Technology, Institutions and Investment: Lessons from Nobel Laureates
The dominant theme in markets this year has been the transformative potential of technology. From cloud infrastructure to artificial intelligence, IT spending has surged to levels rarely seen before, and equity markets have rewarded companies at the centre of this trend, particularly in the United States. Yet behind the headlines lies a deeper question: does investment in technology automatically translate into sustained economic growth?
Recent Nobel laureates suggest the answer is more nuanced. Their work reminds us that technology is not destiny. It delivers progress only when supported by knowledge, institutions and incentives. Joel Mokyr, honoured in 2025, explained why the Industrial Revolution produced enduring prosperity, pointing to useful knowledge, mechanical competence and open institutions. Philippe Aghion and Peter Howitt extended this thinking by formalising Schumpeter’s concept of creative destruction, showing that growth depends on continual innovation and the replacement of outdated technologies. Last year’s winners, Daron Acemoglu, Simon Johnson and James Robinson, added a critical insight: inclusive political and economic institutions are the foundation of broad-based progress, while extractive systems lead to stagnation.
Together, these ideas offer a powerful lens for understanding today’s technology-driven optimism.
Mokyr: Knowledge, Competence and Openness
Joel Mokyr, an economic historian, asks why growth became sustained after the Industrial Revolution rather than episodic. His answer rests on three pillars: useful knowledge, mechanical competence and open institutions.
Knowledge alone is not enough. Many societies possessed innovative ideas for centuries without achieving lasting prosperity. What mattered was the ability to apply those ideas through skills, tools and infrastructure – what Mokyr calls mechanical competence. Equally important was an institutional environment that welcomed competition and diffusion rather than rent-seeking and monopoly.
Applied to today’s IT boom, Mokyr’s framework suggests caution. High capital spending on digital infrastructure may create capacity, but without investment in human capital and processes, it risks becoming a static platform rather than a dynamic engine of innovation. Openness matters too. When large firms dominate platforms and governments fund vast projects, the question becomes whether new entrants and disruptive ideas can thrive.
Finally, Mokyr reminds us that technological change is a process, not an event. Capacity must be paired with continual innovation. History offers sobering lessons: the Soviet bloc invested heavily in technology yet stagnated because institutions blocked diffusion and incentives for progress.
Aghion & Howitt: Growth Through Creative Destruction
Philippe Aghion and Peter Howitt formalised the Schumpeterian idea of “creative destruction.” Their model shows that long-run growth depends on innovation, not just capital accumulation, and that innovation is endogenous – it arises from within an economic system shaped by competition and incentives.
Creative destruction is not painless. New technologies displace old ones, and sectors shrink even as others expand. Successful regimes manage this transition through reskilling and social safety nets.
For investors, Aghion and Howitt’s insights highlight several points. First, IT spending should not only build capacity but also trigger the replacement of outdated models. Second, competition and entry matter. Dominant platforms may accelerate adoption, but they can also stifle diffusion if barriers to entry rise. Ecosystems that empower startups and new entrants are essential to keep the innovation engine running.
Finally, policy alignment matters. R&D incentives and intellectual property protection shape the pace of innovation. Without them, spending risks becoming a sunk cost rather than a source of growth.
Acemoglu & Johnson: Power Shapes Progress
Kamer Acemoglu and Simon Johnson take a more sceptical view. They argue that technological revolutions have often served elites before benefiting society at large. The early Industrial Revolution raised output but depressed wages for decades. Power, not productivity alone, determines whether innovation lifts all boats or deepens inequality.
Their recent work warns that automation and AI could repeat this pattern. Firms controlling data and algorithms may capture most of the gains, while workers face deskilling or displacement. The authors reject the notion that job loss is inevitable. Historical evidence shows that societies can shape technology to complement rather than replace labour – but only if they choose to.
Policy is central to this choice. Education, fair taxation, antitrust enforcement and democratic oversight can redirect innovation toward inclusive goals. Left unchecked, the digital economy risks creating concentrated “information empires” that stifle competition and civic accountability.
Despite their critique, Acemoglu and Johnson end on a cautiously optimistic note: technology can be steered. Collective action and institutional design can ensure that digital revolutions enhance rather than erode prosperity.
Implications for Investors
What does this mean for investment decision-making? The frameworks above do not offer immediate buy or sell signals. They do, however, provide a lens for evaluating the sustainability of technology-led growth.
First, high IT spending is not a guarantee of productivity gains. Investors should look for evidence that firms are pairing infrastructure with skills, processes and openness to innovation. Second, competitive dynamics matter. Markets dominated by entrenched platforms may deliver short-term returns but face long-term risks if creative destruction stalls. Third, political and social context cannot be ignored. Technology that exacerbates inequality or provokes backlash may encounter regulatory headwinds and reputational risk. In short, technology is not destiny. It is a choice shaped by institutions, incentives and values. For investors, understanding these forces is as important as analysing balance sheets or growth forecasts.
Closing Perspective
The surge in IT spending reflects optimism about a digital future. Nobel laureates remind us that optimism must be tempered with realism. Growth depends not only on capital but on competition, competence and inclusion. For those allocating capital, the challenge is to distinguish between spending that builds capacity and spending that builds resilience and adaptability.
Technology can transform economies and portfolios – but only if the conditions for sustained innovation are in place.
Read the November Outlook here.
