The 2025 Nobel Prize in Economics was awarded to Joel Mokyr, Philippe Aghion and Peter Howitt for their research on how technological innovation drives economic growth and on the theory of “creative destruction”, popularised by Austrian economist Joseph Schumpeter, according to which innovations replace older firms or products.
The award places innovation at the deserved centre of the global economic debate, as progress depends on specific structural and institutional conditions. For the legal sector – particularly traditional law firms and legaltechs – the laureates’ research warrants close attention: after all, innovation has long ceased to be a topic restricted to economists, becoming instead an essential factor for the survival of legal professionals and for the evolution of the sector itself.
According to Mokyr, sustainable innovation stems from a deep type of knowledge – not only practical (“know-how”), but scientific or propositional (“knowing why something works”). For the economist, societies that prosper in the long run are those that allow the free circulation of ideas, accept uncertainty and guarantee an institutional environment favourable to experimentation. And what does this mean for the legal market? For law firms, it implies cultivating an internal culture open to change, where new approaches – such as agile methodologies, automation and open innovation spaces – are welcomed and continuously tested. Ignoring this dialogue can lead to stagnation, especially in a rapidly transforming sector.
Aghion and Howitt argue that “creative destruction” benefits companies insofar as the innovations generated create new markets, while older ones are replaced or disappear, generating competitive conflict, but also progress. This continuous cycle, which may seem obvious, is the driving force behind sustainable economic growth: the incentive to innovate, combined with competition, forces renewal and boosts the productivity of economies. In the legal market, the practical application of creative destruction can be seen, for example, in the replacement of traditional practices with more efficient models (document automation, dispute resolution platforms, predictive analytics and greater assertiveness in audit provisioning through customised tools, among others). Firms that cling to a classical model without evolving risk becoming obsolete in the medium term – or even the short term.
A major lesson brought by the laureates is that innovation almost always encounters resistance: established companies and interest groups may block changes to protect their current model. The legal universe is no different; senior lawyers or partners with consolidated practices frequently resist adopting new tools or business models. To avoid this blockage, firms must manage potential conflicts, invest in training – including for more experienced professionals – negotiate gradual technological integration and promote pilots that demonstrate value before scaling. The much-discussed evangelisation, or, as it is called in Portugal, digital literacy.
Legaltechs embody precisely the innovative spirit celebrated by Mokyr, Aghion and Howitt: they are startups that introduce new solutions to modernise legal services, making processes faster, less costly and more accessible. It is undeniable that they play the role of “new actor” in the cycle of creative destruction: they offer solutions that challenge the status quo of traditional law firms and legal departments, fostering healthy competition and pushing the sector forward. However, to thrive and scale, they need capital, open data – such as open justice models – and smart regulation: exactly the conditions identified by the laureates as essential for sustainable innovation and a continuous virtuous cycle.
One of the central messages of the award-winning research is that innovation does not flourish solely through technical merit: it depends on institutions that foster it – competitive markets (free from monopolies), research support policies (grants, calls and tax incentives), tolerance for failure and effective regulation. In the context of law firms, this means that leadership must create governance structures that stimulate innovation: internal committees, incentives for technological initiatives and intrapreneurship, as well as partnerships with legaltechs. It is also necessary to engage regulators and professional bodies, so that they recognise and support emerging technological models, ensuring an environment conducive to positive “creative destruction”.
On the other hand, the laureates warn that risks must not be ignored: without competition or appropriate policies, innovation can be captured by a few dominant players, breaking the virtuous cycle that drives growth – including exponential growth. In the legal sector, this translates into the potential consolidation of large legaltech platforms into monopolies or oligopolies, creating barriers to entry for new players. A kind of entrenchment, harmful to the innovation ecosystem itself. Current examples include the growing dominance of platforms such as Harvey, Legora and, more recently, Enter.
The 2025 Nobel Prize in Economics awarded to Mokyr, Aghion and Howitt is, ultimately, a powerful reminder that innovation is not merely a theoretical concept, but a real driver of economic and social transformation. The lessons drawn – including the dynamics of competition and “creative destruction”, and the importance of open institutions – are directly applicable to the legal market. For lawyers, this means embracing change, investing in technological culture and reinforcing governance. For legaltechs, it is a call to scale responsibly. And for regulators and sector leaders, it is an incentive to create environments that promote innovation without stifling competition, as reflected in recent discussions on the “softening” of the AI Act.
“The times they are a-changin”, says Bob Dylan, himself a laureate. The message, written more than seventy years ago, became a generational anthem: it captures the idea of inevitable change and the need for adaptation. And the answer is still blowing in the wind – and now also in the work of Mokyr, Aghion and Howitt.
