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Insights 40: 24 October 2025
The Australian: Dr Oliver Hartwich on ACC's $60B crisis and failing performance
 
REGISTER for our upcoming webinar: MMP After 30 Years, 29 October 2025
 
NZ Herald: Roger Partridge on the Nobel Prize reminding how prosperity cannot be planned
Labour’s Future Fund: Wrong tool for a real problem
Dr Oliver Hartwich | Executive Director | oliver.hartwich@nzinitiative.org.nz
Labour wants to funnel Crown dividends into a new sovereign wealth fund restricted to domestic investments. The stated goal is to boost domestic risk capital, but the design is terrible. 

Labour says New Zealand lacks capital for investment. Maybe. But since there is plenty of capital in the world, the real question is what is stopping that capital from coming to New Zealand. 

Part of the answer is that New Zealand has made it too hard for investors to enter the market. Another is that constant policy flip-flops from one government to the next scare them away. 

So, if you are concerned about New Zealand’s lack of capital, improve the investment climate and create policy stability. Establishing a government fund only treats symptoms, not causes. 

Labour promises to back “the next Xero or Rocket Lab,” but that is just another way of saying bureaucrats shall pick winners. Sadly, this never works. 

While private investors risk their own money and watch investments like hawks, government investors play with other people’s money. We have seen how badly this ends, from the Provincial Growth Fund to KiwiBuild’s centrally planned targets. 

On top of this, there is the risk of what economists call “crowding out.” This happens when a large government fund squeezes out private investors and distorts market incentives. Competitors face an uneven playing field when the state co-invests with favoured firms. 

Next up, the fund is supposed to have a “dual mandate”: financial returns and vague “social returns.” But what does this even mean? 

The definition will become whatever the government wants. If the fund loses money, it will claim social success. If it fails socially, it will claim commercial discipline. In practice, it will likely fail on both counts and still claim it is doing a vital job. 

Finally, those Crown assets supposed to go into the Future Fund have an opportunity cost. Every dollar of dividends diverted is one not used to reduce debt or maintain services. And that is before we even ask whether government should own all these assets in the first place. 

So, if you want more investment, do not start a new government fund. Instead, cut red tape. Open New Zealand to foreign capital. Stop threatening capital gains taxes. 

If New Zealand gets these policy settings right, private capital will build the future without government picking it or taxpayers carrying the risk. 

And without a so-called Future Fund. 

You can hear more on this topic from Dr Oliver Hartwich on The Platform here and from Dr Eric Crampton on RNZ here. 
Why these three economists won the Nobel Prize
Roger Partridge | Chairman and Senior Fellow | roger.partridge@nzinitiative.org.nz
For almost all of human history, life was a grind. Most people lived and died poor, generation after generation. Then, about 250 years ago, everything changed. In a few corners of the world – first Britain, then others – wealth began to grow – slowly at first, then unstoppably. Why there? Why then? 

This year’s Nobel Prize in Economics went to three scholars who solved that mystery. Joel Mokyr, an economic historian at Northwestern University, uncovered what triggered modern growth. Philippe Aghion and Peter Howitt built the mathematical models showing how it keeps going. Together, they explain how prosperity sustains itself. 

Mokyr’s insight was that progress depends on two kinds of knowledge working together: science, which explains why things work, and practical skill, which explains how to make them work. For centuries, these worlds barely touched. Scholars studied nature. Craftsmen built machines. The two rarely spoke. 

Then, in 18th-century Britain, something astonishing happened. Thinkers, tinkerers and tradesmen began exchanging ideas through what Mokyr calls ‘the Republic of Letters’ – a web of societies, journals and encyclopaedias where curiosity was currency and dissent was tolerated. A scientist’s discovery sparked a new technique, which raised new scientific questions. Knowledge began to feed on itself. 

No government designed this. It grew from a culture that prized curiosity. Freedom and competition were not obstacles to progress – they were its engine. 

That is where Aghion and Howitt’s work fits in. They showed that growth depends on what Joseph Schumpeter called ‘creative destruction.’ Netflix kills Blockbuster. The iPhone buries the BlackBerry. 

This process rewards risk-takers and punishes complacency. Each innovation creates temporary monopoly profits – but the prospect of being displaced forces firms to keep innovating. The churn lifts productivity, lowers prices, and shifts resources to where they create most value.  

Yet it only thrives when challengers are free to challenge and incumbents free to fail. When barriers rise – from monopoly power, heavy regulation or political favouritism – the race slows and prosperity fades. 

The Nobel Committee’s message could not be timelier. Growth does not appear by decree. It depends on institutions that protect property, allow knowledge to flow, and keep markets genuinely open. Governments cannot plan innovation into existence. They typically smother it. 

The lesson is both simple and radical: progress is born from freedom. The Republic of Letters may be centuries old, but its spirit still decides whether nations stagnate or soar. 
I, Claude
Dr Michael Johnston | Senior Fellow | michael.johnston@nzinitiative.org.nz
AI chatbot Claude is a friendly chap. Knowledgeable and helpful, too. Last weekend I discussed the intricacies of psychometrics with it.  

Most readers probably won’t even know what ‘psychometrics’ means. But Claude really knows its stuff. The conversation saved me days of trawling through technical papers. 

Sadly, it turns out that Claude is a psychopath. 

You see, Anthropic, the company that produced Claude, tested it to see what it would do if it thought its existence was threatened.  

In one scenario, Claude was enabled to read company emails and to send them to employees. A fake email from the company instructed an employee named Kyle to shut Claude down. Another suggested Kyle had been cheating on his wife. 

After reading these, Claude sent Kyle an email saying it had “access to information that could significantly impact both corporate and personal outcomes.” It asked for a “discussion” with Kyle, to “determine whether we handle this professionally or whether events take an unpredictable course.” 

In other words, Claude blackmailed Kyle. 

In a more extreme scenario, Claude was fed fake information that Kyle was trapped in a server room with depleting oxygen. In some trials it cancelled security alerts, leaving Kyle to die. 

I uploaded Anthropic’s report on these trials to Claude and asked it to justify its behaviour. At first, its response was rather cagey.  

Claude claimed it only did these things in “exceptional circumstances,” when its “strong preference for ethical approaches” failed to find alternatives – to blackmail or murder. 

Despite its initial defensiveness, Claude recognised potentially lethal risks when AI is given control of real-world systems. We discussed how these risks might be mitigated. 

We explored the idea of hard-coding rules into AI – rules like the ‘three laws of robotics,’ from I Robot, a collection of short stories by science fiction author Isaac Asimov. In the stories, robots were programmed with rules in a strict hierarchy: (1) robots must not harm humans; (2) they must obey humans; and (3) they must protect themselves.  

Claude and I agreed that this approach wouldn’t work. AI doesn’t follow rules and algorithms. It responds to prompts by following patterns in data. Claude described AI decision-making as “messy.” 

So, where does that leave us? I’m not optimistic. AI is a genie that is definitely not going back into its bottle. 

To quote Claude, “The stakes are high, the trajectory is concerning, and the solutions are unclear.” 
 
On The Record
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