Prize Lecture (Excerpts).

You can read the full article at:

http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1993/north-lecture.html)
Lecture to the memory of Alfred Nobel, December 9, 1993
By Douglas North

Economic Performance through Time

I
Economic history is about the performance of economies through time. The objective of research in the
field is not only to shed new light on the economic past but also to contribute to economic theory by
providing an analytical framework that will enable us to understand economic change. A theory of
economic dynamics comparable in precision to general equilibrium theory would be the ideal tool of
analysis. In the absence of such a theory we can describe the characteristics of past economies, examine
the performance of economies at various times, and engage in comparative static analysis; but missing is
an analytical understanding of the way economies evolve through time.
A theory of economic dynamics is also crucial for the field of economic development. There is no
mystery why the field of development has failed to develop during the five decades since the end of the
Second World War Neo-classical theory is simply an inappropriate tool to analyze and prescribe policies
that will induce development. It is concerned with the operation of markets, not with how markets
develop. How can one prescribe policies when one doesn't understand how economies develop? The very
methods employed by neo-classical economists have dictated the subject matter and militated against
such a development. That theory in the pristine form that gave it mathematical precision and elegance
modeled a frictionless and static world. When applied to economic history and development it focused on
technological development and more recently human capital investment, but ignored the incentive
structure embodied in institutions that determined the extent of societal investment in those factors. In the
analysis of economic performance through time it contained two erroneous assumptions: one that
institutions do not matter and two that time does not matter.
This essay is about institutions and time. It does not provide a theory of economic dynamics comparable
to general equilibrium theory. We do not have such a theory. Rather it provides the initial scaffolding of
an analytical framework capable of increasing our understanding of the historical evolution of economies
and a necessarily crude guide to policy in the ongoing task of improving the economic performance of
economies. The analytical framework is a modification of neo-classical theory. What it retains is the
fundamental assumption of scarcity and hence competition and the analytical tools of micro-economic
theory. What it modifies is the rationality assumption. What it adds is the dimension of time.
Institutions form the incentive structure of a society and the political and economic institutions, in
consequence, are the underlying determinant of economic performance. Time as it relates to economic
and societal change is the dimension in which the learning process of human beings shapes the way
institutions evolve. That is, the beliefs that individuals, groups, and societies hold which determine
choices are a consequence of learning through time - not just the span of an individual's life or of a
generation of a society but the learning embodied in individuals, groups, and societies that is cumulative
through time and passed on intergenerationally by the culture of a society


II
Institutions are the humanly devised constraints that structure human interaction. They are made up of
formal constraints (rules, laws, constitutions), informal constraints (norms of behavior, conventions, and
self-imposed codes of conduct), and their enforcement characteristics. Together they define the incentive
structure of societies and specifically economies. Institutions and the technology employed determine the
transaction and transformation costs that add up to the costs of production. It was Ronald Coase who
made the crucial connection between institutions, transaction costs, and neo-classical theory. The neoclassical result of efficient markets only obtains when it is costless to transact. Only under the conditions
of costless bargaining will the actors reach the solution that maximizes aggregate income regardless of the
institutional arrangements. When it is costly to transact then institutions matter. And it is costly to
transact. Wallis and North (1986) demonstrated in an empirical study that 45 percent of U.S. GNP was
devoted to the transaction sector in 1970.

III
It is the interaction between institutions and organizations that shapes the institutional evolution of an
economy. If institutions are the rules of the game, organizations and their entrepreneurs are the players.
Organizations are made up of groups of individuals bound together by some common purpose to achieve
certain objectives. Organizations include political bodies (political parties, the Senate, a city council,
regulatory bodies), economic bodies (firms, trade unions, family farms, cooperatives), social bodies
(churches, clubs, athletic associations), educational bodies (schools, universities, vocational training
centers).
The organizations that come into existence will reflect the opportunities provided by the institutional
matrix. That is, if the institutional framework rewards piracy then piratical organizations will come into
existence; and if the institutional framework rewards productive activities then organizations - firms - will
come into existence to engage in productive activities.
Economic change is a ubiquitous, ongoing, incremental process that is a consequence of the choices
individual actors and entrepreneurs of organizations are making every day. While the vast majority of
these decisions are routine (Nelson and Winter, 1982) some involve altering existing "contracts" between
individuals and organizations. Sometimes that recontracting can be accomplished within the existing
structure of property rights and political rules; but sometimes new contracting forms require an alteration
in the rules. Equally, norms of behavior that guide exchanges will gradually be modified or wither away.
In both instances, institutions are being altered.
Modifications occur because individuals perceive that they could do better by restructuring exchanges
(political or economic). The source of the changed perceptions may be exogenous to the economy - for
instance a change in the price or quality of a competitive product in another economy that alters
perceptions of entrepreneurs in the given economy about profitable opportunities. But the most
fundamental long run source of change is learning by individuals and entrepreneurs of organizations.

