N N TARUN CHAKRAVORTY

Innovation or stagnation: The 2025 Economics Nobel & future of developing economies

Published on The finacial Express 25 October, 2025

This year’s Nobel Prize in Economics awarded to Joel Mokyr, Philippe Aghion, and Peter Howitt signifies recognition of substantial advancements in the field of innovation-driven economic growth. Their research is anchored in the concept of creative destruction, a theoretical framework first articulated by Joseph Schumpeter, a Harvard professor whose influence persists across generations of economists and scholars.

Schumpeter’s theory of creative destruction says that economic development, capitalist evolution, and technological progress materialise through a perpetual cycle of replacement, whereby emergent technologies, products, institutions, and business models supersede those that are obsolete. Central to this theoretical construct is the entrepreneur, whom Schumpeter identifies as the principal agent of innovation. Entrepreneurs disrupt entrenched structures and reallocate resources toward more productive uses, thereby catalysing economic transformation.

Schumpeter described capitalism as a system driven by constant change, where old industries fade, new ones emerge, and economic methods keep evolving. This process fuels innovation but also brings disruption—causing instability, job losses, and resistance from those who benefit from the old order. Similar patterns can be seen in today’s Bangladeshi economy.

In his seminal work, Capitalism, Socialism and Democracy, Schumpeter elaborated upon the mechanisms through which capitalism may ultimately undermine itself. He theorised that the socio-psychological underpinnings of capitalism would gradually erode, culminating in the system’s eventual dissolution—a perspective that exhibits conceptual resonance with Karl Marx,. Specifically, Schumpeter contended that institutional inertia, bureaucratic expansion, and entrenched interests hinder adaptive change, and predicted that bureaucratisation would supplant entrepreneurial vigour, thereby diminishing innovation. He further anticipated that pronounced inequality would incite public resistance, engendering expanded state intervention and regulatory frameworks, and thus precipitating the demise of capitalism.

For Schumpeter, the principal challenge lies in sustaining the dynamism of innovation while judiciously managing its destructive externalities. He regarded the eventual decline of capitalism as an inevitable, though undesirable, outcome.

Regarding socialism, Schumpeter did not support Marxian revolutionary communism; instead, he predicted that the instability generated by creative destruction, coupled with democratic and bureaucratic evolution, would facilitate a gradual and peaceful transition to a form of socialism. Nevertheless, he was sceptical about socialism’s capacity for innovation, arguing that the absence of entrepreneurial incentives would impede the system’s creative potential.

The 2025 Nobel Prize in Economics was conferred in recognition of research elucidating the mechanisms underpinning innovation-driven economic growth. Joel Mokyr identified the prerequisites for sustained technological advancement, demonstrating how creative destruction is contingent upon specific cultural, social, and institutional conditions. Mokyr emphasised the necessity of a knowledge-oriented culture, institutions that promote the free exchange of ideas, and a societal disposition conducive to risk-taking. Absent these factors, innovation is liable to stagnate.

Aghion and Howitt advanced Schumpeterian theory by constructing formal, analytically robust models that explicate how endogenous innovation engenders sustained economic growth. Their framework delineates the displacement of established institutions, the role of competition in stimulating innovation, and the influence of policy, institutional architecture, and market structure on economic dynamism. The central thesis posits that growth is the product of a continuous, self-renewing cycle of innovation and obsolescence.

The Royal Swedish Academy honoured the three economists “for explaining innovation-driven economic growth.” In its statement, the Academy stressed that economic growth is never automatic — it demands constant effort — and warned that “to prevent stagnation, the forces behind creative destruction must be kept alive.” Their collective research shows how new ideas, products, and discoveries can accelerate growth.

To appreciate the full importance of this Nobel-winning work, it must be viewed in relation to Schumpeter’s original theory. Schumpeter’s ideas were largely philosophical and conceptual. Aghion and Howitt transformed them into a formal mathematical model, enabling empirical and quantitative analysis. Mokyr complemented this by providing historical and institutional context, examining the long-term cultural, social, and scientific foundations that sustain innovation and make creative destruction possible.

