Canadian Peter Howitt, an emeritus professor of economics at Brown University, was awarded the Nobel Prize in economic sciences on Monday in a joint recognition with two others for their work on theories related to innovation and economic growth. The Royal Swedish Academy of Sciences honoured Howitt for his work on  the “theory of sustained growth through creative destruction,” along with one of his co-authors, Philippe Aghion of the Collège de France, and Joel Mokyr of Northwestern University who was recognized for his work in economic history and the factors that led to the industrial revolution in Europe. Who is Howitt and what impact does his work have on economic theory? The Financial Post’s Jordan Gowling explains.

Who is Peter Howitt?

Howitt was born Guelph, Ont., on May 31, 1946, and earned his bachelor’s degree at McGill University in 1968 and a master’s in economics at the University of Western Ontario, now known as Western University. He went on to earn a PhD at Northwestern University in Illinois in 1973.

For more than 20 years, from 1972 to 1996, Howitt taught at Western in London, Ont., before moving to Ohio State University, where he taught until 2000.

In 2000, he joined the faculty of economics at Brown University in Providence, Rhode Island, and eventually retired in 2013.

During his 50-year career, Howitt published more than 100 academic articles and several books on

macroeconomics and monetary theory . Along with Aghion, Howitt published two books expanding on their theory of

creative destruction , including Endogenous Growth Theory published in 1997 and The Economics of Growth published in 2009.

Howitt is a fellow of the Royal Society of Canada and the Econometric Society, and is an international fellow at the C.D. Howe Institute.

What did Howitt win the Nobel Prize for?

Howitt was recognized for his work on “creative destruction,” a term first popularized by Austrian economist Joseph Schumpeter in his book Capitalism, Socialism and Democracy published in 1942. The concept describes the process of

how new innovations that drive growth by creating new technologies also destroy the results of previous innovations by making them obsolete. In 1992, Howitt and Aghion published a paper titled A Model of Growth Through Creative Destruction in the Econometrica journal, which provided a mathematical model that could quantify the process by which the failure of certain companies and industries gives rise to growth through new ones.

Howitt and Aghion said this process of creative destruction, in which companies and jobs continually disappear and are replaced, is at the heart of the process that leads to sustained growth. When one company has an idea for a better product or more efficient means of production, then that company can climb the ladder and become the market leader. But this also creates an incentive for other companies to improve their product and climb the ladder as well. 

“This is a simple idea that in order to understand technological progress, you have to understand it takes place through waves of innovation that bring great benefits to mankind, but also generate tremendous losses to many people whose livelihoods depend upon technologies and capital that are rendered obsolete by these new technologies,” Howitt said during a press conference hosted by Brown University on Monday.

What has been the impact of Howitt’s model?

Howitt’s work has produced a paradigm shift in how we think about economic growth, according to the Royal Swedish Academy of Sciences.

“From it we can derive the average growth rate as the result of a multitude of decisions made by individuals facing conflicting interests,” said Lund University economics professor Kerstin Enflo, during the presentation of the prize in Stockholm.

“As such, the model can explain how growth can be such a destructive process at the firm level and still result in those stable aggregate growth rates,” she added.

The model can also help guide policy in areas such as research and development subsidies and the development of safety nets for workers who are affected by creative destructive. Howitt’s work also has implications for antitrust and competition law and his model is more relevant than ever as economies across the world grapple with the expansion of artificial intelligence and the potential disruption it is causing.

“No one knows who is going to be the leader in this business of artificial intelligence and we don’t know what the creative destruction effects are going to be,” Howitt said. “It’s obviously a fantastic technology that has amazing possibilities, and it also obviously has amazing potential … for replacing highly skilled labour.”

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These conflicts will have to be regulated, he added, because private incentives in an unregulated market will not resolve them in a way that will be best for society.