V
There is no guarantee that the beliefs and institutions that evolve through time will produce economic
growth. Let me pose the issue that time presents us by a brief institutional/cognitive story of long-run
economic/political change.
As tribes evolved in different physical environments they developed different languages and, with
different experiences, different mental models to explain the world around them. The languages and
mental models formed the informal constraints that defined the institutional framework of the tribe and
were passed down intergenerationally as customs, taboos, and myths that provided cultural continuity.
With growing specialization and division of labor the tribes evolved into polities and economies; the
diversity of experience and learning produced increasingly different societies and civilizations with
different degrees of success in solving the fundamental economic problem of scarcity. The reason is that
as the complexity of the environment increased as human beings became increasingly interdependent,
more complex institutional structures were necessary to capture the potential gains from trade. Such
evolution requires that the society develop institutions that will permit anonymous, impersonal exchange
across time and space. To the extent that the culture and local experiences had produced diverse
institutions and belief systems with respect to the gains from such cooperation, the likelihood of creating
the necessary institutions to capture the gains from trade of more complex contracting varied. In fact most
societies throughout history got "stuck" in an institutional matrix that did not evolve into the impersonal
exchange essential to capturing the productivity gains that came from the specialization and division of
labor that have produced the Wealth of Nations.

The incentives to acquire pure knowledge, the essential underpinning of modern economic growth, are
affected by monetary rewards and punishments; they are also fundamentally influenced by a society's
tolerance of creative developments, as a long list of creative individuals from Galileo to Darwin could
attest. While there is a substantial literature on the origins and development of science, very little of it
deals with the links between institutional structure, belief systems and the incentives and disincentives to
acquire pure knowledge. A major factor in the development of Western Europe was the gradual
perception of the utility of research in pure science.
Incentives embodied in belief systems as expressed in institutions determine economic performance
through time, and however we wish to define economic performance the historical record is clear.
Throughout most of history and for most societies in the past and present, economic performance has
been anything but satisfactory. Human beings have, by trial and error, learned how to make economies
perform better; but not only has this learning taken ten millennia (since the first economic revolution) - it
has still escaped the grasp of almost half of the world's population. Moreover the radical improvement in
economic performance, even when narrowly defined as material well-being, is a modern phenomenon of
the last few centuries and confined until the last few decades to a small part of the world. Explaining the
pace and direction of economic change throughout history presents a major puzzle.

VI
What can an institutional/cognitive approach contribute to improving our understanding of the economic
past? First of all it should make sense out of the very uneven pattern of economic performance described
in the previous section. There is nothing automatic about the evolving of conditions that will permit low
cost transacting in the impersonal markets that are essential to productive economies. Game theory
characterizes the issue. Individuals will usually find it worthwhile cooperating with others in exchange
when the play is repeated, when they possess complete information about the other player's past
performance, and when there are small numbers of players. Cooperation is difficult to sustain when the
game is not repeated (or there is an endgame), when information about the other players is lacking, and
when there are large numbers of players. Creating the institutions that will alter the benefit/cost ratios in
favor of cooperation in impersonal exchange is a complex process because it not only entails the creation
of economic institutions but requires that they be undergirded by appropriate political institutions.
We are just beginning to explore the nature of this historical process. The remarkable development of
Western Europe from relative backwardness in the tenth century to world economic hegemony by the
eighteenth century is a story of a gradually evolving belief system in the context of competition among
fragmented political/economic units producing economic institutions and political structure that produced
modern economic growth. And even within Western Europe there were successes (The Netherlands and
England) and failures (Spain and Portugal) reflecting diverse external environmental experiences.
Second, institutional/cognitive analysis should explain path dependence, one of the remarkable
regularities of history. Why do economies once on a path of growth or stagnation tend to persist?
Pioneering work on this subject is beginning to give us insights into the sources of path dependence
(Arthur, 1989 and David, 1985). But there is much that we still do not know. The rationality assumption
of neo-classical theory would suggest that political entrepreneurs of stagnating economies could simply
alter the rules and change the direction of failed economies. It is not that rulers have been unaware of poor
performance. Rather the difficulty of turning economies around is a function of the nature of political
markets and, underlying that, the belief systems of the actors. The long decline of Spain, for example,
from the glories of the Habsburg Empire of the sixteenth century to its sorry state under Franco in the
twentieth century was characterized by endless self-appraisals and frequently bizarre proposed solutions.
Third, this approach will contribute to our understanding of the complex interplay between institutions,
technology, and demography in the overall process of economic change. A complete theory of economic
performance would entail such an integrated approach to economic history. We certainly have not put all
the pieces together yet. For example, Robert Fogel's path breaking work on demographic theory11 and its
historical implications for reevaluating past economic performance has yet to be fully integrated with
institutional analysis. The same is true for technological change. The important contributions of Nathan
Rosenberg (1976) and Joel Mokyr (1990), exploring the impetus for and consequences of technological
change have ongoing implications which need to be integrated with institutional analysis. An essay by
Wallis and North (forthcoming) is a beginning at integrating technological and institutional analysis. But
a major task of economic history is to integrate these separate strands of research.
--From Nobel Lectures, Economics 1991-1995, Editor Torsten Persson, World Scientific Publishing Co.,
Singapore, 1997