The recent research deepens our understanding of which policies effectively promote innovation and what trade-offs they entail — such as how to maintain competition, design patent systems, overcome resistance from established firms, and ensure that institutions stay receptive to new ideas. In this respect, their work significantly extends Schumpeter’s original theory.

They also connected Schumpeter’s concepts to modern issues like globalisation, trade, openness, and the risk of economic stagnation. The 2025 Nobel laureates’ contributions shed light on why some economies, even with access to advanced technology, struggle to innovate or experience prolonged stagnation.

The landmark 1992 paper by Philippe Aghion and Peter Howitt, “A Model of Growth through Creative Destruction,” marked the foundation of modern Schumpeterian growth theory. It translated Schumpeter’s qualitative insights into a formal theoretical framework, showing that economic growth emerges from a continuous cycle of innovation in which new products and processes replace out dated and inefficient ones.

Earlier exogenous growth models treated technological progress as something that occurred outside the economic system. Aghion and Howitt, however, made it an internal—or endogenous—process, driven by purposeful actions and incentives. Firms invest in research and development to gain temporary monopoly advantages, but as better technologies emerge, older ones are displaced. Growth, therefore, results from on-going competition among innovators — a relentless race in which individual success is fleeting, yet society as a whole advances.

While Aghion and Howitt explained the mechanics of innovation through formal modeling, economic historian Joel Mokyr examined its underlying spirit. In his influential works The Lever of Riches and A Culture of Growth, Mokyr posed two fundamental questions: Why did the Industrial Revolution begin in Europe, and why did it persist? After extensive research, he concluded that the revolution was not merely economic or technological—it was intellectual and cultural.

Mokyr argued that Europe’s transformation was born from a distinct cultural and intellectual climate that celebrated curiosity, experimentation, and rational inquiry. The “Republic of Letters”—a transnational community of scholars, scientists, and inventors—enabled knowledge to circulate freely across borders. This openness fostered what Mokyr terms the “Industrial Enlightenment,” an era in which scientific progress and technological innovation became mutually reinforcing.

For Mokyr, innovation is more than an economic process — it is a cultural institution. Progress thrives when societies value fresh ideas and accept the risks that come with them. But when imitation, censorship, or fear of failure dominate, creativity withers. His work offers a timeless lesson: sustainable growth requires more than capital and labour — it also depends on a vibrant culture of freedom, trust, and intellectual openness.

What lessons should the developing countries like Bangladesh extract from the theories of this year’s Nobel Laureates? Bangladesh’s garment industry has long been the foundation of its industrial success. Yet, to stay competitive, it must increasingly embrace automation, design innovation, and environmentally responsible production. Likewise, the expansion of Bangladesh’s digital economy — from e-commerce to IT services — hinges on empowering young entrepreneurs to think creatively and innovate.

Bangladesh’s growth model, built on low-cost labour and export-led production, has achieved remarkable progress but cannot endure forever. The next phase of development must focus on innovation-driven growth — one that rests not only on physical infrastructure, but also on cultivating an environment where creativity, experimentation, and entrepreneurship can truly thrive.
Dr N N Tarun Chakravorty is a Professor of Economics at Independent University, Bangladesh. Editor-At-Large, South Asia Journal. nntarun@gmail.com

N N TARUN CHAKRAVORTY

Can Anti-Discrimination Student Movement Free Bangladesh From The Family Dynasty?

Plato, the proponent of the concept of state, is the right person to impart us the aim of politics. When he, in his magnum opus, ‘The Republic’, portrays his ideal state as one that ensures justice, harmony and the well-being of its citizens, we can extract that the aim of politics is to increase the wellbeing of people.

In fact, Plato’s concept of ideal state is still in line with contemporary ideas. A philosopher-king, in his ideal state theory, is one who must be an enlightened ruler with a deep understanding of the state affairs and the ability to discern absolute truth and justice. 

