This year’s Nobel Prize in Economics, awarded on Monday, recognized three economists for their significant contributions to the theory of economic growth—arguably the most crucial issue in economics, as sustained long-term growth leads to substantial improvements in living standards.
The laureates agreed on the fundamental principles of long-term growth theory, originally articulated by Austrian economist Joseph Schumpeter in 1942. They also shared a skepticism towards bigness, advocating for competition, though they differed on which type of bigness to oppose. Joel Mokyr focused on excessive government bigness, while co-authors Philippe Aghion and Peter Howitt criticized excessive bigness in business.
Mokyr’s Opposition to Government Bigness
Mokyr’s research in economic history examined why the Industrial Revolution occurred in Europe rather than in Asia. He concluded that the political and religious fragmentation in Europe during this period created a “market for ideas” that prevented any single government or religion from suppressing “useful knowledge.” He argued that competition among governments benefits society, while harmonized laws that stifle competition harm it.
One of Mokyr’s examples is the invention of the airplane, discussed in a recent video. Before the Wright Brothers’ breakthrough, most scientists believed heavier-than-air flight was unattainable. Their success led to enhanced theories and advancements in aircraft technology. Mokyr emphasizes that new technology drives scientific progress, which in turn fosters further technological advancements, creating a cycle of “useful knowledge” and economic growth.
Aghion and Howitt’s Opposition to Business Bigness
Aghion and Howitt were awarded the Nobel Prize for their collaborative work quantifying Schumpeter’s theory of creative destruction. This theory asserts that economic progress arises when new technologies replace outdated ones, leading to the loss of some jobs and the creation of new, more productive ones.
For instance, steam-powered railroads replaced hand-powered canal boats, revolutionizing transportation and boosting trade and economic development, albeit at the cost of jobs in the canal industry. Similarly, the advent of automobiles displaced jobs related to horses and carriages, replacing them with more productive roles in the auto industry.
Their models suggest a risk to sustained economic growth: entrenched “Superstar Businesses” might lack the motivation to innovate vigorously, using lobbying and political influence to stifle competition. Ironically, the pursuit of innovation often leads to the emergence of such firms, making it essential to balance the need for regulation. They propose:
“[M]ore vigorous antitrust could help counteract the power of superstar firms. An antitrust focus on innovation instead of price… would also help direct policy to the crux of the problem, since it is superstar firms’ suppression of innovation by competitors, not their price increases, that has created the problem.”
While Aghion and Howitt acknowledge the challenges highlighted by Schumpeter, they advocate for conditional break-ups of dominant firms, especially when they employ anti-competitive practices to maintain their leads.
Conclusion
The approaches to tackling the dual issues of big government and anti-competitive big business, as articulated by this year’s Nobel winners, align with initiatives from the second Trump administration. Lawyer Logan Breed and co-authors note that both “Big Monopoly” and “Big Government” are priority areas for regulatory agencies. Chair Ferguson and AAG Slater have expressed an antitrust philosophy that equates the threats posed by Big Monopoly to free markets and individual liberty with those posed by Big Government.
We support Mokyr’s stance against government overreach that stifles innovation and resonate with Aghion and Howitt’s concerns regarding “Superstar Businesses” that opt for dominance through means other than innovation. Free markets, competition, and ensuring that innovators benefit from their technological advancements are vital. This includes preventing collusion between big government and big business to suppress the next wave of innovation.
Currently, we are experiencing a technological phase of “creative destruction” celebrated by Schumpeter. The ongoing robotics and artificial intelligence revolution is largely driven by IT companies that some overly cautious antitrust enforcers may wish to dismantle. These “Superstar Businesses” are investing heavily to maintain their competitive edge, with the potential to bring about a more prosperous future for Americans and the world.
