The 2025 Nobel Prize in Economics feels less like an intellectual honour and more like the next chapter in a continuing conversation about how economies grow. The combined message of Joel Mokyr (Northwestern University, US), Philippe Aghion (The London School of Economics and Political Science, UK) and Peter Howitt (Brown University, USA) is plain and urgent: growth is an evolutionary, institutional process – one that depends on knowledge, the incentives to create it and the legal and regulatory scaffolding that turns ideas into widespread prosperity.
Put simply, Mokyr asks: how does useful knowledge accumulate? Aghion and Howitt ask: how does that knowledge translate into growth through innovation – the Schumpeterian “gale of creative destruction”? For India, a country large in scale and rich in human capital but uneven in institutions and outcomes, the answers matter a great deal.
Conventional policy debates often begin with inputs: more factories, more roads, more graduates. There’s truth to that. But Mokyr reminds us that inputs are necessary, not sufficient. Economic growth is not just a mechanical function of capital and labour: it is the product of a social architecture that allows ideas to be generated, tested, shared and scaled. Property rights, enforceable contracts and rule of law are necessary conditions – but Mokyr goes further. He highlights the informal norms, communication networks and institutional experiments that let useful knowledge accumulate.
For India, this is a practical admonition. The country has dramatically expanded its higher education footprint and produced a huge number of graduates. Yet scale without research culture, translational linkages and intellectual pluralism produces only incremental gains. Mokyr’s lesson: build institutions that nurture reproducible research, encourage industry–university collaboration, and protect the space for experimentation and dissent. Funding labs matters. So does the policy that connects those labs and make them relevant.
Creative destruction
Aghion and Howitt give us the mechanics. They formalise Joseph Schumpeter’s insight that growth comes from cycles of innovation that displace established technologies and firms. Crucially, their models show why temporary monopoly rents can be socially desirable: they create the expected payoff necessary to justify risky, long-term research and development.
But the story is nuanced. Too little competition and incumbents grow complacent; too much competition and innovators cannot recoup investments. The sweet spot is dynamic competition – a system in which the prospect of monopoly rewards drives daring investments, while credible contestability ensures that no firm becomes a permanent gatekeeper.
That insight has direct regulatory consequences. Competition policy should not reflexively demonise scale or dominance. Rather, it must distinguish between market power that finances frontier innovation and market power that blocks entry, suffocates follow-on creators, or uses legal and regulatory tools for rent-seeking.
You do not need abstract models to see these forces at work. India’s telecom revolution was driven by large upfront investments in spectrum and networks: the prospect of scale and returns enabled the rollout that now underpins vast digital ecosystems. At the same time, episodes of consolidation or regulatory uncertainty in other sectors have shown how fragile these gains can be.
Aviation and automobiles offer mixed lessons: liberalisation and competition improved services and choice, yet protection or opaque regulation produced periods of underinvestment and higher costs.
The takeaway is not a simple slogan – “break up big firms” or “let them be” – but a call for calibrated policy: prevent exclusionary conduct and anti-competitive acquisitions, while preserving the credible rewards that lead firms to invest in long-horizon projects.
Spreading the gains
If temporary monopolies can empower innovation, entrenched rents are a different beast. India has long suffered from regulatory discretion that becomes rent extraction; what is supposed to be a corrective – licensing, standards, protective procurement – often becomes a shield for incumbents. Effective laws must therefore target rent-seeking and reduce deadweight loss, while allowing genuine innovators to recover their investments.
Regulators, then, have a twin task. First, they must redesign competition and merger review to account for future innovation – to spot “killer acquisitions” and data portability issues that silently strangle rivals.
Second, they must ensure growth is inclusive: without policies that cushion reallocation (retraining programmes, active labour market support, portable social protection), the political backlash against creative destruction will be fierce and reform will stall.
Policy must be sequenced and institutionally precise: first, strengthen the knowledge ecosystem –public labs, university incentives and industry-linked demonstration hubs – so ideas can be created and translated; second, calibrate intellectual property and competition rules by sector (stronger protection where R&D recoupment matters, lighter regimes where cumulative digital innovation dominates); third, make merger review forward-looking, guarding against “killer” deals and enforcing interoperability; fourth, remove entry and scaling frictions (simplify compliance, fix land/logistics, expand patient capital); and finally, manage social costs with retraining, targeted public procurement and portable safety nets so creative destruction is politically and socially sustainable.
Creative destruction produces winners and losers. If those left behind are not supported, reform loses its social licence. That political economy imperative is not peripheral – it is central. Regulators and policymakers must be credible, transparent and predictable. They must be seen to be acting not to privilege a few, but to expand opportunities widely.
India’s diversity – of regions, institutions and industrial strengths – argues for a differentiated approach. Pilot reforms in receptive states, demonstrate success, and use conditional federal transfers to scale what works. Do not expect one policy to work uniformly across the subcontinent; expect, instead, an iterative process of learning and institutional adaptation.
From scale to capability
The practical promise of this Nobel is blunt: scale is an advantage only when coupled with institutions that generate and diffuse useful knowledge, and with markets that reward but do not entrench innovation. Mokyr, Aghion and Howitt give India both the diagnosis and the direction. The country has the market size, the talent and the entrepreneurial energy. The missing piece is institutional – the art of building legal, regulatory and social frameworks that make creative destruction an engine of inclusive growth with social cohesion, rather than episodic upheaval.
If India gets the sequencing and institutions right – upgrading knowledge ecosystems, calibrating competition and intellectual protection policy, and cushioning those displaced by technological change – its demographic and market scale can finally translate into sustained, broadly shared prosperity. That is the challenge of our decade, and the practical promise implicit in this year’s Nobel.
Freddy Thomas is an assistant professor at the School of Law, Christ University, Bangalore, where he teaches economic analysis of law.
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