Nobel Economics Prize Lessons: Revive Creative Destruction`s Cycle

Nobel Economics Prize winners demonstrated the advancement of capitalism through technological innovation—awakening the power of creative destruction.
South Korea's economic cycle is blocked — new industries face regulations, new company entries are difficult, economic growth rates remain in the low 1% range, productivity and industrial vitality are declining.
Freedom and competition, regulatory reform, and openness to talent act as growth catalysts. The cycle of innovation will revive the Korean economy.

This year’s Nobel Prize in Economics was awarded to what may be called the “heirs of Schumpeter.” By demonstrating how technological innovation drives the development of capitalism, Joel Mokyr, Philippe Aghion, and Peter Howitt have rekindled awareness of the power of creative destruction. Yet in the Korean economy, that cycle has stalled. Growth remains stuck at around 1 percent, while productivity and industrial dynamism are cooling in tandem. The root of the problem is not a temporary downturn, but a deeper stagnation of innovation.

At the heart of innovation lies entrepreneurship. Scholars have offered different perspectives on its nature. Frank Knight viewed the entrepreneur as a managerial figure who assumes uncertainty and risk, bearing responsibility for judgment, decisions, and outcomes. Israel Kirzner defined the entrepreneur as one who is alert to unmet demand and improves market inefficiencies by discovering new opportunities.

Joseph Schumpeter located the essence of capitalism in “creative destruction.” He emphasized the innovative force that dismantles old orders and establishes new ones through new products, new methods of production, and the creation of new markets. This process constitutes capitalism’s inherent growth mechanism, with creative destruction representing the core of entrepreneurship that enables the economy to evolve endogenously.

In Korea, however, this cycle is blocked. New industries are trapped by regulation, and entry by new firms is difficult. According to the Global Entrepreneurship Monitor (GEM), Korea’s 2024 scores remain weak: perceived entrepreneurial opportunities at 40.07 out of 100, perceived entrepreneurial capabilities at 57.03, entrepreneurial intention at 22.72, and preference for entrepreneurship as a career choice at 59.04.

The government’s role has lost its direction. Innovation is fundamentally rooted in freedom and competition, yet policy remains confined to frameworks of support and control. Tens of trillions of won are poured into R&D budgets each year, but these resources are allocated administratively rather than on the basis of performance. Instead of encouraging experimentation, research that complies with regulations proliferates, and stable, low-risk projects are favored over bold new attempts. Institutions, in effect, are suppressing innovation.

The structure of policy imposes even deeper constraints. As redistribution and protection take precedence over technological innovation, entrepreneurship willing to accept failure has lost its footing. An ecosystem dependent on government regulation and subsidies becomes inherently risk-averse, and innovation withers. An economy without creative destruction gradually sinks into a state of “quiet stagnation.”

Regulatory reform must therefore be the starting point for innovation. Legal barriers that segment industries and restrict entry should be decisively lowered. Market experimentation should take precedence over government approval, and institutional space must be created for new technologies and firms to compete freely. Only when market validation—not administrative control—guides outcomes can the cycle of innovation begin to move again.

Opening up talent flows should serve as a catalyst for growth. As the heirs of Schumpeter have emphasized, innovation is completed not only through internal ideas but through the interaction of external knowledge and talent. Institutions must become more flexible so that global technologies and skilled professionals can move freely and cross-industry convergence can flourish. Loosening closed regulatory systems and excessive qualification requirements to enhance labor mobility is essential to accelerating innovation.

It is time to reaffirm that freedom is the precondition for innovation. Creative destruction can operate only when firms are allowed to try, fail, and try again. By reducing regulation and guaranteeing market autonomy, the government must restore an ecosystem in which innovation can emerge organically. When the cycle of innovation described by Schumpeter begins anew, the growth clock of the Korean economy will start turning once again.

Korean version: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=1&idx=28226