When I interviewed Peter Howitt a year ago, a few weeks after the Canadian economist shared the 2025 Nobel Prize with Philippe Aghion and Joel Mokyr, he didn’t have much to say about his native country. He’d been away too long. Howitt left Western University for Ohio State University in 1996, and then shifted to Brown University in Rhode Island in 2000. Rather than weigh in on Canada’s productivity crisis, he demurred. “I really couldn’t comment on that,” he said. “I’m just not following it enough.”  

Howitt has a little more to say now, if only because the Canadian universities at which he became a master of the dismal science keep inviting him home for speaking engagements. Last week, Howitt gave this year’s Beatty Lecture at McGill University in Montreal. He used the first part of his speech to sketch his theory of economic growth, which differs from other approaches by putting an emphasis on innovation rather than simply taking it for granted. 

You can appreciate why an economist who believes economies advance by having the courage to embrace change would feel at home in the U.S., for so long a beacon of the things that Howitt’s research showed were necessary to propel societies forward. The list includes free trade and immigration. That means Howitt now finds himself a witness to a movement that would undermine everything he thinks made the American economy great. It has him looking north again.   

“All of this, of course, is under attack in the United States,” Howitt told his audience. “How do we deal with this? Well, I think most of what I’d have to say is actually already underway in Canada. I’m very proud to see that Canada is being very active and trying to reduce its dependence on the United States.”

High praise for Prime Minister Mark Carney’s policies from the heights of economic thought. Howitt is a macroeconomist, and a mostly retired one, so forgive him if you’ve spotted things closer to the ground that cause you to temper your own optimism about the federal government’s agenda. He is also a world-class thinker and researcher who devoted much of his career to making economic growth less of an abstraction. Since economic growth is Canada’s central challenge, Howitt’s observation is a notable outside opinion that we’re headed in the right direction.

With Carney’s second budget less than a week away, it’s also a good time to reflect on what it takes to generate lasting wealth. If Carney’s mission is sovereignty, he’ll need to reorient the economy so that it can run on its own rather than being solely dependent on exports to the U.S., government spending and inflated housing valuations. As it happens, one of our best and brightest figured out how to do just that some three decades ago. 

Howitt won the Nobel for his work on creative destruction, the idea that sustainable economic growth depends on new technologies and methods replacing old ones. Joseph Schumpeter came up with the theory in the early 1940s, but it still hadn’t penetrated mainstream economics in 1988, when Howitt spent a year at the Massachusetts Institute of Technology as a visiting professor. “I wasn’t particularly interested in growth theory at the time,” Howitt told his audience at McGill. Then he met Aghion, a recent graduate of Harvard University. 

“He said, ‘When I was taking courses at Harvard, I learned about Schumpeter’s idea of creative destruction, and that seems like what economic growth is all about. Why isn’t that in the models that we use and that we teach students?’ That [sounded] like a good question,” Howitt recalled. “Yeah, why isn’t it? It should be.” 

Their research led to some general truths about what motivates entrepreneurs to drive economies forward. One is that growth doesn’t happen without disruption. “That conflict is really essential to the whole growth process of a country,” Howitt said. “How it’s resolved goes a long way to explaining how successfully countries can incorporate and invent new technologies.” 

You can conjure economic growth with government spending, tax cuts and lower interest rates. Keeping it going once the sugar rush fades is more complex. Aghion and Howitt used game theory to show that needle-moving firms are motivated by the possibility of monopoly profits. A successful economy channels such striving. Patents make the hard work of discovery worthwhile, so you grant them. Ambitious firms require scale, so you embrace free trade. They also require funding, so you open the door to foreign direct investment. Human creativity is the one essential ingredient, so you better your odds of success by using immigration policy to create a deep pool of talent. 

I’ve been writing about economics in Canada since the turn of the millennium. Schumpeter rarely comes up in conversation. I think that’s because we’re a country that puts an emphasis on avoiding destruction, rather than stimulating creativity. It’s an emphasis that suits legacy companies and industry associations just fine. “Those who don’t benefit [from creative destruction] are often people who, at one time, were responsible for the creative destruction of previous generations and they don’t want to be destroyed by the next wave of innovations,” Howitt said. 

Schumpeter was actually OK with monopolies. He assumed too much competition would deter investment by reducing profit margins. This is where Aghion and Howitt parted ways with their spiritual mentor. Once they had figured out how to model creative destruction, they were able to test Schumpeter’s assumption about monopoly behaviour and found that he was wrong. Their empirical research showed that it was the threat of losing market share that spurred executives to keep spending money on innovation. “Make the market more competitive, and those firms will become more innovative,” Howitt said.  

There are competitive nudges in many of Carney’s policies. But the slow pace of internal free trade and open banking are just two reminders that nudging might not be enough. A successful mission will require accepting casualties.  

Kevin Carmichael is The Logic’s economics columnist and editor-at-large. He has spent more than two decades covering economics, business and finance for outlets including Bloomberg News, The Globe and Mail and the Financial Post, where he also served as editor-in-chief.