In the modern times, however, one may express her caveats about the use of the words, ‘king’ and ‘ruler’. Whatever be the words, the inner meaning remains the same and what stands out from Plato’s concept of ideal state is, wellbeing of the people should be the ultimate goal of politics, but when politics is dominated by family dynasties or if the state suffers from crony capitalism, wellbeing of the people is seen to be diminishing. 

The historical events that have given rise to this modern world are the Industrial Revolution, Magna Carta, Glorious Revolution of England, French Revolution, Bill of Rights enacted in the USA and Russian Revolution. The gist of all these events is the empowerment of people and in some cases transition from monarchy (centralized power to one family) to democracy (the government of the people, by the people, for the people). Why did this transition take place? The answer is to uphold people’s interest— to maximize people’s wellbeing. It means that when power is captured by one family, people’s wellbeing is never maximized. And that’s the reason why people revolted against monarchy so that opportunities that the state could provide, become open to all irrespective of caste and creed— so that people might enjoy the freedom of choice, freedom of enterprise, and thus maximize their wellbeing. 

In the states where all these revolutions took place, people’s wellbeing increased significantly after the transitions. The reason behind it is explained in Amartya Sen’s capability approach to development, which says, the development of capacities of individuals is the key to the overall human development. ‘Enhancement of Capacities’ means utilizing the potentials that already exist in humans. If individuals’ capacities were enhanced, they would be able to do anything. With a view to enhancing individuals’ capacities, the state must play a very important role by making all the necessary arrangements such as alleviating poverty, schooling etc. But in the states where the power is concentrated to one family or where crony capitalism exists, individuals’ capacities cannot be enhanced, that is, human potentials remain unutilized. 

A very important thing in this context is that human beings don’t enjoy receiving alms from others, be it, from individuals or from the state. They wish to stand on their own feet, exert their own effort, build their own enterprise and then earn their bread all by themselves. They don’t enjoy being the objects of pity from ‘Royal Families’. This important phenomenon of human nature calls for the necessity of ‘enhancement of capacities’ construed in Sen’s capability approach.

The existence of a family dynasty is dependent solely on a psychological ‘disease’ called ‘person worship’ or personality cult mostly visible in developing countries where uneducated people consider the family members or descendants of their ‘hero’ superior to themselves. Once the people start ‘worshipping’ a certain individual, they continue to ‘worship’ his or her descendants over generations. 

The families of Sheikh Mujibur Rahman and General Ziaur Rahman are two such dynasties in Bangladesh. As has already been mentioned that the level of wellbeing in a state contaminated by family dynasties is seen to be lower, but moral issues are even more crucial. That is to say that every individual, be it someone from a peasant family or someone from a rich family should be able to go to the top of the ladder in the state. Family dynasty is an absolute barrier in the path of every individual to such a rise. This means, the family dynasty creates a discriminatory, unfair and unjust society. Since the recent movement in Bangladesh which overthrew the Sheikh Hasina regime is called Anti-Discrimination Student Movement, we would expect our students with modern values ​​of modern times to adopt the agenda of abolition of the family dynasty.  

In India, Jawaharlal Nehru, due to his long tenure as the Congress Party president, became an object of personal adulation among the Indian populace. Mahatma Gandhi, the undisputed leader of India’s independence movement, benefitted even more from such personal veneration. Although Nehru never nominated his daughter Indira for leadership, she became the Congress chief and later the Prime Minister following Lal Bahadur Shastri. Most Congress Party supporters preferred a member of the Nehru family to lead them, even if that individual was less competent. For instance, when Indira took over as Prime Minister, there were leaders in Congress, such as Jagjivan Ram, who were far more qualified than Indira Gandhi.