Botswana and Zimbabwe: A Tale of Two Countries

Published in the American
By Marian L. TupyWednesday, May 14, 2008
Filed under: World Watch

Since gaining independence, one has become a success while the

other has become a dismal failure. What explains that?

We used to look at Botswana as our poor cousin, but now we do all of our shopping there, said
David Coltart, an opposition member of the Zimbabwean parliament, when I met him a few
months ago. The Coltarts are doing relatively well. Davids successful legal practice and
parliamentary salary enable them to shop in Botswanaif only to buy basic necessities. Most of
their countrymen do not have that option.
Zimbabwe suffers from an 80 percent unemployment rate and, according to the International
Monetary Fund, an inflation rate exceeding 150,000 percent. Since 1994, the average life
expectancy for women in Zimbabwe has fallen from 57 years to 34 years; among men it has
dropped from 54 years to 37 years. Some 3,500 Zimbabweans die every week from the
combined effects of HIV/AIDS, poverty, and malnutrition. Half a million Zimbabweans may
have died since 2000, while some 3 million fled to South Africa alone.
A country that used to be called the jewel and the breadbasket of Africa is now an Orwellian
nightmare. With the economy in ruins and political freedom eviscerated, Zimbabwes state-run
media rail against a phantom international conspiracy consisting of Western powers and led by

liar George Bush, gay Tony Blair, uncle Tom Colin Powell, and a slave to white masters
Condoleezza Rice.
I visited Zimbabwe twice during the 1990s. Back then, the country was in the midst of an earlier
economic crisis caused by sluggish growth and excessive government spending. The IMF
stepped in with an economic structural adjustment program worth hundreds of millions of
dollars that, alas, bore little fruit. Still, I was shocked to see the extent of Zimbabwes economic
decline when I returned there last November.
I crossed the border between Zimbabwe and Botswana at the Kazangula junction, just a few
miles from the spectacular Victoria Falls. While the other tourists drove up to the beautiful,
though now almost completely empty, Elephant Hills Hotel that overlooks the falls, I remained
in the town below to see for myself the outcome of Robert Mugabes 27-year rule.
The once charming town of Victoria Falls that used to teem with tourists from around the world
looked run-down and empty. About half of the shops were either empty or closed altogether. The
main shopping center looked more like a warehouse. It offered few products thinly spread out on
half-empty shelvesan obvious attempt to mask the widespread shortages of consumer goods. A
handful of tourists, mostly young backpackers from Canada and Australia, wandered around the
town center in futile search of edible food. Like them, I could not find meat or bread anywhere.
Few ordinary Zimbabweans would agree to talk to me about their problems. Those who did,
looked over their shoulders, worried that someone from Mugabes omnipresent Central
Intelligence Organization might be listening. They are right to be afraid, for Zimbabwe today is a
police state where armed gangs of government supporters harass, beat and kill members of the
opposition with utter impunity.
How different, I thought, was Zimbabwe from Botswana, the latter of which is safe and
increasingly prosperous. But what accounts for such striking differences between the two
neighbors? It turns out that much of the difference stems from the degree of freedom that each
populace enjoys.
Its the Economies, Stupid
Botswana, previously the Protectorate of Bechuanaland, gained independence from Great Britain
in 1966. Her new president, Seretse Khama, a descendant of the local Bamangwato chiefs,
received his education at South Africas Fort Hare University and Oxfords Balliol College. In
1948, he married a white woman, Ruth Williams, who clerked at Lloyds in London. Their
marriage was political dynamite that was, at first, opposed by both the traditional chiefs in the
Bechuanaland and by the government in South Africa, Botswanas immensely more powerful
southern neighbor whose white population had just elected a regime that wanted to increase
racial segregation between whites and blacks. Fearing South Africas negative reaction, the
British government banned the Khamas from the Protectorate for almost a decade.
The racial prejudice that the pair encountered from both sides of the racial spectrum proved to be
formative. While most regimes in post-independence Africa sent their white populations

