Connecting innovation, institutions, and the missing middle: Insights from the 2025 Nobel for building labs and market creation

• by Nishant Kumar
• Dec 19, 2025
• 5 min

The 2025 Nobel Prize reinforces MSC’s belief that innovation succeeds through strong institutions and well-designed markets. At the heart of innovations at MSC are the experts in our startup innovation and acceleration capability. They build learning labs and market systems that turn experiments into scalable, inclusive solutions for farmers, entrepreneurs, and public institutions.

A seismic shift emerged in how we view society and civilizational progress when Philippe Aghion, Peter Howitt, and Joel Mokyr received the 2025 Nobel Prize in Economic Sciences. The trio reminded the world that innovation results from deliberate design, not luck. Their collective work explains why societies grow when they enable new ideas to replace old ones. This process, and its dependencies, lies on entrepreneurs, innovators, and on institutions that learn, compete, and collaborate. 

The Nobel Prize feels personal for those who are building innovation labs and market-creation programs. It validates the messy, iterative work to incorporate startups into bureaucracies, align funders and regulators, and turn pilots into real markets. It tells us that the job is to design systems that enable continuous innovation rather than to simply “do innovation.” From this research, we can draw three vital lessons that link with MSC’s work in the startup space under our Startup Innovation and Acceleration (SIA) team. 

Lesson 1: Innovation requires institutions that learn: Joel Mokyr’s research shows that economic progress occurs when societies build institutions that value useful knowledge and share experiments, failures, and cumulative lessons rather than hiding them.

The Bihar Krishi digital platform embodies this spirit. Developed in collaboration with the Bihar Agriculture Department in India, Bihar Krishi is among MSC’s leading innovation-lab projects. It has unified 50-plus government programs and services for more than 750,000 smallholder farmers within 18 months of launch. The platform has transformed a state department into a living digital entity that continually learns and builds institutional muscle beyond technology. The department now has its own innovation cadence, which intends to expand toward 4 million farmers through AI-driven advisory, market linkage, and financial services modules. 

Bihar Krishi offers three simple yet profound takeaways for any innovation lab. 

The lab must capture lessons as deliberately as it funds experiments; 

Every pilot should leave behind codified knowledge, whether templates, APIs, procurement notes, or data taxonomies, which reduces the cost of the next experiment; 

Innovation without institutional memory is mere performance art. 

Lesson 2: Creative destruction needs safe spaces to function: If we move to the work of Mokyr’s partners, Phillippe Aghion and Peter Howitt, the core idea of creative destruction can sound brutal. Yet, the essence of creative destruction is renewal. New ideas must be allowed to challenge the old, or progress stalls. For governments, banks, and large agencies, this is uncomfortable territory.

Yet, when we examine initiatives, such as the FPS Sahay program in India, we see a controlled pathway for responsible innovation. FPS Sahay enables fair price shop (FPS) entrepreneurs to access invoice-backed digital working-capital loans and allows FinTechs to pilot alternative approaches within a supervised setting. The platform is the brainchild of the Small Industries Development Bank of India (SIDBI) and the Department of Food and Public Distribution, with technical support from MSC (MicroSave Consulting).  

The FPS Sahay program carved new credit pathways for 60 entrepreneurs in the pilot phase. Post-pilot discussions are underway to explore the potential to scale to 500,000 microenterprises and create a policy pathway for embedded finance.  

The lesson is that labs must make room for controlled disruption, which helps simplify onboarding for innovators, provides clear “go or no-go” decision gates, and includes honest sunset clauses. This structure enables pilot programs that do not work to end smoothly, and those that do work to scale quickly. Institutions need permission structures to let new programs replace old ones without fear. 

Lesson 3: Markets require active engineering: Innovation fails when the ecosystem is unprepared to absorb it. Mokyr’s “useful knowledge” meets Aghion-Howitt’s “competition” only when markets, regulation, and capital align. This is the key logic of MSC’s SIA team’s market-creation stream, which works to design accelerators, challenge funds, and centers of excellence (CoEs). Together, these mechanisms serve as vehicles to engage with innovators, absorb new business models or systems of product and service delivery, shape demand, and unlock private investment around complex public problems. 

The Financial Inclusion Lab (India), co-built with IIMA Ventures and MSC, exemplifies this approach. It brought 49 startups, mostly FinTechs, into the same room as regulators, investors, and banks, to translate sandbox pilots into investable ventures. Those startups went on to raise USD 250 million in follow-on capital and reach 45 million low-income customers.

The lab accelerates startups that engineer a market for inclusive finance, much akin to what the Nobel trio modeled theoretically. 

The design rule is clear for innovation labs elsewhere. The priority is to build the ecosystem handholding, which includes regulatory dialogue, data interoperability, and blended-finance pools, before private markets can scale solutions. These three lessons inform the efforts of the SIA practice at MSC, which works on two interconnected fronts: 

1. Institutionalinnovation labs:We help governments, banks, and public programs create arm-length labs that change how they learn, procure, and deliver by testing solutions safely, working with startups, and building institutional capability. 
2. Market-creation programs (accelerators, challenge funds, andCoEs):These programs shape demand for new solutions in a sector. They allow institutions to engage with innovators, absorb new business models, and direct private capital toward complex public problems. 

Institutional labs improve how a single institution learns and delivers. In contrast, market-creation programs establish the broader ecosystem conditions of demand, capital, and partnerships that individual labs cannot achieve on their own. 

When these two fronts connect, institutional labs validate what works, while market-creation programs help scale these solutions. The resulting market signals feed back into labs with new data and partners. This feedback loop, what Nobel economists call cumulative innovation, is how experimentation grows into a system. 

Why does it matter now? 

Whether we discuss climate adaptation, farm productivity, or AI for public purposes, the challenge is not a shortage of ideas but rather a shortage of systems that allow ideas to survive in contact with reality.

As the Bihar Krishi Digital Platform digitizes agri-services, FPS Sahay rewires credit for microentrepreneurs, and Financial Inclusion Lab alumni expand access to digital finance. Together, these programs offer glimpses of the decade ahead. This future shows innovation anchored in institutions, scaled through markets, and continuously improved by ecosystem feedback. This is good economics and good governance that proves how creative destruction becomes constructive inclusion. 

Today, institutions spend trillions yet innovate with decades-old capacity. In this scenario, MSC’s SIA practice has a clear mandate. Our mission is to build labs that turn experimentation into permanent capability and markets that make innovation inevitable. That is the heart of SIA’s mission and exactly what this year’s Nobel prize reminded us to keep doing.