Q: What is it like to share the honor with your longtime collaborator, Philippe Aghion?

Philippe and I have been in touch on a regular basis ever since we started our first project, which was the basis of our award and which we began in 1988 — so it’s been 37 years, and we have continued to collaborate and write many papers together. We’re constantly in touch, and our families are in touch, even though he’s now on the other side of the ocean, in Europe. I’m really looking forward to getting together with him again in Stockholm. 

Q: Why did you choose Brown, in 2000, as the university where you’d culminate your career?

I knew that by coming to Brown, I would have very distinguished and very stimulating colleagues. I expected to find good students, too. They were even more engaging and stimulating and challenging than I had ever anticipated. That was a wonderful experience for me. Also, I knew that my own research would get more attention with me being at such as distinguished university, and that I would be given a great opportunity to produce it in this wonderful, stimulating environment. 

A lot of the ideas that Philippe and I came up with at first were somewhat challenging to previous theories of economic growth — and this was a very supportive environment in which to come up with new ideas that weren’t yet part of the mainstream. When I started at Brown, Philippe had been offered a job at Harvard, and together we saw this as a chance for us to be able to collaborate at close range, even on a weekly basis, in a way that hadn’t been possible when I’d been in North America and he’d been in Europe.

Q: Can you explain “creative destruction” and the research for which you received the Nobel Prize? 

The term “creative destruction” was coined by the great American-Austrian economist Joseph Schumpeter about 80 years ago, and it simply refers to the fact that economic growth is driven by technological progress in the long run — and that technological progress in turn is driven by innovations, new ideas, new products and new processes that are created by people undergoing research and development, which can be expensive activities. Some of that research is done at universities, some of it is done in government agencies, and a lot of it is done within businesses, and it will only be done if there’s a profit to be made. This creates benefits for much of humankind, but it also creates losses for some people, because it renders old products and processes obsolete. 

This means that at the heart of economic growth there is this conflict: economic growth does not naturally benefit everyone in society uniformly. And in this conflict, the losers don’t just take this passively. They can undertake activities to try to block the introduction of new technologies; it’s in their economic interest to do so. But no one knew how to capture this in a mathematically formulated model that could be used to estimate the size of different effects, to measure how much, say, incentives to do research and development would foster economic growth, and to test the various hypotheses associated with this. What Philippe and I managed to do was create a coherent, mathematically precise model of the process that could be taken to the data and used to try to learn more about the growth process.

Q: Why do you think the concept of creative destruction is getting attention right now? 

I think it resonates with a lot of people, especially because of the obvious potential for new artificial intelligence developments to render a lot of human skills obsolete and to destroy jobs. I should add that AI is not the first what we call “general-purpose technology” to come around. This goes back to the development of the steam engine at the start of the Industrial Revolution, which, of course, destroyed a lot of jobs and gave rise to the Luddite riots and so on. We had another in the mid-to-late 20^th century with the introduction of information technology and the computer… and what we’re seeing now is really a continuation of that, but a great acceleration of general-purpose technology, and this has always given rise to great fears that it will create unemployment and lower wages by replacing human skills. 

These predictions so far have never come true, and the reason is because these general-purpose technologies have indeed rendered a lot of human skills obsolete, but they’ve also greatly enhanced productivity. In some cases, they’ve introduced new jobs and new tasks to be performed that didn’t even exist before the new technologies came around and that turned out to be much more productive than anything people might have done in the past. And we can only hope that will be the case with artificial intelligence. For a long time, a new general-purpose technology seems to have nothing but negative effects on most people, and when it finally starts to pay off, it often does so in ways that people have never expected before. We’re still in the early stages of it right now, and it’s a scary ride.   

Q: Should the concept of creative destruction inform current economic policy?

There are a number of policy implications that follow from this way of looking at economic growth. One of them has to do with competition policy and antitrust policy. When Schumpeter first wrote about creative destruction, he concluded that it would be wise for governments not to try to break up monopolies or break up trusts or enforce competition laws very strictly. Why? Because that would reduce the profits that monopolies could make, and one of the incentives to create new products and processes was the prospect of having something that your competitors couldn’t match, so that you can actually capture and monopolize a market because what you’ve got is so much better than anyone else. If you enforce these policies too rigorously, it would reduce the prospective profits that an investor might anticipate and therefore reduce incentive to come up with new products. 

That was what people used to think of as one of the implications of creative destruction. But one of the things that we managed to come up with by having created a formal model was that there was another effect that turns out to be just as important — and actually, in most cases, even more important — which is what we call the “escape competition” effect. If you allow young upstarts a lot more access to new markets, you make it easier for people to compete with established firms. You raise the prospects for potential innovators to break into a market, and you also increase the incentive of the established leaders to continue innovating in order to stay ahead of the competition.

If it’s difficult to enter an industry, then the established leaders don’t feel threatened. They don’t have to undertake what for them would be disruptive innovations, and they continue to enjoy their nice, quiet life as monopolists reaping lots of profits. But with people nipping at their heels all the time, they’ve got to continue to innovate, and this is what we, with our model, managed to estimate with some help from econometricians: We found that indeed, in many markets, it’s this “escape competition” effect that’s the dominant implication of our theory with respect to competition policy. So, I think that in the U.S. and in other industrialized countries, the implication is that we should probably be more vigorous in our enforcement of antitrust policies than we have been in the past. 

Q: Winning the Nobel offers you a prominent platform to share your ideas. Is there a particular message you’d like to emphasize from an economics standpoint?

It’s the idea that we should foster openness. Openness to competition and openness to new ideas is really important. It’s a value that many people cherish, but I think it’s one that also has tremendous economic value for a country. 

Q: Knowing now that you won a Nobel Prize for work you published in 1992, is there anything you wish you could go back and tell yourself at that time? 

No. You know, since I met Philippe, most of my research has been devoted to growth theory and toward developing these ideas that we came up with in the first paper we generated when we met at Massachusetts Institute of Technology in 1988, and I have no regrets. I’ve always been open to new ideas, and in a way, that probably wasn’t always good for me. I had gone to MIT on a sabbatical leave to work on some macroeconomic theories of unemployment. And when I met Philippe, I got interested in growth, so I abandoned those ideas. But this time, it really paid off, and I’m glad that I was like that. After the original work with him, I was still inclined to wander off to something else that interested me, but Philippe was always very effective at bringing me back on course. 

Q: What advice do you have for the next generation of economists?

Just this: If something is really interesting and challenging to you, and you think you can do something creative with that idea, then go for it.