packing, Khama and his successors strove for racial harmony. As a result, Botswana benefited
greatly from the human and financial capital of her large white community, which totals 7
percent of the overall population. It is surely a sign of Botswanas relative comfort with racial
diversity that on April 1, 2008, Ian Khama, the first-born son of the countrys founder, took over
the reigns of power in Botswana, thus becoming the first half-white leader of an African
democracy.
The elder Khamas other big contribution to the long-term stability and prosperity of Botswana
was to maintain the tradition of public meetings (or kgotlas). This was the way in which the
Africans made local decisions; it served to keep their chiefs honest and accountable. The
exceptional humility of Botswanas politicians is just one positive consequence of such
grassroots democracy.
As Robert Guest of The Economist noted in his 2004 book, The Shackled Continent, In the last
35 years, Botswanas economy has grown faster than any other in the world. Yet, cabinet
ministers have not awarded themselves mansions and helicoptersand even the president has
been seen doing his own shopping. Similarly, a game warden I spoke to in the Chobe National
Park reminisced about standing behind the minister of education in the line for groceries. A shop
manager recognized the minister and motioned her to the front of the line. She flatly refused.
In most African countries, even those that are nominally democratic, the leaders are so far
removed from day-to-day public scrutiny that they behave with impunity and in an
embarrassingly rapacious manner. Of course, Botswanas free media plays a vital role in keeping
her politicians honest. My visit to Botswana, to give one example, coincided with President
Festus Mogaes last state of the nation address. One of the countrys weekly newspapers,
Mbegi, carried a page-long response to the president written by the leader of the opposition, who
railed against the governments laissez-faire policies. Though I disagreed with the substance of
his arguments, I was happy to see his freedom of expression honored, especially considering that
Botswana has been ruled by the same political party, the Botswana Democratic Party, since
1965.
That brings me to probably the most important legacy of Khamas presidency: a limited
government and one of the freest economies in Africa. (In its 2007 Economic Freedom of the
World report, Canadas Fraser Institute ranked Botswanas economic freedom on par with that of
Belgium and Portugal.) According to Scott Beaulier, an economist at Beloit College, Khama
adopted pro-market policies on a wide front. His new government promised low and stable taxes
to mining companies, liberalized trade, increased personal freedoms, and kept marginal income
tax rates low to deter tax evasion and corruption.
But why did Khama chose to embrace the free market and limited government at a time when
Marxism seemed to be on an unstoppable march in other African countries? I can only
hypothesize that a prescient leader like Khama would have been aware of the failure of African
socialism as early as 1966, the year of Botswanas independence. After all, in February 1966,
Kwame Nkrumah, the Marxist prime minister and later president of Ghana, was ousted in a coup
amid economic decline and political repression. Moreover, Khama, who came to power
peacefully, was not beholden to the Soviet Union or Maoist China for military, financial, and

intellectual support, while many African liberation movements were. In fact, Khama seems to
have had a healthy regard for the British parliamentary system and common law.
Economic openness served Botswana well. Between 1966 and 2006, its average annual
compound growth rate of GDP per capita was 7.22 percenthigher than Chinas 6.99 percent.
Its GDP per capita (adjusted for inflation and purchasing power parity) rose from $671 in 1966
to $10,813 in 2005. Unfortunately, the high GDP growth rate has not resulted in increased life
expectancy, which, in a country ravaged by the HIV/AIDS pandemic, declined from 62 years in
1980 to 35 years in 2005.

The Tragedy of Robert Mugabe

It was with some apprehension that Ian Smiththe last white prime minister of Rhodesia, who
once promised to maintain the white rule in that country for 1,000 yearsanswered the
summons to meet with Robert Mugabe, the newly-elected prime minister of Zimbabwe. After all,
the Marxist former guerilla leader had declared that he would have Smith publicly hanged in the
capitals main square. Instead, Smith was greeted with a warm handshake and a broad smile.
In his own words, Smith was completely disarmed. He rushed home to admit to his wife that
maybe he had been wrong about Mugabe. Heres this chap, and he was speaking like a
sophisticated, balanced, sensible man. I thought: if he practices what he preaches, then it will be
fine.
It was 1980, and Zimbabwe had just gained independence from Britain. White minority rule had
ended and so had a conflict between blacks and whites that cost some 30,000 lives. The election
gave Mugabes Zimbabwe African National Union (ZANU) a parliamentary majority, but
Zimbabwe had an independent judicial system and a constitution that protected minority rights. It
also had one of the continents largest economies. Zimbabwe seemed destined to become an
African success story.
Things turned out very differently. As early as 1982, Mugabe turned on his onetime ally Joshua
Nkomo of the Zimbabwe Africa Peoples Union (ZAPU). Mugabe unleashed his special forces
trained by the North Koreanson Nkomos supporters in the Matabeleland, killing some 20,000

