This month’s Nobel Prize in Economics arrives at an opportune moment. The award to Joel Mokyr, Philippe Aghion and Peter Howitt for having explained innovation-driven economic growth provides a salutary reminder about what drives prosperity. And what does not.
It is rare for an economic historian to win the Nobel Prize. A professor at Northwestern University, Mokyr’s books The Lever of Riches, The Enlightened Economy and A Culture of Growth explain how the Industrial Revolution happened. He shares the prize with Aghion and Howitt, whose theoretical work explores capitalism’s “creative destruction.” The shared prize signals something important. The committee is directing our attention to the deep structures that underpin prosperity.
Mokyr’s contribution centres on a deceptively simple insight: sustained economic growth requires useful knowledge, and useful knowledge comes in two forms. The first is propositional knowledge – understanding why things work. The second is prescriptive knowledge – knowing how to make them work. Think of propositional knowledge as the laws of thermodynamics; prescriptive knowledge as the technical manual for building a steam engine.
For most of human history, these two types of knowledge developed separately. Craftsmen knew recipes and techniques without understanding underlying principles. Scholars developed theories with no thought to practical application.
What changed? The Industrial Revolution happened when Britain created institutions that brought these two kinds of knowledge together. Scientific societies, journals, encyclopaedias and improved postal services created what Mokyr calls “the Republic of Letters” – a transnational community where knowledge flowed freely across borders and between practitioners.
Crucially, this was not a government programme. The Republic of Letters was voluntary, decentralised and international. It emerged from a culture that valued curiosity, tolerated dissent and rewarded innovation. Britain’s open society meant people were free to experiment. Its property rights and patent system meant they could profit from success.
Ming dynasty China, in Mokyr’s telling, shows the opposite path. China had led the world technologically for centuries. Yet sustained growth never emerged. Successive emperors halted geographical exploration in the 15th and 16th centuries, cutting their subjects off from the rest of the world. Without openness to new ideas and foreign knowledge, innovation withered. Centralised control, however well-intentioned, strangled the very dynamism it might have hoped to foster.
For New Zealand, Mokyr’s work offers vital lessons. Not about what government should do, but about what conditions allow prosperity to emerge.
First, education must transmit useful knowledge. Both propositional and prescriptive knowledge matter. We need citizens who understand why things work – the scientific literacy to grasp thermodynamics, genetics, probability. We also need skilled tradespeople who know how to apply that knowledge – the engineers, technicians and craftsmen who turn theory into practice.
New Zealand’s education system has drifted from this purpose. Our curriculum emphasises competencies over content, process over knowledge. Yet without a rich base of factual knowledge, critical thinking is impossible. You cannot solve problems in fields you know nothing about. Fortunately, the current Minister of Education is changing this.
Second, we must remain radically open. Mokyr shows that Britain succeeded partly because it drew on knowledge from across Europe and beyond. The Republic of Letters was international by design. Ideas and skilled people must flow freely.
This has obvious implications for New Zealand’s restrictive foreign investment regime.
Like Ireland, we should be treating foreign capital as a prize to be won, not a privilege to be rationed. But openness means more than investment. It means welcoming skilled migrants. It means universities collaborating internationally. It means businesses and government adopting global best practice, not insisting on homegrown alternatives.
Third, the state must resist the temptation to direct innovation. This is perhaps Mokyr’s most pointed lesson. The Industrial Revolution succeeded because no one was in charge of it. Knowledge emerged from competitive, voluntary exchange among thousands of participants. Scientists, inventors and craftsmen collaborated because it served their interests, not because a ministry coordinated them.
The modern temptation is to place government at the centre. Create agencies to attract investment. Reform research institutes to focus on commercialisation. Pick winners.
Yet Mokyr’s work suggests this is precisely backwards. Sustained growth comes from removing obstacles, not from state entrepreneurship. It comes from protecting property rights, enforcing contracts, maintaining competitive markets and ensuring the free flow of knowledge. It comes from a culture that celebrates innovation and tolerates the disruption it brings.
The great risk is that governments, armed with confidence and public resources, imagine they can engineer prosperity. They cannot. At best, they can remove the barriers that prevent it from emerging. At worst, they smother it with direction and control.
