Haus Europa

Reflections on creative destruction, systemic thinking, and the human side of innovation

The mission of Haus Europa is to help ideas travel, from insight to impact across cultures, sectors, and markets. This year’s Nobel in economic sciences crystallizes how that journey actually succeeds – and why it so often stalls.

When Joel Mokyr, Philippe Aghion, and Peter Howitt were named the 2025 laureates, the committee cited their explanations for innovation-driven growth – Mokyr’s historical foundations and Aghion–Howitt’s formal theory of “creative destruction.” Their collective insight – that sustained growth emerges from persistent cycles of creation and replacement- sounds straightforward. But dig deeper and you discover why so many promising innovations never deliver the transformation they promise.

The “Why” Revolution

Joel Mokyr’s work shows that for most of history, innovations were one-offs that rarely compounded. The turning point wasn’t just having new ideas, it was linking prescriptive know-how (recipes, drawings, techniques) with propositional knowledge (why things work). Before that link, people often knew that something worked without knowing why, which made systematic improvement hard.

That insight matters now. Organizations roll out tools (“agile,” “smart city” platforms) without grasping the human and systemic principles underneath. We’ve upgraded the blacksmith’s forge to accelerators and innovation labs, but the old trap remains: adoption without understanding rarely sustains.

Creative Destruction’s Hidden Cost

Aghion and Howitt’s 1992 model formalized what economist Joseph Schumpeter had observed decades earlier: growth is propelled by waves of innovation that outcompete the old. Those waves create winners and losers. As Peter Howitt put it, technological progress brings “great benefits for most of society,” while also generating “a lot of harm for certain people whose human capital or physical capital is rendered obsolete by these new ideas.” This isn’t a bug in the system, it’s a feature. Ignoring it is why so many innovations fail to achieve their broader potential.

Successful innovation, then, isn’t only about creating the new; it’s about thoughtfully dismantling the old; grieving what’s lost, honoring what came before, and building bridges for those displaced.

The Inverted-U Revelation

One of the most influential findings from the Aghion–Howitt research program is the inverted-U relationship between competition and innovation: too little competition breeds complacency; too much can suffocate long-term investment. The sweet spot fosters experimentation with enough pressure and enough slack.

The pattern extends beyond markets. Schools with no pressure stagnate; those under constant existential threat can’t risk real learning innovation. Public agencies guaranteed funding may coast; those in permanent firefighting mode chase short-term metrics. Sustainable innovation lives in the productive tension between stability and change.

The Green Innovation Trap

Prize-day comments underscored path dependence in innovation. “Firms do not spontaneously innovate green. If they used to innovate in dirty technology, they will continue to innovate in dirty technology,” Philippe Aghion said, arguing for policies that redirect innovation incentives (e.g., carbon pricing together with industrial policy). Decades of combustion-engine expertise don’t flip to electric overnight – knowledge bases, supplier networks, and cultures are all tuned to the old paradigm.

The same logic applies to education, healthcare, and cities: without deliberate interventions that change trajectories, systems keep optimizing along paths that may produce collective harm.

The implication is sobering: without deliberate intervention to change innovation trajectories, systems will continue optimizing along their current paths, even when those paths lead toward collective harm. This is why carbon pricing alone won’t solve climate change, why market forces alone won’t create inclusive prosperity, why technology alone won’t fix education.

The Implementation Void

Perhaps the most overlooked aspect of the laureates’ work is what it reveals about implementation. Mokyr shows us that understanding principles is essential for sustained innovation. Aghion and Howitt demonstrate that innovation creates systemic disruption requiring careful management. Together, they paint a picture of innovation as a complex, multi-dimensional challenge that goes far beyond having good ideas.

Yet most innovation efforts focus almost exclusively on ideation. Design thinking workshops generate countless sticky notes. Hackathons produce clever prototypes. Accelerators launch polished pitches. But who helps navigate the human cost of creative destruction? Who builds the bridges between old and new systems? Who ensures that innovations create value not just for early adopters but for entire communities?