in the process. Nkomo was forced to agree to a merger of ZAPU with Mugabes ZANU. In
return, Nkomo received the largely ceremonial title of Zimbabwes vice president.
Shamefully, the Western world not only ignored the massacre of the Matabeles but proceeded to
send Mugabe hundreds of millions of dollars in foreign aid. Similarly, the Western media
ignored Mugabes attack on Zimbabwes democratic institutions. Apparently Mugabes
relentless monopolization of power was incompatible with the simplistic portrayal of the
Zimbabwean leader as an African freedom fighter.
Mugabes megalomania grew as time went by. Omnipresent at international conferences, where
foreign dignitaries continued to treat him like a celebrity, he came to see himself as a leader of
global importance. When Nelson Mandela, the moral voice of the African continent, won
election as South Africas president in 1994, it irked Mugabe greatly. He saw Mandela as an
upstart and flatly refused to treat him with deference.
To show his independence and strength, Mugabe ordered the Zimbabwean military to intervene
in the Congolese civil war. Following Mobutu Sese Sekos flight from the Democratic Republic
of Congo in 1997, the country descended into chaos. Congos new strongman, Laurent Kabila,
was faced with an internal rebellion that drew military responses from Namibia, Zimbabwe,
Angola, and Chad on Kabilas side; and from Uganda, Rwanda, and Burundi on rebels side. (It
also attracted an assortment of mercenary forces from around the world.) The conflict, which
turned out to be Africas largest ever, cost Zimbabwe $15 million per month and tied up one
third of Mugabes armed forces.
In return for Mugabes help, Kabila rewarded the Zimbabwean president and his generals with
mining concessions in the southern part of the Congo (chiefly the Katanga and Kasai provinces).
The top brass of the Zimbabwean military, including General Vitalis Zvinavashe, commander of
the armed forces, made small fortunes and developed a taste for riches that Mugabe would later
find so difficult to satisfy.
Back home, however, the war was very unpopular, and the Zimbabwean population, which paid
the militarys bills, threw its support behind the newly-founded Movement for Democratic
Change (MDC), led by a former trade union boss named Morgan Tsvangirai. It was Tsvangirais
MDC that, in a 1999 referendum, defeated Mugabes plans to change the constitution and extend
his rule. Furious at his defeat, Mugabe turned on Zimbabwes white commercial farmers, whom
he suspected of giving financial backing to the MDC.
Over the next few years, almost all of the countrys 4,000 white-owned farms were invaded by
state-organized gangs. Some of the farmers who resisted the land seizures were murdered, while
others fled abroad. Mugabe claimed that the land would be given to the landless masses. In fact,
much of the best land was given to his cronies, who proceeded to enrich themselves with such
gusto that Mugabe had to plead with them to choose one [farm] and give up the rest to the
government.
The new owners showed little aptitude for farming, however. The agricultural sector soon
collapsed, and with it most of Zimbabwes tax revenue and foreign currency reserves. Those

parts of the economy that processed the agricultural produce soon followed, as did the banking
sector, which relied on farms as collateral for future lending. To meet its obligations to domestic
and foreign creditors, the government ordered the Reserve Bank of Zimbabwe (RBZ) to print
more money, sparking the first hyperinflation of the 21st century.
During my visit to Zimbabwe in November 2007, the black market exchange rate between the
U.S. dollar and the Zimbabwean dollar was one to 1.3 million. By April 2008, that rate rose to
one U.S. dollar to 200 million Zimbabwean dollars. In November 2007,the largest banknote was
worth 200,000 Zimbabwean dollars. In April 2008, the RBZ started printing notes worth 250
million Zimbabwean dollars. However, until this month, the official exchange rate remained one
U.S. dollar to 30,000 Zimbabwean dollars. Many well-connected members of the ruling elite
have made fortunes by buying foreign currencies from the RBZ at official exchange rates and
then selling them on the black market and pocketing the difference.
The ripple effect that farm seizures created turned into a tsunami that, in a few years, washed
away some 60 years of gradual economic improvements. Mugabes answer to the falling
economy was to increase state patronage and the intensity of the looting. Mugabe, the SavileRow-suit-wearing dictator, and Grace, his shop-till-you-drop wife, paid a Serbian construction
company $12 million for a 25-bedroom house in a posh suburb of Harare that comes with two
artificial lakes and a small army of bodyguards. His government now consists of 45 ministers
and deputy ministersincluding the minister of information and publicityeach of whom is
entitled to a variety of perks, such as SUVs and (formerly white-owned) farms.
The government went on a shopping spree in 2006 and again earlier in 2007, providing
influential police officers, ranking assistant commissioners, and army lieutenants with hundreds
of imported vehicles. (Guaranteeing the loyalty of army and police officers does not come
cheaply.) With the economy in shambles and the currency debased, Mugabe announced an
indigenization program: the government will confiscate majority stakes in all private
enterprises owned by non-black Zimbabweans. Ostensibly, those enterprises will be given to
black Zimbabweans. In reality, they are certain to be distributed among government officials,
and also among army and police personnel, without whose support Mugabes regime cannot
survive.
In November 2007, a mere two months after the indigenization measure was adopted by the
Zimbabwean parliament, Mugabe declared his intention to confiscate 25 percent of shares in all
non-state mining companies. Not surprisingly, the freedom ranking of the Zimbabwean economy
plummeted. The Fraser Institutes 2007 Economic Freedom of the World report, for example,
found Zimbabwe to be the least free economy out of the 137 economies surveyed.
On March 29, 2008, Zimbabwe held parliamentary and presidential elections. As most people
expected, the elections were rigged in Mugabes favor. The country has no free media and no
freedom of expression or assembly. Prior to the elections, members of the opposition were
persecuted, beaten, and, in some cases, tortured. Remarkably, in spite of all the intimidation; in
spite of the extra ballots that the government printed before the elections; and in spite of the tens
of thousands of dead people who voted for Mugabe and his ZANU-PFthe opposition party
won.

