A Nobel Prize for F.O.O.D

How progress is cemented

I had originally intended for this piece to be part of a much longer essay on the housing market, but as we say in Nigeria, there is love in sharing. What I like about Feyi's F.O.O.D framework is that it provides a clear and effective way to understand a fundamental misconception about public policy, especially in the context of a relatively poor country striving to get rich. The political economy of most poor countries usually has a policy environment that is a mixture of expropriating private enterprise and intolerance to the market system as a way of organising the economy.

However, when countries get lucky and are going through economic reform, the market imperative is often less emphasised in the new political economy. This creates a window for a few private businesses to exploit the newly friendly policy environment to build close relationships with the government and close their industries or sectors off to competition. The economy may become less desperately poor and may even have periods of high growth spurts. But the economy will not be innovative and productive enough to sustain economic growth and reduce poverty significantly. The misconception that the goal of public policy, especially in reform, is to create a competitive and innovative domestic market, and not for policy to build up individual businesses, is a most profound one

To see why this misunderstanding matters, we must look at how progress actually happens. Growth is not a story of preservation but of renewal, of old systems giving way to better ones. Every society that has become richer has done so by learning to replace rather than to protect. It is this restless process of creation and decay that the Austrian economist Joseph Schumpeter captured when he famously described capitalism as a gale of "creative destruction".

For decades, economists could only describe this process in words. It was not until 1992 that Philippe Aghion and Peter Howitt gave it a mathematical form. Their model, now honoured with the 2025 Nobel Prize in Economics (along with the work of economic historian Joel Mokyr), showed how growth emerges from a continuous sequence of innovations. In their framework, firms devote resources to research, and each discovery replaces the previous technology entirely. This formulation of innovation as a process that destroys as it creates became the foundation of what is now known as Schumpeterian growth theory.

The genius of Aghion and Howitt was to show that this turbulence could be stable. At the level of individual firms, there is upheaval, but in the aggregate, the economy moves forward in a steady rhythm. The key is competition. When firms know that they can be replaced, they have to keep innovating. When they are protected, the incentive to improve vanishes. Without the disciplining force of competition, what you get is stagnation and not innovation.

Years later, Philippe Aghion and some other collaborators extended the logic of this theory to the most important development story of the past four decades - China. The success of China is mostly attributed to industrial policy, so the researchers set out to investigate the conditions under which the Chinese government guided its industrial policy. What they found was that it works only when support is spread across several firms. Subsidies and tariffs can raise productivity when they foster rivalry, but when they favour one or two firms, they entrench monopoly and slow innovation. Industrial policy succeeds only when it is competition-friendly.

A Few Good People

I recently read a paper that got me thinking about this. In 2021, economists Martina Kirchberger and Keelan Beirne published Concrete Thinking About Development, which sought to investigate a very familiar problem: why is it expensive to build anything in a poor country? After collecting detailed data on cement and concrete prices from more than 150 countries and matched it with figures on construction, investment, and productivity, they found that a tonne of cement that costs around 130 dollars in the United States can cost as much as 500 dollars in Sub-Saharan Africa. Even after adjusting for purchasing power, African cement is roughly three to four times more expensive than the global average.

The question, of course, is why. Their analysis showed that the main driver of these high prices is not labour or transport costs but market structure – how many firms compete and how much power each one holds. In countries where cement production is concentrated in a few hands, prices soar. Where there is more competition, prices fall. Fewer producers mean higher mark-ups, and higher mark-ups mean it becomes more expensive to build housing and public infrastructure.

High cement prices act as a hidden tax on development. The authors estimate that a 10% fall in cement prices could lift a poor country’s stock of productive capital by roughly 4% over time. A few percentage points of lower cement prices can mean hundreds of thousands of new homes, hospitals, roads and bridges.

Nigeria's cement policy and industry, as Feyi has been writing about for over a decade, was built on anti-competitiveness. The goal was to stop importing cement and make it locally. In principle, this could have been a step towards industrial strength. In practice, it turned into a masterclass in how to turn protection into a private monopoly. The point that needs to be repeatedly emphasised is that the broader implication for the economy is negative. When a heavy and non-tradable good like cement is dominated by a few producers, it distorts the entire economy. It raises the cost of capital, slows investment, and reduces growth.

Kirchberger’s later research takes this argument even further. In her work on the construction sector in developing countries, she describes an industry trapped between informality and monopoly. At the bottom are countless small contractors who cannot access finance or technology. At the top are a few giants who dominate public tenders but do little to innovate. Between them lies a hollow middle, where the firms that could have scaled up and modernised never find the capital or the stability to do so.

This missing middle explains why big African cities can be congested urban hellscapes. Construction, which should be a great source of jobs and learning, becomes a stop-start affair. Projects are delayed, materials are wasted, and each new generation of builders must start from scratch. The sector fails to accumulate knowledge and remains unproductive.

The truth is that businesses do not like competition, but competition is essential for a well-functioning market and a productive economy. This year's Nobel Prize is a useful reminder that theories are useful and have important implications in the real world. Creative destruction may be bad for individual firms, but in the long run, it makes everybody better off.