By Jo Kelly, Chief Executive, Centre for Sustainable Finance
At this election, every party will promise to lift New Zealand’s living standards. The harder question is how. We need firms that can turn good ideas into products and jobs, and we need people to share in the gains when the economy changes.
Professor Philippe Aghion, winner of the 2025 Nobel Prize in economic sciences, offered a useful way to think about that task when he spoke with the Centre for Sustainable Finance.
Click the video below to view the interview.
In “The Power of Creative Destruction: Economic Upheaval and the Wealth of Nations” Aghion describes how new ideas replace old technologies and ways of doing business. That process of “creative destruction” drives long-term growth. It also meets resistance: successful firms have reason to protect their position, while workers and communities bear the costs when industries and companies change.
Aghion pointed to three foundations for an economy that can keep renewing itself: competition that lets new firms enter, education that develops talent regardless of family circumstances, and support that helps people retrain and find work when jobs disappear. He argued that these policies can make an economy both more innovative and more inclusive.
New Zealand has strengths in food production, agricultural technology, health, software and clean technology. But our distance from large markets, limited access to capital and difficulty turning research into commercial success constrain what our firms can achieve. The next government should ask how its economic programme will help overcome those barriers.
The climate transition makes the question more urgent. Aghion argued that firms tend to keep innovating in fields they know. A carbon price gives them a reason to change course, but it cannot by itself create a viable fuel alternative or the infrastructure needed to use one. Policy must help bring those alternatives into being.
When I asked whether this meant government had to pick winners, Aghion pointed to the United States’ Defense Advanced Research Projects Agency, or DARPA. It sets missions, brings in leaders from research and industry, and invites competing teams to pursue solutions. He also cited the development of mRNA vaccines, where more than one laboratory worked towards the goal. Industrial policy, in this account, sets a direction and tests several routes. It does not require a minister to choose the company that will succeed.
We have a New Zealand example in AgriZeroNZ. Government, agribusinesses and banks invest together to speed the development and use of tools that reduce agricultural emissions while protecting farm productivity. AgriZeroNZ invests across a range of potential solutions, giving farmers a better chance of having affordable options that work. It addresses a problem the market alone has struggled to solve, while allowing different technologies to prove their worth.
The Sustainable Business Council and Climate Leaders Coalition’s election priorities make the next step clear. They call for AgriZeroNZ’s work to expand and propose a similar government and industry investment platform for clean industrial and transport technologies. They also seek a long-term energy vision, incentives for proven low-emissions equipment, and better evidence on climate and nature risks. These are proposals from businesses that want to invest and need credible, durable settings in which to do it.
That approach aligns with the Centre for Sustainable Finance’s work on industrial fuel switching. Where an investment serves a public goal (strategic allocation of finite domestic gas supply) but cannot yet proceed on commercial terms, government and private finance can identify the barrier and share the task of overcoming it.
Finance matters beyond any one project. Aghion observed that promising research needs long-term funding and young firms need capital to grow. CSF has called for capital markets settings that better enable institutional investment in private assets. We have also helped develop the NZ Taxonomy, which gives lenders and investors clearer criteria for activities that cut emissions or strengthen resilience. Both efforts help capital reach businesses with sound plans.
Resilience belongs in the growth debate, too. Innovation can help us adapt buildings, farms and infrastructure to hazards we already face. Communities and investors also need reliable risk information, clear responsibilities and workable ways to fund risk reduction. CSF and the Sustainable Business Council have both called for stronger evidence and more consistent action on adaptation. Waiting for damage before deciding who pays is a costly way to govern.
Aghion also warned of the “lost Einsteins” – : children with the ability to invent or start businesses who never get the chance because their families cannot give them the same access to knowledge and opportunity as others. He pointed to education reform in Finland that widened access to secondary schooling and increased the likelihood that children from less wealthy families would become inventors. For New Zealand, finding and developing that talent is both an economic and a social imperative.
New technologies, including artificial intelligence, change jobs. A country that wants firms to adopt them must help workers gain new skills and move into new work. Giving people the means and support to participate in change is one way to make lasting reform possible.
The upcoming general election offers parties a chance to explain how they would put these pieces together. Which problems would they ask innovators to solve? How would they invite competition, judge results and help successful ideas reach larger markets? How would they find our lost Einsteins, help workers adapt and give investors the confidence to commit?
New Zealand’s prosperity will depend on the answers, and on the determination to carry them through beyond one parliamentary term.
