Technological Change and Knowledge in Economic Growth

The 2025 Nobel Prize in Economics was awarded to Joel Mokyr, Philippe Aghion, and Peter Howitt for their work on technological change and creative destruction in economic growth. Mokyr’s approach stands out for its historical perspective on knowledge and its role in economic development. His model distinguishes between two types of knowledge essential for growth – propositional and prescriptive. About these concepts and their social implications is key to grasping the dynamics of modern economies.

Mokyr’s Model of Knowledge and Growth

Mokyr divides knowledge into propositional and prescriptive types. Propositional knowledge refers to scientific facts and principles. Prescriptive knowledge involves techniques and methods to apply those principles. Economic growth depends on the increase of both types. Societies must not only generate new ideas but also share and apply them widely. The free flow of knowledge is crucial. Barriers to sharing ideas slow down innovation and growth.

Social Institutions and Knowledge Access

Social norms shape how knowledge spreads. Mokyr emphasises that knowledge is useless unless accessible to most people. In India, the caste system restricted knowledge to elites. Violence and social rules limited access for many. Post-independence policies like reservations aimed to improve access. Yet, quality education remains out of reach for many due to slow public sector progress and rising private education costs. Without broad access, innovation suffers.

Caste System and Economic Growth

The caste system’s fragmentation reduces interaction between communities. This limits the exchange of ideas and knowledge. Education often remains confined to privileged groups. Breaking caste barriers and improving educational access are vital for growth. Universal access to quality education enables more individuals to experiment and innovate. This is necessary to transform knowledge into productive economic activities.

Impact of Automation on Knowledge Transmission

Automation and AI disrupt labour markets and knowledge sharing. Routine tasks are increasingly automated, causing job polarisation. Workers are either in high-skill roles or low-skill service jobs. This reduces the number of people with hands-on experience of modern techniques. Learning new production methods requires training and personal contact. If fewer workers access these skills, innovation slows despite productivity gains from automation.

Role of Education and Social Norms in Growth

The spread of knowledge depends on cultural and social norms. Democratising education is essential for faster economic growth. Restricting knowledge access through social institutions or expensive education harms innovation. State retreat from public education risks leaving quality knowledge to elites. Ensuring education is affordable and inclusive supports the sharing of both propositional and prescriptive knowledge. This encourages a dynamic economy.

Questions for UPSC:

1. Critically analyse the role of social institutions in shaping economic growth with examples from India and other countries.
2. Explain the concept of creative destruction and its impact on labour markets and economic development.
3. What are the challenges posed by automation and artificial intelligence to knowledge transmission and employment in developing economies? Discuss with suitable examples.
4. Comment on the importance of universal access to quality education in promoting innovation and economic growth, citing relevant policies and their outcomes.

Answer Hints:

1. Critically analyse the role of social institutions in shaping economic growth with examples from India and other countries.

1. Social institutions regulate access to knowledge and resources, influencing innovation and growth.
2. In India, the caste system restricted knowledge to elites, limiting economic mobility and innovation.
3. Post-independence policies like reservations tried to democratize access but challenges remain due to unequal education quality.
4. In other countries, inclusive institutions (e.g., property rights, free information flow) have promoted growth (e.g., South Korea, USA).
5. Rigid social norms or discrimination hamper knowledge sharing, reducing economic dynamism.
6. Effective institutions balance state intervention and market freedom to ensure broad access to knowledge and opportunities.

2. Explain the concept of creative destruction and its impact on labour markets and economic development.

1. Creative destruction refers to the process where new innovations replace outdated technologies and firms.
2. It drives long-term economic growth by encouraging technological progress and productivity improvements.
3. However, it disrupts labour markets by displacing workers in obsolete sectors or roles.
4. Job polarisation emerges, with growth in high-skill and low-skill jobs but decline in routine middle-skill jobs.
5. Requires workforce adaptation through retraining and education to mitigate negative employment effects.
6. Overall, creative destruction promotes dynamic economies but demands social policies for inclusive transition.

3. What are the challenges posed by automation and artificial intelligence to knowledge transmission and employment in developing economies? Discuss with suitable examples.

1. Automation reduces routine jobs, causing job displacement and labour market uncertainty.
2. It limits hands-on experience and transmission of prescriptive knowledge, which requires personal training.
3. Job polarisation concentrates workers in either high-skill or low-skill service roles, shrinking the middle skilled workforce.
4. Developing economies face barriers like limited educational access and social inequalities, worsening skill gaps.
5. Examples – India’s IT sector benefits from AI, but informal sectors lose jobs without retraining options.
6. Policy focus needed on inclusive education, skill development, and social safety nets to manage transitions.

4. Comment on the importance of universal access to quality education in promoting innovation and economic growth, citing relevant policies and their outcomes.

1. Universal quality education ensures broad access to propositional and prescriptive knowledge, fueling innovation.
2. It enables more individuals to experiment, tinker, and develop new technologies and techniques.
3. Policies like India’s reservation system aim to improve access but quality disparities persist.
4. State retreat from public education and rise of costly private institutions threaten inclusivity.
5. Countries with strong public education systems (e.g., Finland, South Korea) show higher innovation and growth.
6. Inclusive education reduces social fragmentation, promotes knowledge sharing, and sustains long-term economic development.