ET View: A call for innovation, and climate action
This year’s Nobel Prize in economics, jointly awarded to William Nordhaus and Paul Romer, is in recognition for their analysis of the long-run dynamics of sustained and sustainable growth. While Romer has been a pioneer in showing how knowledge creation and technological innovation can function as a driver for long-term growth, Nordhaus was the first to develop an integrated assessment model to describe how interactions between global environmental factors like climate change shape long-term macroeconomic trends.
Both Nordhaus and Romer emphasise the role of public policy and international co-operation to bring about purposeful, innovative growth and requisite interventions for path-breaking climate action.
In 1990 Romer is credited with laying the foundation for what is now termed endogenous growth theory, the thesis that resource allocation for technology and innovation is very much shaped by the economic environment, which in turn affects technological change.
Separately, in the mid-1990s, Nordhaus did lead in the development of economic models and studies that take into account rising carbon emissions and the resultant effects of global warming on the world economy in the medium term and well beyond.
Nordhaus’ insight is now widely used by policy makers, for instance in the form of carbon taxes, to induce more effective climate action going forward. And Romer’s analyses have led to proactive policies for augmenting technology and innovation with focused resource allocation and a more conducive setting for gainful efficiency improvement. Their contributions underline the need for climate action and innovation for environment-friendly growth.
The way forward, clearly, is to chalk out a growth path powered by low emissions and increased renewable energy usage. And we do need to boost resources for innovation and technological change to duly shore up efficiency gains and productivity improvements across sectors and industries. The bottom line is the pressing need to purposefully raise the efficiency of resource usage economy-wide.