However, Mugabe refuses to go. Ignoring the groundswell of public disgust with his economic
policies and the corruption of his top officials, Mugabe has unleashed his repressive state
apparatus against the opposition, driving many of their leaders into exile. As I write, the
economic and political situation in Zimbabwe is deteriorating still further and could yet break out
into widespread violence.
After Mugabe
As I returned to Botswana last November, the tourists whom I accompanied on the trip to
Victoria Falls seemed content. The shops in Zimbabwe may have been empty, but the country
remains filled with amazing natural beauty. In contrast to the other travelers, I felt relieved to
leave behind a police state that makes it impossible for people to talk freely with one another: a
state where taking photos of an empty grocery store can land you in prison. I was saddened by
the sight of yet another African country that has failed to live up to its promise and collapsed into
poverty, but I was also hopeful, for before us was Botswana: an increasingly prosperous market
democracy whose citizens enjoy safety and political stability.
In his 2004 book, South Africa: The First Man, The Last Nation, R.W. Johnson, an erstwhile
Oxford University professor, points out that national liberation movements in Africa generally
do not give up power willingly. Men who win power through the barrel of a gun tend to develop
ownership mentalities and treat their countries as private fiefdoms. Mugabe represents a
generation of African leaders who came to power through the barrel of a gun. More often than
not, men like that die in office or are forced out by a coup.
At 84, Mugabe is an old and, some believe, increasingly senile man. He may die in office or be
forced out. The Zimbabwean diaspora is abuzz with rumors of flight plans and comfortable exile
in Malaysia or Namibia. There is talk of Far Eastern bank accounts stuffed with treasure. Either
way, Mugabe will be gone one day. When that happens, the new leader of Zimbabwe should
look across the western border to Botswana. He will see that freedom and rising prosperity are
possibleeven in Africa.

Sliding backwards again

Robert Mugabes government, free of its coalition partner, risks driving the
country back down a road to poverty and despair

Feb 15th 2014 | HARARE | From the print edition

THE potholes on Melbourne Road in Southerton, an industrial district of Harare, Zimbabwes capital, are
bone-jarring. A van outside the J. Lyons factory, a surviving outpost of a once-grand British company, is
being loaded with jars of processed food. Otherwise the street is quiet. The offices next door have
whitewashed windows; the gates of the factory opposite are firmly shut. The empty buildings belong to
Reckitt Benckiser, an Anglo-Dutch company whose brands, including Dettol disinfectant and Nugget
shoe polish, span 60 countriesbut no longer Zimbabwe. The Reckitt factory there closed before
Christmas and has not reopened. Many other local firms have done the same.
The closures are just one sign that the economic recovery is stalling. This began in 2009 when the
worthless Zimbabwe dollar was replaced by a multi-currency system based largely on the American
dollar. But in the run-up to Christmas some banks were forced to put limits on cash withdrawals.
SABMiller says lager sales tumbled by 25% in the year to the fourth quarter, as beer-drinkers switched to
cheaper brews based on sorghum. Consumers started to feel the pinch in the second half of last year, says
Albert Katsande of OK Zimbabwe, a big retailer. Prices are being cut to encourage shoppers to spend
more. A country ravaged by hyperinflation, which officially reached 500 trillion per cent in 2008, may
soon have deflation.
The rot set in around the time of elections, in July, which gave a thumping victory to Robert Mugabes
Zanu-PF party and brought an end to its four-year coalition with the Movement for Democratic Change
(MDC). Observers reckon that the result was largely achieved by a massive but cleverly contrived fraud,

