The 2025 Nobel Prize in Economics went to three scholars – Joel Mokyr, Philippe Aghion and Peter Howitt. Their work explored an old idea with new relevance: creative destruction. Innovation and progress often require dismantling entrenched systems. Who wins and who loses in that process determines whether societies flourish or fracture.

It's a theme that resonates far beyond markets – and nowhere more powerfully today than in Bangladesh, where a political regime collapsed under the weight of its own contradictions.

The fall of the previous regime

For more than a decade and a half, Bangladesh's economy was portrayed as an "emerging miracle."

Growth was steady, poverty fell, garments thrived, remittances accelerated. Yet beneath that progress lay a brittle political order – centralised, patronage-driven, and increasingly extractive. The state's institutions blurred the line between public office and private gain. Access to contracts, credit, and foreign exchange was mediated through political loyalty. 

It worked – until it did not.

One of the regime's deepest contradictions lay in its simultaneous reliance on authoritarian control and promises of inclusive growth – while suppressing dissent. It claimed to champion development, yet its patronage networks hollowed out institutions meant to deliver it.

The events of 5 August 2024, marked what Schumpeter – an Austrian economist who saw capitalism as a cycle of innovation and upheaval – might have called a moment of creative destruction: a despotic political regime imploded, and with it cracked the system of rents, protection, and impunity that had kept the machinery running.

It was not the quiet reform that economists prefer, but the violent adjustment that history often delivers when peaceful reform is postponed too long.

When creative destruction turns destructive

The Nobel laureates' research reminds us that creative destruction produces losers as well as winners. How societies manage the transition determines whether destruction leads to renewal or chaos.

In Bangladesh's case, the winners so far are diffuse: citizens who rediscovered their collective agency, small entrepreneurs who hope for cleaner markets, and a new generation of professionals eager to rebuild institutions. But the losers are powerful and organised. The old networks – business cronies, bureaucratic elites, and security intermediaries – have not disappeared; they are regrouping, rebranding, and waiting.

The danger is that the "creative" part of destruction stalls while the "destructive" part lingers: capital flight, policy paralysis, and elite capture in new forms.

Economists often say markets need "entry and exit." Politics does, too. Bangladesh's Awami League centred kleptocracy has exiled. What has not yet entered is a functioning institutional framework to allocate resources fairly, enforce contracts, and restore confidence. Without that, creative destruction risks degenerating into plain destruction.

The transition dilemmas

Transitions from despotic rule are always politically charged because they redistribute power. Power, in Bangladesh, has long been the currency of economic privilege. The Nobel-winning models of institutional change offer a sobering insight: when incumbents lose political control, they don't simply fade – they fight to preserve their economic rents through new alliances.

That dynamic is already visible. Some former political financiers are lobbying the new administration; others have shifted abroad, waiting for uncertainty to settle.

The challenge for the interim and the next government, then, is twofold: to make destruction productive and to make creation inclusive.

Making destruction productive means ensuring that what collapses – monopolies, opaque subsidies, politicised banks – is replaced by something stronger. The temptation is to pause or protect vested interests in the name of stability. But reform paralysis only invites the old order back through the side door. The first priority must be to establish credible rules: transparent appointments in key public institutions, public procurement disclosures, and open competition in energy and infrastructure.

Making creation inclusive requires cushioning those who bear the short-term costs. The fall of a regime disrupts not only elites but also the ordinary workers who depended on its patronage networks. If the new administration reallocates fiscal space from subsidy rationalisation toward targeted wage support, SME credit guarantees, and localised employment schemes, it can mitigate transitional shocks and catalyse inclusive labour market re-entry – especially in sectors vulnerable to informal displacement.

Of course, translating policy intent into effective delivery is no small feat. Wage support and SME credit may be easy to announce, but hard to operationalise – especially in fragmented ecosystems with endemic corruption, limited absorptive capacity and uneven institutional reach. The real test lies in execution – where institutional bottlenecks, targeting challenges, and political trade-offs often dilute impact. It is the difference between sketching a bridge and actually laying the steel – blueprints do not carry weight until they meet concrete.

Economics meets political economy

The Nobel winners also emphasised that innovation does not thrive in a vacuum – it needs "creative institutions." Their research, like Daron Acemoglu and James Robinson's earlier Why Nations Fail work, shows that inclusive political institutions sustain innovation by diffusing both opportunity and voice. That lesson sits at the heart of Bangladesh's transition.

Take the power sector, where opaque contracts created fiscal stress and public anger. Reforming the power sector is not just about lowering costs; it is about rebuilding the credibility of the state. Or the Bangladesh Bank, where political and business influence blurred the line between monetary policy, financial regulation and clientelism. Reform here is not merely technical; it is institutional – ensuring that the regulator serves the economy, not its patrons.

These are the frontiers of creative destruction in Bangladesh's governance. When a central bank can set policy free from lobbying, or when public contracts are published online for scrutiny, those are as much innovations as a new factory or app.

Bangladesh's new leaders face a delicate calculus: punish corruption without paralysing investment; reward efficiency without alienating the middle class; and rebuild the bureaucracy without losing political control.

The easiest trap is vengeance – treating the fall of the old regime as a zero-sum cleansing. The harder path is reconciliation with accountability: allowing for legal due process, financial recovery, and reintegration of technocrats who were complicit but competent. That is how creative destruction becomes constructive reconstruction. The challenge is how to pursue justice without dismantling the institutional memory and technical capacity needed for reconstruction – punishing wrongdoing while preserving the competence essential for reform.

Cultivate institutions, not just outcomes

The 2025 Nobel reminds us that societies grow when they accept that dynamism and disruption are necessary and when they design institutions that soften their blows. Bangladesh today stands at exactly that crossroads. The destruction part is done. The creative part is just beginning.

If the country can channel the energy of its uprising into institutional innovation – independent oversight bodies, transparent macroeconomic and structural policy, credible elections – it will prove that political upheaval need not mean economic chaos. But if new political elites rebuild the same old structures with fresh rhetoric, Bangladesh will have traded one form of stagnation for another.

Schumpeter warned that capitalism's biggest threat was not crisis but comfort – the tendency of societies to protect the old order because it feels familiar. Bangladesh's people have done something extraordinary: they chose uncertainty over oppression, risk over resignation. That was the destructive part.

The harder creative part of the transition is to build institutions strong enough to make this moment last, fair enough to share its gains, and flexible enough to let the next generation destroy and rebuild again, when their time comes. 

Like gardeners who prize the soil more than the harvest, the Nobel laureates remind us that institutions – not just outcomes – must be cultivated with care. For Bangladesh, it means sowing trust in rules today so tomorrow's reforms can take root without fear or favour.

Zahid Hussain is a former lead economist of the World Bank, Dhaka Office

destruction / innovation / Bangladesh Economy