openness to new ideas, and progressive attitudes.

Aghion and Howitt, coming at the question of innovation and growth with completely different methods, formalised the ideas of Joseph Schumpeter, the concept of creative destruction, in which competition among firms drives growth, with the motivation for and diffusion of innovations working through the processes of competition. Successful innovative firms drive out stagnant incumbents under the right conditions.