It’s Nobel season again. Cue much speculation on whether Donald Trump’s Gaza deal would secure him the peace prize he covets (it didn’t).

The economics prize got less attention — but policymakers would benefit from a close study of the winners’ work, as I explain below.

ECONOMICS

“Growth for the sake of growth is the ideology of the cancer cell,” wrote the essayist and environmentalist Edward Abbey.

The line is popular among those in the green movement who condemn the unrelenting push for economic expansion. Only by halting and reversing increases in production and consumption, argue the advocates of “degrowth”, can disaster be averted.

On Monday, the committee for the Nobel Prize for Economics gave the award to three academics who have shed new light on the drivers of economic growth — and whose work contains ideas for how, contra degrowthers’ arguments, it could be sustained in the long term despite environmental constraints.

The work of Joel Mokyr, Philippe Aghion and Peter Howitt has also identified a crucial obstacle to these goals: resistance from powerful incumbent businesses whose influence threatens to hold back not only climate action, but the wider processes of “creative destruction” that have driven modern prosperity.

Lobby power

This is a timely moment to consider this issue, as big companies strengthen their efforts against green rules in Europe and the US.

ExxonMobil chief executive Darren Woods has just been on a media tour to make a series of attacks on European green regulations, saying last month that these were “killing the manufacturing sector and frankly smothering economic growth” — part of a much larger pressure campaign by the oil company. German chancellor Friedrich Merz said last week that he would oppose the EU’s full ban on sales of cars with internal combustion engines from 2035, following heavy lobbying from the country’s automotive sector. If the past few COP climate summits are any guide, hundreds of fossil fuel representatives will be present at next month’s COP30 in Brazil.

For centuries before the Industrial Revolution, obstruction by vested interests played a crucial role in stopping isolated technological advances translating into wider economic lift-off moments, according to the work of Mokyr, an economic historian at Northwestern University. (He cites examples including the unfortunate 16th-century inventor of a new type of loom in Danzig, who was secretly drowned by order of the city council.)

Aghion and Howitt, meanwhile, explained in detail why big incumbent companies typically have far less incentive to create disruptive innovations than younger, smaller ones. “Firms persevere in the fields where they have already acquired a comparative advantage,” as Aghion put it in a co-authored 2021 book. “Left to their own choices, firms that have acquired experience in combustion engines will not spontaneously choose to focus on electric vehicles.”

Clearly, arguments should not be dismissed simply because they come from large businesses. But these economists’ work suggests that by going easy on big, high-emitting companies, governments will do a disservice not only to the climate, but also to national economic dynamism.

Weak trajectory

The economic and political clout of ExxonMobil and the German car lobby reflects a wider trend that has been weighing on developed-world growth, according to work by Aghion and Howitt. They showed a clear correlation between growth rates and “creative destruction” — the concept popularised in the 1940s by Joseph Schumpeter, with superior new business models and technologies forcing out old ones.

While Schumpeter argued that this process would ultimately lead to the demise of capitalism, Aghion and Howitt claim to have showed that it is sustainable, and essential to the system’s long-term flourishing. Yet, as economic power has become more concentrated, indicators of creative destruction — such as rates of company creation and liquidation — have been falling in the US and several other developed countries since the 1980s, along with the average economic growth rate, their work shows. See this chart from the Nobel prize committee’s detailed paper on the winners’ work:

Climate change presents a new test for all theories of economic growth. Like other top economists, this year’s Nobel winners have suggested that historical growth statistics have been flattered by a failure to reflect the damage being done to our environment.

Sustaining improvements in production and living standards, without undermining the environmental foundations of our economies, will require government interventions to support a green strain of creative destruction in low-carbon industries, these economists suggest. They point to policies that can shift the incentives for businesses — whether through carbon pricing or financial support for clean technology innovation.

Democracy tested

“Economic growth can be resource-saving as much as resource-using . . . the basic notion that per capita income growth has to stop because the planet is finite is palpable nonsense,” Mokyr wrote in a 2018 paper.

Effective environmental policies, he suggested, are likely to be more effective in democracies than in autocratic regimes, “because concerned public opinion can map better into public policy”. After all, a key ingredient in Britain’s industrial revolution, according to Mokyr, was its parliamentary system, which played a crucial role in challenging vested economic interests.

China is clearly putting Mokyr’s assertion to the test. True, it is still building coal-fired power stations at pace. But it has also used long-term government policy and finance to nurture businesses that now dominate whole swaths of the world’s clean energy sector.

And while there are concerns about corruption at various levels of the Chinese state apparatus, Beijing could make a strong case that its policymakers are less swayed by obstructive business lobbying than their western counterparts. Alibaba’s Jack Ma found out the hard way what can happen to even the biggest Chinese companies if they overestimate their policy influence.

Donald Trump has now openly adopted the pro-fossil fuel agenda of the oil companies that have been generous donors to his presidential campaigns. For now, it’s up to Europe and the world’s other major democracies to vindicate Mokyr’s suggestion that they are best placed to lead a global shift to sustainable growth — and protect the engine of creative destruction from economic actors that fear it.

Damage control Advisory firm Glass Lewis will stop issuing single voting positions on shareholder proxy votes, instead offering multiple perspectives to clients. It had been criticised by Republican politicians for its positions on environmental and social issues.

New connections EU officials are aiming to bypass Washington and work directly with US state governments on green issues, according to a draft policy paper.

Building blocks Can molecular Lego help save the planet?