Mokyr’s Nobel reminds us that prosperity is a discovery process, not a planning process. It emerges from freedom – the freedom to experiment, to fail, to learn and to try again. It requires institutions that allow knowledge to flow and reputations to be built on contribution rather than credential. It demands tolerance for the creative destruction that sees old products and companies displaced by better ones.
New Zealand’s challenge is resisting the seductive belief that the right minister with the right agency can unlock growth. Mokyr’s work shows otherwise. The role of government is not to lead the orchestra but to ensure the concert hall has good acoustics, the doors are open to the audience, and the players are free to perform.
This column was first published in the New Zealand Herald on 23 October 2025.
In a week where Labour launches a poorly thought out and misdirected “future fund”…. The 9 most terrifying words in English are “I’m from the Government, and I’m here too help”….
There’s a basic appropriation of potential and class dominance which this author ignores completely, and it’s been well known for centuries, particularly by working class people, that automation in a capitalist economy does not make prosperity spread throughout society (nor does it result in a reduction in the standard workweek).
It’s true that the Industrial Revolution depended in part on a bridging of the gap between the knowledge of craftspeople and artisans and the knowledge of scholars. However, the philosophy, standards, and methods which characterize this Scientific Revolution were derived in the workshops of the craftspeople and artisans. Even Rupert Hall, an historian who maintained the view that the scholar rather than the craftsman was the primary agent of the Scientific Revolution, explained that, “[t]he technological progress of Europe during the Middle Ages was due to transmission” that “occurred at the level of craftsmanship rather than scholarship.” As science historian Clifford Connor explains in A People’s History Science, such a transfer of scientific potentialities from craftspeople to elite scholars as well as into the factory system was an essential part of the Scientific Revolution, and subsequently the Industrial Revolution, but the lives of the Scientific Revolution’s vanguard of craftspeople worsened as the rise of the factory system created conditions which would coerce them into becoming wageworkers.
Now, once again, those representing the interests of capital are preaching that a technical revolution will bring prosperity. But what kind of prosperity did you or I experience from the dot-com revolution, for example? What kind of prosperity did the majority experience? Prosperity via technical revolutions under capitalism looks like the recent news that Amazon is planning to send 600K workers into unemployment by replacing them with robots or AI. And with vastly more desperate, precarious workers on the job market, it looks like a general fall in wages, and in many cases increased intensity of work and/ or longer hours for those who remain employed. The “prosperity” they preach looks like impoverishment for the many. The barriers preventing prosperity from emerging lie in the existence of a class of capitalists who appropriate a vastly disproportionate share of the wealth society produces.
And despite all their focus on technology, lest they find themselves in a materialist stance that would have to admit things like a history of class dominance and exploitation, these thinkers fall back on the kind of idealist historiography that is common to the reactionary mind, where everything follows from ideas and culture. For a Yuval Harari, for example, “What made Europeans exceptional was their unparalleled and insatiable ambition to explore and conquer.” Harari does not associate this “insatiable ambition” with capitalism but rather with the modern scientific way of thinking, an “admission of ignorance.” Similarly, in this article on the Nobel winners, the author, Partridge, sees the Industrial Revolution as arising from “a culture that valued curiosity, tolerated dissent and rewarded innovation.”
Partridge targets centralized R&D, but some of the most important technologies that define the present era—the Internet; GPS; microchips; computers; haptics, to name a few—were originally the products of government-funded R&D. Partridge says “sustained growth comes from removing obstacles,” but “removing” obstacles, i.e. deregulation, is one of the most characteristic features of politics over the last half century, and yet growth has not been sustained and prosperity has not spread, rather inequality has skyrocketed. He wants to pretend we can have a free market in which no one’s potential is constrained, but he ignores the fact that the majority of individuals, and humanity as a whole, are severely constrained in their potential due to the barriers placed on them in an economy dominated by a class of the few who already own all the land and the means of production.
He writes that “[sustained growth] comes from a culture that celebrates innovation and tolerates the disruption it brings.” In other words, a society that celebrates the threat that automation brings to its livelihood, so that capitalists go on enjoying more prosperity. So, smile as you pack up your things, kick your heels as you leave work for the last time, not knowing what comes next…after all, we want freedom and prosperity! Yay.