Creative destruction in the Philippines

THE 2025 Nobel Prize in Economics is out. Institutionalists, economic historians, and political economists have won again, this time Joel Mokyr, Philippe Aghion, and Peter Howitt.

- By Jam Magdaleno

This year's award reminds us that prosperity does not emerge merely from the dichotomy of accumulating capital or protecting industries, but from nurturing a society capable of replacing the old with the new. Their work deepens Joseph Schumpeter's century-old insight that capitalism's strength lies in creative destruction — the continuous process of innovation that dismantles outdated firms, technologies, and ideas to make room for better ones.

In the formalization of this insight, Aghion and Howitt show how growth emerges when new firms armed with better ideas leapfrog over incumbents; Mokyr complements this by explaining how such innovative cultures take root: through societies that value curiosity, experimentation, and dissent. Together, they remind us that the wealth of nations is less about accumulation than about transformation.

So, the question becomes: What happens to countries where transformation is politically, culturally, or institutionally discouraged?

For decades, the Philippine economy has grown but not transformed. It remains dominated by non-tradable sectors such as real estate, retail, construction, utilities, and domestic services. These are areas shielded from foreign competition, benefiting from protectionist laws and local political networks rather than global competitiveness.