in particular through the manipulation of the voters roll to exclude people likely to back the MDC. But
factory closures, angry queues at banks and wilting sales offer a harder-to-rig verdict on the new
government.
Most harmful is its pledge, under the rubric of indigenisation, to force all foreign- and white-owned
businesses to cede a 51% stake to black Zimbabweans. This is chasing away foreign capital. A 26% pay
rise for civil servants will further strain public finances already stretched by dwindling tax revenue. And
the governments growing list of unpaid bills is restricting the precious cash-flow of private businesses.
Nor is there much faith in policymakers. Mr Mugabe appointed a cabinet in September after a delay of six
weeks. Its make-up was shaped more by a need to balance factions within Zanu-PF than by the needs of
the country. The new finance minister, Patrick Chinamasa, delayed his annual budget until December,
then jauntily forecast growth at 6.1% of GDP in 2014 after a 3.4% increase last year. Yet in reality the
economy was probably flat in 2013 and is unlikely to do much better, says John Robertson, an
independent local economist. Moreover, it seemed clear from the budget statement that, despite the pleas
of local businessmen, there would be little flexibility in the application of the indigenisation laws.
In any case, the legacy of hyperinflation limits Zimbabwes choices. The factories in Southerton have outof-date machinery because industry could scarcely invest for the long term when its costs were spiralling
upwards. The switch to the American dollar brought stability, but at a cost. As the dollar rises in value
against other currencies in the region, such as South Africas rand, it makes Zimbabwean business less
competitive. Banks have no reliable backstop because Zimbabwe no longer prints the money it uses.
Savers will commit their money to deposits of 90 days at most. Banks can safely lend for long enough to
finance a grocers turnover, but not to retool a factory or build a hotel.
The supermarket shelves are still full, but two-thirds of goods are imported. Export revenue does not
come close to covering the import bill. The current-account deficit last year was around 23% of GDP,
according to the budget statement, and was funded by a mix of remittances, foreign aid and hot money
lured by the high interest rates offered by some banks. Dollars have become scarcer, in part, because
those sources are less forthcoming. Remittances from the millions of Zimbabweans who work in South
Africa are likely to shrink because of the stagnating economy down there. Western governments are
charier about dishing out aid that goes through a government they cannot trust. And the flow of hot
money has slowed because of bad debts in locally owned banks.
Zimbabwe needs long-term capital to upgrade its factories, roads and power stations. Meagre local
savings means this must come from abroad. A group of businessmen recently toured Europe to woo
investors. In all locations, indigenisation is the number one issue, says Charles Msipa, head of the

Confederation of Zimbabwe Industries, who led the delegation. Companies, he says, are loth to invest in
ventures they cannot control. Foreign businessmen fear they will not be able to claim an adequate share of
the profit.
A stamp of approval from the IMF would make foreigners more comfortable, says Mr Msipa. But a staffmonitored programme has already had to be extended by six months because of missed deadlines by the
government, including a promise to account more clearly for revenue from state-owned diamond mines.
A deal to clear Zimbabwes huge foreign debts, including money owed to the World Bank and IMF,
seems impossibly distant.
But without it there can be no large-scale official borrowing by the government. Mr Chinamasa recently
went to China to drum up cash, but returned empty-handed. China, on the business front, is proving no
softer a touch than the West. Fears are growing of a new fiscal crisis and even of a return of the
Zimbabwe dollar, if the government can find no other way to keep itself going than printing money.
So Mr Mugabe and his government are stuck. Tendai Biti, who was the MDCs austere and widely
respected finance minister in the coalition government, says there are easy fixes for the economys
troubles: Talk to the West; balance the books; and manage expectations to instil confidence.
But such strictures are unlikely to be accepted by Mr Mugabe, who turns 90 this month and whose health
is again a source of frenzied speculation. He has been little seen in public at home in the past few months,
but is often in Singapore, where he is thought to receive medical treatment.
Waiting for the old man to go
His death may open a path to reform. But the infighting that is likely to ensue could be bitter and
disruptive. Joice Mujuru, the vice-president, and Emmerson Mnangagwa, the justice minister who served
for many years as head of security, are the leading contenders for the crown, but others may join the fray.
Mrs Mujuru is considered more amenable to an opening to the West and to reconciliation with the MDC,
which is why it is widely assumed that the death of her husband, Solomon Mujuru, a former head of the
army, two-and-a-half years ago in a fire was at the hands of a hardline Zanu-PF faction.
Diplomats and businessmen now tend to rule out any real political or economic progress until Mr Mugabe
dies. We are just waiting for him to go, says one of them. Until then, everything is on hold.
Meanwhile, the country is in danger of sliding even further into penury.
From the print edition: Middle East and Africa