This implementation void – the gap between idea and impact – is where most innovations die. Not because the ideas are bad, but because we haven’t developed the capabilities to shepherd innovations through the complex terrain of human systems, institutional resistance, and unintended consequences.

Systems Within Systems

The laureates’ work, viewed together, reveals innovation as a phenomenon that operates across multiple nested systems simultaneously. Mokyr’s historical view shows innovation embedded in cultural and epistemological systems. Aghion and Howitt’s models reveal innovation operating within competitive and economic systems. And underlying all of this are human systems: the networks of meaning, relationship, and identity that ultimately determine whether innovations succeed or fail.

This systemic view transforms how we should approach innovation. Instead of asking “How can we disrupt this industry?” we might ask “How can we evolve this system?” Instead of celebrating creative destruction, we might focus on creative reconstruction. Instead of moving fast and breaking things, we might move thoughtfully and transform things.

Consider how this applies to contemporary challenges. The AI adoption isn’t just about better algorithms; it’s about reimagining work, education, and human agency. The climate transition isn’t just about renewable energy; it’s about transforming how we live, move, and relate to nature. The future of democracy isn’t just about digital tools; it’s about evolving institutional forms that can handle modern complexity while maintaining legitimacy.

The Courage to Sunset

One of the most practical insights from creative destruction theory is also one of the most difficult to implement: the need to actively sunset outdated approaches. Organizations love to add: new programs, new technologies, new initiatives. But they rarely subtract. The result is institutional scar tissue, layers of partially implemented innovations that collectively create more friction than value.

Mokyr’s historical view shows that successful innovation periods were marked not just by what was created but by what was allowed to die. The industrial revolution succeeded not just because of steam engines but because guilds loosened their grip. The information age flourished not just because of computers but because hierarchical information monopolies dissolved.

Yet in most organizations today, killing projects is seen as failure. In public services, sunsetting programs is political suicide. In education, removing any offering, no matter how outdated, triggers fierce resistance. We’ve become societies that can create but not destroy, add but not subtract, complicate but not simplify.

This inability to sunset is perhaps the greatest barrier to innovation. Every outdated process we maintain, every redundant program we preserve, every obsolete approach we protect consumes resources and attention that could fuel genuine innovation. Creative destruction isn’t just about creating the new; it’s about having the courage to release the old.

The European Challenge

Aghion’s call for Europe to “reconcile competition and industrial policy” points to a broader challenge. Europe has world-class research, strong social systems, and deep cultural resources. But it often struggles to translate these assets into scalable innovations that create systemic value.

Part of the challenge is cultural. European societies, with their emphasis on consensus and stability, often struggle with the disruption that innovation requires. But perhaps this apparent weakness could become a strength. What if instead of trying to copy Silicon Valley’s “move fast and break things” approach, Europe pioneered a different model—innovation that strengthens rather than fractures social fabric?

This would require new metrics of success. Not just GDP growth but inclusive prosperity. Not just unicorn startups but thriving ecosystems. Not just technological advancement but societal advancement. It would require what the laureates’ work points toward: innovation approached as a systemic, human challenge rather than a purely technical or economic one.

Beyond the Nobel: What Now?

The 2025 Nobel Prize in Economics isn’t just recognition of past scholarship; it’s a call to action for how we approach innovation going forward. The laureates have given us the theoretical framework. Now we need to develop the practical capabilities to apply these insights.

This means developing new competencies: the ability to see systems, to manage transitions humanely, to balance creation with destruction, to understand not just what works but why. It means creating new institutions that can hold the complexity of systemic innovation – safe enabling spaces that are stable enough to allow experimentation but dynamic enough to evolve.

Most importantly, it means recognizing that innovation is fundamentally about humans navigating change together. The technical challenges of innovation are often the easiest to solve. It’s the human challenges, the grief of letting go, the fear of the unknown, the resistance to change, the struggle to include all voices, that determine whether innovations create genuine value or simply shift problems around.

