How innovation sustains growth: Mokyr richly deserves his Nobel

Knowledge absorption holds the key and that could depend on a society's openness to ideas and readiness to embrace change

- NIRANJAN RAJADHYAKSHA

Economic historian Joel Mokyr has been awarded the Nobel Prize for economics this year along with Philippe Aghion and Peter Howitt. All three have done stellar work to understand the role of innovation in economic growth.

A few days before the announcement of the prize, an essay on China's economic model by Dan Wang and Arthur Kroeber brought Mokyr's ideas to mind. The two authors wrote about how one of the most subtle sources of strength in that country is the process knowledge embedded in its vast industrial labour force. This was practical knowledge that has been learnt from the experience of how to make things and keep improving them.

"This process knowledge enables iterative innovation, or constantly tweaking products so that they can be made more efficiently, at better quality, and with lower costs," wrote Wang and Kroeber. It also allows Chinese companies to build at scale.

However, the most interesting observation of Wang and Kroeber was that process knowledge allows China to create entirely new industries: "A factory worker in Shenzen might assemble iPhones one year and Huawei Mate phones the next year and then move on to build drones for DJI or electric vehicles for CATL".

Where does Mokyr come into all this? One of his most influential ideas is the distinction between what he calls 'propositional knowledge' and 'prescriptive knowledge.' The former is general theoretical knowledge. The latter is knowledge of technique. Propositional knowledge serves as the epistemic base for prescriptive knowledge. Both are important, and Mokyr has demonstrated in his work that economic accelerations, such as the Industrial Revolution, occur when both types of knowledge build upon each other through feedback loops.