2025 Nobel Laureates in Economics: Growth Begins with Culture and Science

 

The 2025 Nobel Prize in Economics has been awarded to three distinguished economists – Prof. Joel Mokyr from Northwestern University (US), Prof. Philippe Aghion from Collège de France, and Prof. Peter Howitt from Brown University (US). They were recognised for their work explaining how innovation and creative destruction shape long-term economic growth. By combining insights from history, culture, and technology, their research demonstrates that progress is not an automatic process – it depends on society’s capacity to value knowledge, creativity, and the courage to make mistakes.

According to Dr Tomas Karpavičius, an economist at the Faculty of Economics and Business Administration of Vilnius University (VU), the Nobel Committee’s decision highlights that today’s economic growth can no longer be explained solely by technological advancement.

The cultural foundations of knowledge and the mechanisms of innovation

‘Economic growth begins with culture – with how society values knowledge, creativity, and how much it tolerates experimentation and failure. When knowledge becomes a societal value, science, business, and politics start functioning as a single system,’ noted Dr Karpavičius.

According to him, this idea is central to Prof. Mokyr’s research, which argues that economic development depends on the cultural environment – on whether people see knowledge as a virtue and trust scientific progress. Prof. Mokyr distinguishes between two types of knowledge that together form the foundation of innovation. The first, propositional knowledge, explains why things work, while the second, prescriptive knowledge, shows how to implement or create something.

‘When theoretical and practical knowledge merge, innovation happens. Today, we can see this in fields like artificial intelligence, biotechnology, and renewable energy. Such breakthroughs are only possible when a country consistently creates conducive conditions for research and development: by investing in laboratory and technological infrastructure, promoting competition, supporting science, subsidising innovation, and ensuring clear intellectual property protection. Only in such an environment can an effective dialogue between science and business emerge, driving the entire economy forward,’ emphasised the VU economist.

The cost of progress: from Luddites to artificial intelligence

Prof. Aghion and Prof. Howitt expanded on Mokyr’s ideas by developing the theory of endogenous growth – a model where progress arises from within the economy itself. Their work builds on the concept of creative destruction, first defined by Joseph Schumpeter in the mid-20th century: every innovation inevitably creates both winners and losers. Each technological revolution dismantles old structures while paving the way for new ones.

‘This remains highly relevant. Every technological leap creates both those who gain and those who get left behind. Technological polarisation – robotisation, automation, artificial intelligence – creates high-skilled jobs, while putting pressure on middle- and lower-skilled workers. That’s why governments must find ways to bridge this gap by investing in education, modelling, retraining mechanisms, and social protection,’ enumerated Dr Karpavičius.
He believes the rise of artificial intelligence will reshape the labour market, increasing demand for creative, interdisciplinary, and analytical professions – roles where human interpretation, judgement, and creativity remain irreplaceable. Such professions will serve as a bridge between technology and social needs, while the education system will need to treat this transformation as an opportunity rather than a threat.

The VU economist adds that this tension should not be viewed as an obstacle but as a natural driver of innovation. At the end of the 18th century, the infamous Luddites – industrial workers who destroyed new machinery – symbolised human resistance to technological change. Yet it was precisely the Industrial Revolution that ultimately proved progress is inevitable, and that the strength of society lies in its ability to adapt and reinvent itself.
Lessons for small open economies

According to Dr Karpavičius, the Nobel Committee’s choice is also a timely reminder for Lithuania: ‘Education and science policy are the engines of our long-term growth. If we seek a sustainable economy, we must invest not only in infrastructure but also in the ability to think, create, take risks, and perhaps make mistakes. This is a matter of cultural value.’

Insights for small-scale economies

He adds that a value-based approach must become institutional practice. Innovation thrives in states capable of balancing competition, fostering partnerships between science and business, and maintaining social openness. A sustainable economic model requires financial resources and long-term vision – the ability to align progress with environmental, social, and cultural priorities. On the other hand, excessive regulation, punitive oversight, and micromanaging bureaucracy stifle growth. True creative dynamism of the economy emerges only where people are free to experiment, fail, and improve.

‘Lithuania has taken important steps toward a knowledge-based economy in recent years. One such example is the plan to establish artificial intelligence technology centres. This is not a matter of huge budgets but of direction and determination. This shows that we had an active minister capable of seeing the bigger picture, and it was an important and symbolically significant step. Such decisions build confidence and confirm that investment in knowledge and innovation remains a national priority in our country,’ stressed Dr Karpavičius.

According to him, achieving long-term results requires viewing education as the greatest investment in the future: ‘Unfortunately, budget allocation trends still show that education funding remains insufficient and continues to lag behind the countries we are comparing ourselves to. Long-term growth is impossible without sustained commitment – consistent investment in education, research infrastructure, and human capital.’

The 2025 Nobel laureates in economics will be officially honoured on 10 December in Stockholm during the traditional Nobel Prize ceremony. The prize fund amounts to 11 million Swedish kronor – half of which will go to Prof. Mokyr, with the remainder shared between Prof. Aghion and Prof. Howitt.