As Kerstin Enflo of the Nobel committee reminded us, “We should not take progress for granted. Society must keep an eye on the factors that generate and sustain economic growth.” Those factors, as the laureates have shown us, are not just technical or economic. They’re institutional, cultural, and fundamentally human.

The mountain of challenges we face: climate change, inequality, technological disruption, democratic decay, requires innovation at a scale and sophistication we’ve never attempted. But the laureates’ work suggests this is possible, if we approach innovation not as disruption but as evolution, not as destruction but as transformation, not as a technical challenge but as a human one.

The question isn’t whether we can innovate, humans have always been innovative. The question is whether we can innovate thoughtfully, inclusively, and systemically. Whether we can create innovations that don’t just solve problems but strengthen the systems they touch. Whether we can manage creative destruction in ways that honor what’s lost while building what’s needed.

This is the real insight of the 2025 Nobel laureates: innovation isn’t something that happens to us. It’s something we do together, with all the complexity, difficulty, and possibility that entails. The challenge now is to take their theoretical insights and make them practical, to bridge the gap between understanding and implementation, to create not just new technologies but new capabilities for navigating change.

The future doesn’t need more ideas. It needs people who understand how to make ideas real in ways that create genuine, real-world systemic value. This is the work of our time.

Written by Miroslav Hazer, Chair, Haus Europa for innovation and leadership.

Non-profit association Haus Europa exists to address pressing societal challenges by closing the gap between ideas and impact. It brings together diverse practitioners across sectors and generations in enabling nature-rooted and digital spaces to co-create and implement real-world systemic innovations.

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Sources

[1] Nobel Prize Press Release (Oct 13, 2025) — “The laureates’ work shows that economic growth cannot be taken for granted…” https://www.nobelprize.org/prizes/economic-sciences/2025/press-release/

[2] Nobel Prize – Popular Science Background (PDF): “From stagnation to sustained growth” — Mokyr’s propositional vs. prescriptive knowledge and why understanding matters. https://www.nobelprize.org/uploads/2025/10/popular-economicsciences2025-3.pdf

[3] Nobel Prize – Popular Information (webpage) — Overview of creative destruction, policy implications, and why both too little and too much market concentration hinder innovation. https://www.nobelprize.org/prizes/economic-sciences/2025/popular-information/

[4] Aghion & Howitt (1992), “A Model of Growth through Creative Destruction,” Econometrica (open copy via Harvard DASH). https://dash.harvard.edu/server/api/core/bitstreams/7312037d-2b2d-6bd4-e053-0100007fdf3b/content

[5] Aghion, Bloom, Blundell, Griffith & Howitt (2005), “Competition and Innovation: An Inverted-U Relationship?” QJE (JSTOR). https://www.jstor.org/stable/25098750

[6] Aghion on green innovation path dependence — NPR/GPB report quoting: “Firms do not spontaneously innovate green…” (Oct 13, 2025). https://www.gpb.org/news/2025/10/13/3-share-nobel-prize-in-economics-for-work-on-technology-growth-and-creative

[7] Aghion, “Fostering green and inclusive productivity growth” (LSE Press chapter, 2024) — Firms left to themselves “may not spontaneously innovate in the right direction,” illustrating dirty-to-dirty path dependence. https://press.lse.ac.uk/chapters/26/files/0b6c7f4a-47e2-46a4-a208-c7f85288d38e.pdf

[8] Brown University News (Oct 13, 2025) — Peter Howitt on benefits of progress and harm to displaced workers (“human/physical capital rendered obsolete”). https://www.brown.edu/news/2025-10-13/howitt-nobel

[9] ABC News (Australia) (Oct 13–14, 2025) — Aghion: Europe should reconcile competition with industrial policy in defense, climate, AI, biotech. https://www.abc.net.au/news/2025-10-14/trio-win-nobel-economics-prize-for-work-on-innovation-growth-and/105886992

[10] Reuters (Oct 13–14, 2025) — Prize coverage; Aghion on de-globalization risks and Europe balancing competition with industrial policy. https://www.reuters.com/world/mokyr-aghion-howitt-win-2025-nobel-economics-prize-2025-10-13/