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Presented by Professor John Hassler
Member of the Royal Swedish Academy of Sciences
Chair of the Committee for the Prize in Economic Sciences

Your Majesties, Your Royal Highnesses,
Esteemed Laureates, Dear Colleagues,
Ladies and Gentlemen,

One and a half percent – this year’s prize in economic sciences is about the power of one and a half percent. Close to zero, you might think, but when it represents sustained economic growth, one and a half percent per year rather than zero means everything.

For most of the history of humankind, growth was negligible. Living conditions barely changed between generations. But over the last two centuries, steady economic growth of one and a half percent per year has instead become the norm, lifting masses of people from poverty, doubling life expectancy and laying the foundation for our welfare.

But what is economic growth about? Perhaps the word “more” comes to mind. More money, more work, more energy, more consumption, more of everything. During the first phases of growth, more was certainly important, and it still is in poor countries. There, more food, more medicine, more resources and more energy are required for a better livelihood.

But over time, the content of economic growth has evolved. In modern societies, it is no longer all that much about more – it is about “new” and “better”. This year’s laureates show that growth over the last two centuries comes from a steady stream of technological improvements. New medicines, safer cars, better food, better ways of heating and lighting our homes and new ways to communicate over great distances are just a few dimensions of economic growth. New and better products and methods replace the old ones in a process we call creative destruction. Over one or two centuries, almost everything changes.

Joel Mokyr demonstrated that for this process to work, practical knowledge must be intertwined with scientific understanding. Before growth started, the two types of knowledge were disconnected. In Mokyr’s own words: It was a world of engineering without mechanics, ironmaking without metallurgy, farming without soil science, mining without geology, waterpower without hydraulics and medical practice without microbiology and immunology.

This disconnect made it very hard to improve upon technological discoveries, be it in steel making, medical treatments such as vaccines or the value of doctors washing their hands before doing surgery. The Enlightenment and the Scientific Revolution changed that. Scientific understanding about why things work became linked to practical knowledge about how things work. This produced a self-propelling spiral that gave us a continuous flow of new useful knowledge – a spiral that is still today producing new and better.

Creative destruction is turbulent. Firms and jobs are continuously destroyed and replaced. By inventing a mathematical model of the whole economy, Philippe Aghion and Peter Howitt showed that despite this turbulence, creative destruction results in steady growth, decade after decade. Their model and its further developments have become a laboratory producing a wealth of important lessons for society.

These include that markets left alone often provide too weak incentives for innovation, but also that incentives, in fact, can be too strong. And safety nets that help workers transition to new and better jobs should be provided.

Their work also shows that since new ideas build upon old ones, the direction of innovation is often persistent. It can get trapped along unwanted paths, such as the reliance on fossil fuels. The models show how society can then steer innovations in a sustainable direction.

Joel Mokyr, Philippe Aghion and Peter Howitt: You have uncovered the preconditions for and the mechanisms underlying innovation-driven growth. Your work provides society with a better chance to make sure that economic growth can continue and be directed to deliver new and better to humankind.

It is an honour and a privilege to convey to you, on behalf of the Royal Swedish Academy of Sciences, our warmest congratulations. I now ask you to receive your prizes from His Majesty the King.

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