After Indira Gandhi’s death, Congress had many talented leaders, including Pranab Mukherjee and Narasimha Rao, but it was Indira’s son, Rajiv Gandhi, who became the Congress president and then the country’s Prime Minister. Later, at one stage, the positions of party president and general secretary were held by the mother-son duo of Sonia Gandhi and Rahul Gandhi. This could be considered the epitome of dynastic politics, and any Congress member with modern values might feel ashamed of this.

The situation in Bangladesh is not as dire. Here, at least the position of general secretary in both major parties is “graciously” given to someone outside the “royal family.” However, we must break free from the grip of dynastic politics. Students with modern values and progressive mindsets can help us achieve this goal.

Anti-discrimination student movement is a blessing for Bangladesh, which has helped us with a tremendous transition. Now the students can help us with the formation of a new political party and free us from the burden of the family dynasty. Those who have already completed their studies, may be the members of this new political party and others may be waiting. They may also invite others to join their team who have passed the test of time in terms of knowledge, integrity and patriotism. If they really do try to do this, I would issue two warnings. First, I would ask them to consider Plato’s idea regarding the formation of ​​a new political party and then build a new state. Plato advocated a meritocratic society in which individuals are assigned roles and responsibilities based on their own abilities rather than their inherited or acquired status. Education plays a leading role in shaping the citizens of an ideal state. The education system focused on rigorous, philosophical training, mathematics, ethics and physical fitness, aimed at nurturing the intellect and moral character of the people.

Secondly, I would insist that the principle of equality be the core spirit of the proposed political party. We must remember that human emancipation is not possible without social ownership of wealth, for which we must cultivate the spirit of collective life in the society. We must develop an education system that teaches the spirit of collective life.

Once there were revolutions to break the stronghold of monarchy in many countries. Today the modern world needs another revolution to demolish family dynasties. Let that revolution start from Bangladesh.

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N N TARUN CHAKRAVORTY

Can we uplift Bangladesh to a modern state?

The French Revolution aimed to equip France with some key attributes necessary for becoming a modern state. Ultimately, a modern state can be defined by its possession of these essential characteristics. The first characteristic is that the state must be governed by man-made laws— not by laws made by kings or by revelation. The theory of classical mechanics says that everything in the universe changes over time. Therefore, no law can last forever. New laws must be made in new times. Accepting change is modernity.

The worldview that Europe’s Enlightenment Movement in the seventeenth and eighteenth centuries built throughout the West was based on the reliance on reason over faith, the primacy of matter over ideas, emphasis on worldliness rather than the after world. For example, Karl Marx, a disciple of the idealist philosopher Hegel, abandoned his master and took refuge in the materialist philosopher Feuerbach.

The Enlightenment Movement was the foundation of the French Revolution. Therefore, looking at terminology of the Enlightenment Movement will give an idea of ​​the modern state. The main themes of the Enlightenment Movement included the celebration of the glory of reason and the application of reason; freedom from beliefs and Prejudices; to awaken the power by which man can know this universe and improve the condition of human society; knowledge, liberation and happiness are the goals of rational humanity etc. Let me explain the term ‘rational humanity’. Suppose ‘revelation’ says, lower castes cannot be allowed to enter the temple. Then someone who believes in Charbak philosophy might say, ‘No. It can’t be the case. God cannot discriminate like that. Therefore, this revelation is not the word of God. It is merely a manipulation of self-interested Brahmins.’

When a drought of knowledge-science-philosophy is going on in the society of Bangladesh, notice the preparation phase of the people before the French Revolution. A group of avant-garde thinkers and writers began writing extensively in eighteenth-century France, including Voltaire and Rousseau. These were philosophical thoughts about the state, politics, society, universe, man, God etc. This philosophy emphasized the use of human reason. And there was criticism of established religious and prevailing political practices. The people of France read their philosophy widely, adopted it, and prepared for an all-out revolution to bring about drastic changes.

