DESTRUCTIVE INNOVATION AND LAW: THE MISSING INSTITUTION IN STOCKHOLM’S PANTHEON

By Glênio Sabbad Guedes ( lawyer )

“This process of ‘creative destruction’ constitutes the essential fact about capitalism. It is in this process that capitalism consists and every capitalist enterprise has to adapt itself to it, willingly or not.”

— Joseph A. Schumpeter, cited in Luc Ferry, The Creative Destruction of the Modern World (Rio de Janeiro: Objetiva, 2015, p. 20).

1. Introduction: The Nobel that Celebrates Destruction

The 2025 Nobel Prize in Economics honored three thinkers who, each in their own way, revisited and renewed Joseph Schumpeter’s vision of capitalism — Joel Mokyr, Philippe Aghion, and Peter Howitt. Mokyr emphasized the role of human capital and intellectual culture in the Industrial Revolution, while Aghion and Howitt formalized in mathematical models what Schumpeter had intuitively perceived as the dynamic engine of modern capitalism.

Yet, as philosopher Luc Ferry proposes, the process that Schumpeter called creative destruction should perhaps be renamed destructive innovation. For Ferry (2015, p. 35), this is not a mere stylistic nuance but a philosophical shift: the mechanism of capitalist innovation extends beyond economics, permeating “all fields of human existence” (p. 12) and dissolving traditions, values, and meaning itself.

The absence of a “Nobel Prize in Law,” therefore, is more than a historical curiosity — it is a metaphor for the underrepresentation of legal and institutional analysis within economic thought. The legal system, rather than being an obstacle, is the architecture of stability that allows innovation to flourish without turning into social chaos or economic insecurity.

2. The Paradox of Innovation without Institutions: The Risk of Nonsense

As Ferry observes, destructive innovation is a “mechanical, blind, and anonymous logic” (2015, p. 29), devoid of inherent meaning. For firms, innovation is not a civilizational project but a “vital imperative” (p. 30) — a Darwinian race for survival.

At this point, institutional economics offers the missing analytical framework. The works of Douglass North, Daron Acemoglu, and James Robinson demonstrate that prosperity depends less on geography or culture than on the quality of inclusive institutions — those that protect property rights, foster trust, and encourage competition. Without this institutional mediation, innovation either stagnates or becomes extractive power, benefiting a few while eroding social cohesion.

Law, therefore, is not the enemy of innovation; it is its precondition. As Ferry asks: “How can we regain control over the development of a world that escapes us? And to what purpose, to create what design?” (2015, p. 34). These are precisely the questions institutional theory and jurisprudence must answer together.

3. The Brazilian Case: An Incomplete Innovation System

Brazil illustrates what happens when the capitalist engine runs on fragile institutional fuel. There are islands of excellence, such as Embrapa, but also vast deserts of bureaucratic inertia. The Global Innovation Index 2024 ranks Brazil 50th overall, but a dismal 103rd in the Institutions pillar, which measures regulatory quality and the rule of law — the very foundations of sustainable innovation.

The case of the Brazilian National Institute of Industrial Property (INPI) is emblematic. For decades, patent examinations took more than seven years, discouraging entrepreneurs and investors. Recent reforms have reduced the average time to 4.6 years in 2023, and the patent backlog from over 15,000 in 2022 to about 1,000 in 2025. Yet the legacy of uncertainty persists: a reminder that regulatory trust takes decades to build and minutes to lose.

This pattern reflects the core paradox of innovation: it inevitably “creates unemployment, inequalities, and even... decline” (Ferry, 2015, p. 22). A reactive legal system, focused on regulating the past, fails to protect the future. Law must be seen as an integral component of the National Innovation System (Freeman, Lundvall, Nelson), interacting with firms, universities, and government to produce a climate of confidence and predictability.

4. Why Institutions Are the Real Foundation

The absence of Law in Stockholm’s pantheon reflects a deeper misunderstanding: justice is not merely a moral virtue but an economic infrastructure. As Douglass North (1990) demonstrated, efficient institutions lower transaction costs and reduce uncertainty, serving as the most powerful determinant of long-term economic performance.

Destructive innovation is not only a market phenomenon but also a normative revolution — a “permanent destructuring of the social body” (Ferry, 2015, p. 25). Each technological rupture demands a corresponding legal innovation to rebuild the trust and civility eroded by the purely mercantile logic. In constitutional terms, this is the principle of legitimate expectation, the legal counterpart to what Schumpeter saw as entrepreneurial confidence.

5. Conclusion: The Innovation that Is Still Missing

Innovation generates prosperity but also precariousness. As Ferry reminds us, capitalism has brought unprecedented longevity and well-being (2015, p. 21), but at the cost of perpetual “insecurity” and “flexibility” (p. 22). Recent history — from artificial intelligence to fintech — shows that without strong legal institutions, innovation turns into disorder.

Brazil, like many emerging economies, must overcome the false dichotomy between growth and governance. The message of modern institutional economics is clear: innovation and regulation are not enemies but allies. The true prize will not be awarded in Stockholm but earned by societies that understand that innovation becomes truly creative only when Law makes it just, human, and sustainable.

References

Acemoglu, D., & Robinson, J. A. (2012). Why Nations Fail: The Origins of Power, Prosperity, and Poverty. New York:

Crown Business.Aghion, P., & Howitt, P. (2009). The Economics of Growth. Cambridge, MA: MIT Press.

Ferry, L. (2015). A Inovação Destruidora: Ensaio sobre a lógica das sociedades modernas [The Creative Destruction of the Modern World]. (V. L. dos Reis, Trans.). Rio de Janeiro: Objetiva.

Freeman, C. (1987). Technology Policy and Economic Performance: Lessons from Japan. London: Pinter.

Lundvall, B.-Å. (1992). National Systems of Innovation: Toward a Theory of Innovation and Interactive Learning. London: Pinter.

Mokyr, J. (1990). The Lever of Riches: Technological Creativity and Economic Progress. Oxford: Oxford University Press.

North, D. C. (1990). Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press.

Schumpeter, J. A. (1961). Capitalism, Socialism and Democracy. Rio de Janeiro: Fundo de Cultura.

World Intellectual Property Organization (WIPO). (2024). Global Innovation Index 2024: Brazil. https://www.wipo.int/edocs/gii-ranking/2024/br.pdf