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He has awarded the 2025 Nobel Prize in Economic Sciences to Joel Mokier, Philippe Aghion and Peter Hout for their groundbreaking work on how innovation fuels long-term economic growth. Their research helps us understand why, for the first time in human history, the world has seen nearly two centuries of sustained prosperity. Relevance is driven by technological advancements and constant renewal of ideas.
All three economists have shown that innovation is the key engine of modern economies. Joel Mokier reveals that societies that embrace science and openness to new ideas create the conditions for lasting progress. Philippe Aghion and Peter Hout developed the influential “creative destruction” theory, which describes how new technologies replace old ones. Together, their work sheds light on how development is sustained and protects the forces that drive innovation.
Mokier’s research offers a powerful explanation for why some societies break free from stagnation and move toward sustainable development. He argues that what distinguishes the modern world is not simply the number of inventions, but a culture that embraced scientific inquiry and tolerated new ideas. Before the Industrial Revolution, technological breakthroughs often didn’t last because inventors didn’t fully understand why their inventions worked. This limited their ability to improve or replicate them. However, with the rise of the Enlightenment, Europe began to combine scientific understanding with practical knowing—what Mauker called the Industrial Enlightenment. Knowledge was no longer confined to small groups of artisans or scholars. Instead, it was shared, debated and applied through academies, publications and workshops. This openness allowed innovation to feed on itself, with one discovery leading to another development.
Mokier also showed that sustainable development depends not only on knowledge, but also on the cultural and institutional climate in which it has developed. In 18th-century Britain and northwestern Europe, curiosity and tolerance for experimentation replaced fear of change.
Traditional guilds and authorities that once blocked innovation. Inventors and entrepreneurs received encouragement and financial support. As Mokier explains, this openness to new ideas became a safety valve against the status quo: societies that valued reason, evidence, and debate were able to adapt and prosper. His work reminds us that economic growth is not only about capital or resources, but also about cultivating an environment that welcomes change. Where science, expertise and social attitudes combine to create conditions for constant improvement.
Pakistan’s business and labor environment, characterized by weak institutions, informal work arrangements, and widespread mistrust—absence of the cultural and institutional foundations Joel Mokire identified as conditions for sustainable progress: respect for knowledge, innovation of contracts, and reciprocity of sanctity. In Pakistan, knowledge is often considered a private property rather than a shared resource for collective betterment. For example, in traditional apprenticeship and workshop systems, skilled artisans typically guard trade secrets – such as formulas, production techniques or supplier networks – for fear that apprentices may start rival businesses. This inhibits learning and prevents the spread of “useful knowledge” that Mokier saw as crucial to the development of innovation leadership.
Businesses rarely invest in worker training or research, preferring cheap labor over skilled labor. At the same time, a widespread disregard for contracts—both by employers who default or delay wages and by workers who often quit or change jobs without notice—creates a culture of low trust and minimal accountability. Together, these patterns illustrate how Pakistan’s economy is mired in low productivity and informality, where knowledge is hoarded, contracts are mismanaged and innovation struggles to root itself.
Pakistan must move beyond a culture of mistrust, rent-seeking and coercion—where knowledge is hoarded, deals broken and mediocrity preserved. Progress will only come when institutions maintain integrity, education cultivates inquiry and the economy rewards productive efforts.
Mokier warns that the innovation of rent-seeking and coercive suffocation is particularly relevant in Pakistan’s economic life. Here, political and economic power often reaps greater rewards than productive effort. Rent-seeking in this context means using influence, connections or coercion to extract wealth without contributing to output or innovation. In Pakistan, it takes several familiar forms. Businesses often face extortion demands – illegal payments to political groups, mafias or local enforcers who offer ‘protection’ or promise bureaucratic ease in return. Large firms often secure contracts, tax breaks or import licenses through political patronage rather than performance or merit. Small entrepreneurs who lack such a struggle to survive.
Bureaucratic red tape itself becomes a rent market. Regulatory approvals, electricity connections and public contracts are routinely ‘negotiated’ through informal payments. These methods divert time, energy and capital away from improving products, skills and technology. These activities are identified by Mokier as engines of self-sustaining growth. Instead of rewarding innovation, Pakistan’s rent-seeking culture has bred mediocrity and discouraged honest enterprise. Mokier’s insight suggests that until Pakistan stops repression and privilege and reworks its institutions to reward productivity and fair exchange, its economy will continue to revolve around extraction rather than creation.
Philip Egon transformed Schumpeter’s concept of “creative destruction” into a rigorous theory of innovation-driven growth. They showed that economies move through a dynamic cycle where new technologies replace old technologies while promoting old capabilities and quality. His research has shown that innovation thrives under balanced competition. Eghion also introduced the theory of “appropriate institutions”, which argued that advanced economies must promote original innovation, while developing ones should benefit from imitation and adaptation. His work provided a clear framework for designing policies that sustain innovation while incorporating growth.
Aegon’s longtime colleague Peter Hewitt gave his framework as a model of growth by creative destruction in a 1992 paper on mathematical precision. He showed that firms’ pursuit of temporary monopolies through research and development (R&D) fueled long-term economic growth and that open, competitive markets left behind those who had vested interests. Hewitt’s modeling illustrated the balance between underinvestment—when social benefits lag behind private incentives—and wasteful duplication from excessive R&D. His later work extended these insights to issues such as inequality, labor adjustment and ‘flexi-certainty’ policies that protect workers while encouraging innovation. Together, Aegon and Hoot provide a sustainable blueprint for managing technological change to keep growth dynamic, equitable and sustainable.
A rare example of creative destruction in Pakistan is seen in the rise of ride-hailing platforms such as Careem, Uber and Dravi. While Careem and Uber have exited the market for various reasons and UnderDrive is largely limited to metropolitan areas, the ride-hailing service has transformed urban mobility by replacing the erratic and exploitative taxi and rickshaw systems with app-based, efficient and transparent alternatives. These services improved the reliability and safety of informal price bargaining, especially for women, and fostered a digital culture of accountability.
Such instances are rare. Pakistan’s economy and politics are structured to resist this change, often under the pretext of protecting the ‘poor’ or threatening vested interests. Sectors such as retail, logistics and small-scale manufacturing, which could benefit from technological renewal, are forced by vested interests and populist concerns about job losses to stifle the competition and innovation that drives long-term progress.
The field of education powerfully illustrates this resistance to creative destruction. Both public and private universities perpetuate the same bureaucratic, exam-driven and theory-laden model, and produce graduates with weak analytical and technical skills. Private universities, sometimes seen as symbols of social status rather than excellence, mirror the inefficiencies of the public sector, offering little improvement in teaching quality or employment. The religious education system is under sectarian patronage, empowering madrasa managers while providing little marketable expertise. In many cases, communal loyalties take precedence over learning, subordinating education to political or ideological goals.
For Pakistan, true development requires the conditions emphasized by Mokier, Egon and Haut: a culture that values knowledge, institutions that reward innovation and new systems that dare to replace the obsolete. Mokier’s insight reminds us that lasting progress begins with respect for ideas, curiosity, and openness to change. Egon and Hout show that sustainable growth depends on nurturing competition, investing in expertise, and allowing creative destruction to unfold. Pakistan must therefore move beyond a culture of mistrust, rent-seeking and coercion—where knowledge is hoarded, deals broken and mediocrity preserved. Progress will only come when institutions uphold integrity, education cultivates inquiry and the economy rewards productive effort rather than privilege, enabling knowledge, innovation and trust to reinforce each other in a virtuous cycle of growth.
The author, who is an Associate Professor, heads the Department of Economics at the University of Commerce, Lahore Campus, Islamabad.