The roots of the French Revolution lie deep in the European Renaissance of the fourteenth to seventeenth centuries. And the Renaissance is the European cultural, artistic, political and economic rebirth. The Renaissance was a rediscovery of classical philosophy, literature, and art. After the fall of the Roman Empire in 476 A.D. to the thirteenth century, this rediscovery is that man is at the center of this universe— at the center of all human action. The achievements in all fields of science, art, literature, etc. are for the people— for the improvement of their quality of life on this earth.

The invention of science and technology led to the Industrial Revolution in England. The Industrial Revolution then spread to other European countries and the United States. As a result, urbanization and unprecedented development of transportation systems took place. The standard of living of the workers leaped. This was followed by the passage of the Bill of Rights (1689) regarding civil rights and liberties, the authority of Parliament over the King, the separation of religion and state, and the Glorious Revolution (1688–1689). Inspired by the English Bill of Rights, the United States also passed the Bill of Rights in 1789, which guarantees human rights and individual freedoms, such as freedom of speech, press, assembly and exercise of religion; due process of law and the right to bear arms; And powers not delegated to the federal government shall be reserved to the states and the people.

The French Revolution was completed in 1792 with the abolition of the monarchy and the establishment of the Republic. With this, a bicameral legislature was established and the role of religion in any state affairs was eliminated. Three ideals of the French Revolution were established: Liberty, equality, fraternity. A new era began in the whole world. The French Revolution inspired many people in many countries, who fought for freedom and changed the destiny of people.

There is a fundamental difference between the revolutions discussed so far and   the Russian Revolution. These revolutions did not ensure equality among people. These historical events achieved the right to vote, the right to express opinion, the right to live according to one’s own way etc., but didn’t ensure equality among people— didn’t ensure the fair dues of the working people. It is only the Russian Revolution which guaranteed working people’s right to food. In fact, there is no emancipation of man without the emancipation of the backward section of people: women and workers. This liberation is impossible without the implementation of communist ideals. Because only in a state built on communist ideals the working people exist at the center of power.

The Soviet Union built through the Russian Revolution is such an example of the emancipation of workers and women. Apart from the Soviet Union’s phenomenal progress in science and its emergence as a superpower, its incredible progress in literacy and women’s empowerment, two fundamental elements of development, is simply a wonder of human civilization.

After the establishment of the Bolshevik government in 1917, the urban and rural literacy rates rose to 94 and 86 respectively by 1939, which rose to 99 and 98 by 1959, while, according to the 1897 census report, Russia had a nominal literacy rate of under 21 percent. At the same time, the Soviet Union was fully able to bring equality between men and women in all areas. Historian Ben Eckloff commented, ‘What Britain, France and Germany took at least 100 years to do, the Soviet Union did in just 22 years.’

Women’s freedom in the capitalist world is, in my opinion, only a rhetorical slogan. Those who associate with it love thinking of themselves as progressives and sink into a sort of delusion. A capitalist cannot practice women’s freedom because women’s freedom cannot be practiced separately without the practice of equality in all spheres of life. Women can be equal to men in decision-making, economic capacity and political power in the state, society and family only in a state founded on communist ideals. Therefore, if one wants to practice women’s freedom, he must work for the establishment of a communist state.

Doing the same work, women get paid less than men, blacks get paid less than whites in the US, the highest form of capitalism. Death rates are higher for blacks than whites, and for women more than men, because blacks and women suffer from caloric deprivation for years, resulting in weakened immune systems. In capitalist countries, cases of sexual harassment and rape of women by colleagues or superiors, teachers in various institutions including Hollywood, Oxford University are constantly happening. It proves that one of the ideals of the French Revolution, ‘equality’, is still an empty bully.

If our students want to build a modern state, they must read the history of the French Revolution and build Bangladesh on the ideals of the French Revolution. And if they want to materialize the anti-discrimination movement, they must go beyond the French Revolution and move farther eastward, to the Russian Revolution.

N N TARUN CHAKRAVORTY

Can the student movement free us from dynastic politics?

Can the student movement free us from dynastic politics?

Plato, in his magnum opus The Republic, portrays his ideal state as one that ensures justice, harmony, and the well-being of its citizens. From this, we can infer that the aim of politics is to increase the well-being of people. In Plato’s ideal state theory, a philosopher-king must be an enlightened ruler with a deep understanding of state affairs and the ability to discern absolute truth and justice.

Today, one might question the use of terms like “king” and “ruler.” Regardless of the terminology, the underlying meaning remains the same. However, when politics is dominated by family dynasties or if the state suffers from crony capitalism, the well-being of the people tends to diminish.

The historical events that have most shaped the modern world are the European Renaissance, the Industrial Revolution, the Magna Carta, the Glorious Revolution of England, the French Revolution, the Bill of Rights enacted in the US, and the Russian Revolution. The essence of these events is the empowerment of people and, in some cases, a transition from monarchy (centralized power within one family) to democracy (government of the people, by the people, for the people). This transition aimed to uphold people’s interests and maximize their well-being.
When power is concentrated within a single family, people’s well-being is rarely maximised. This is why people revolted against monarchies—to ensure that state opportunities were open to all, regardless of caste and creed, so that people could enjoy freedom of choice, freedom of enterprise, and thus maximise their well-being.

In the states in which these revolutions took place, people’s well-being significantly improved after the transitions. Amartya Sen’s capability approach to development explains that the development of individuals’ capacities is key to the overall human development. “Enhancement of capacities” means utilising the inherent potential in humans. When individuals’ capacities are enhanced, they can achieve great things. To enhance these capacities, the state must play a crucial role by addressing needs such as alleviating poverty, providing schooling, etc. But in the states in which power is concentrated to one family or where crony capitalism exists, individuals’ capacities cannot be enhanced, that is, human potentials remain unutilised.

A critical aspect here is that people do not enjoy receiving alms from others, be it from individuals or the state. They prefer to stand on their own feet, exert their own efforts, build their own enterprises, and earn their own bread. They do not wish to be objects of pity from “royal families.” This inherent aspect of human nature underscores the necessity for the “enhancement of capacities,” as proposed in Sen’s capability approach.

Family dynasties depend on a psychological phenomenon called “person worship” or a personality cult, often visible in developing countries where people who are not very educated view the family members or descendants of a “hero” as superior. Once people start to “worship” a certain individual, they continue to worship their descendants across generations.

In Bangladesh, the families of Sheikh Mujibur Rahman and Gen Ziaur Rahman are examples of such dynasties. As mentioned previously, states plagued by family dynasties generally experience lower levels of well-being, and moral issues are even more critical. Every individual, be it someone from a poor family or someone from a rich family, should be able to get to the top of the state ladder. But family dynasties create barriers in every individual’s path to such a rise—leading to the creation of a discriminatory, unfair, and unjust society. Since the recent student movement in Bangladesh is called the anti-discrimination student movement, we would expect these young individuals with modern values to advocate for the abolition of family dynasties.

This movement is a boon for Bangladesh, which should help us with a tremendous transition. Now, the students can help establish a new political party and free the country from the burden of family dynasties. Those who have already completed their studies may become members of this new political party, while others may join later. They may also invite others with knowledge, integrity, and patriotism to join them. If they pursue this path, I would issue two warnings.

First, I would advise them to consider Plato’s idea on forming ​​a new political party and building a new state. Plato advocated for a meritocratic society where individuals are assigned roles and responsibilities based on their own abilities, rather than inherited or acquired status. Education plays a leading role in shaping citizens in an ideal state, with a system focused on rigorous philosophical training, mathematics, ethics, and physical fitness to nurture intellect and moral character.

Second, I would insist that the principle of equality be the core spirit of the proposed political party. We must remember that human emancipation is not possible without social ownership of wealth, for which we must cultivate the spirit of collective life within society and also develop an education system that teaches this spirit of collective life.

Dr N N Tarun Chakravorty is visiting professor of economics at Siberian Federal University, Russia, and editor-at-large at South Asia Journal.

Views expressed in this article are the author’s own.