INNOVATION AND ECONOMIC GROWTH

by Nathan Rosenberg
Professor of Economics (Emeritus), Stanford University

Technological innovation, a major force in economic growth

It is taken as axiomatic that innovative activity has been the single, most important component of
long-term economic growth and this paper will start by drawing upon the findings of a very influential
paper published by my colleague at Stanford, Prof. Abramovitx, back in the mid-1950s.
In the most fundamental sense, there are only two ways of increasing the output of the economy:
(1) you can increase the number of inputs that go into the productive process, or (2) if you are clever,
you can think of new ways in which you can get more output from the same number of inputs. And, if
you are an economist you are bound to be curious to know which of these two ways has been more
important - and how much more important. Essentially what Abramovitz did was to measure the
growth in the output of the American economy between 1870 and 1950. Then he measured the growth
in inputs (of capital and labor) over the same time period. He then made what were thought to be
reasonable assumptions about how much a growth in a unit of labour and how much a growth in a unit
of capital should add to the output of the economy. It turned out that the measured growth of inputs
(i.e., in capital and labor) between 1870 and 1950 could only account for about 15% of the actual
growth in the output of the economy. In a statistical sense, then, there was an unexplained residual of
no less than 85%.
Surprisingly enough, no economist had ever undertaken this exercise before - partly because it
was only after the Second World War that reasonably accurate estimates of inputs and outputs for the
American economy, over some very long time period, became available. Now, in any statistical
exercise in which you are trying to tease out the relative importance of some variable, and you find
yourself with a residual of 85%, you know you are in big trouble! Yet a number of other economists in
the late 1950s and 1960s undertook similar exercises, using different methodologies, different time
periods, and different sectors of the economy, with roughly similar results they found themselves left
with a very large residual that could not be accounted for. Robert Solow, who later won a Nobel Prize
in Economics, was one of those other economists who discovered a very large residual, using a very
different methodology and different time period. As it happened, he got the same result for the size of
the residual 85%. It was precisely the size of this residual that persuaded most economists that
OECD, 2004

technological innovation must have been a major force in the growth of output in highly industrialised
economies.
Although it might be tempting to say that the 85% residual was a negative finding, negative
findings can sometimes be extremely useful. In this case the large size of the residual served as a kind
of wake-up call to the economics profession because most economists for the previous 200 years
had been building models in which economic growth was treated as if it was primarily a matter of
adding more inputs into the productive process, especially inputs of capital. The large residual told
economists that they had to look elsewhere in order to account for economic growth.
So I am going to focus my attention on some of the most distinctive features of innovative
activity in the world of the highly industrialised economies of the OECD countries, and I will draw, in
several cases, on the American experience. Actually, I want to focus primarily on a single feature that
dominates the search for new or improved technologies, and some of the consequences that flow from
this feature. The key word is uncertainty.
Dealing with uncertainties
It is easy to conclude that, in advanced high tech countries, with large, powerful firms,
uncertainties would no longer be a major concern. After all, in the United States today, there are more
than 16 000 firms that currently operate their own industrial research labs, and there are at least 20
firms that have annual R&D budgets in excess of USD 1 billion. In fact, when American
manufacturing firms are ranked by the size of their R&D budgets, the top 20 firms spent a total of
USD 54 billion on R&D in the year 2000. Surely, you might think, such firms are no longer
preoccupied with nagging problems flowing from uncertainties and their attendant financial risks.
Now, if you thought this, you would be wrong, very wrong, and for two compelling reasons. The
first reason, as I have already suggested, is that the conduct of R&D in the high tech sectors of OECD
economies has become hugely expensive. The second reason is that the outcome of this R&D
spending is fraught with financial risks that derive from a variety of sources. What are these sources?
1.

Expenditures on scientific research may simply fail to discover new scientific

knowledge of any potential usefulness whatever.

2.

Even if new scientific knowledge does emerge from research findings at the
scientific frontier, it may never lead to a new marketable product. Or, equally
important, it may require such a long period of expenditures on new product design
or development that business decision makers may conclude that the realisation of a
new product is likely to be unacceptably costly i.e. unprofitable.

But even if research does eventually lead to a new, valuable product concept, many further
questions remain to be addressed:
3.

OECD, 2004

How well will the new product perform, not only technologically, but in economic
terms? Will a high performance be attained, but only at a prohibitively high cost?
The Concorde airplane was a simply magnificent achievement in terms of
engineering design and speed, but it was also an unqualified financial disaster. It was
calculated, when the Concorde project was begun, that 300 of the planes would need
to be sold, merely in order to cover its development costs. In the event, only 16 were
sold.

4.

How rapidly will performance improve and how rapidly is the cost of production
likely to decline?

5.

How appropriable is the product for the innovating firm? By appropriable I mean,
how great is the likelihood that the innovating firm will be able to capture any profits
that might be generated by its innovation? This may depend on whether the
innovation is patentable. If not patentable, how soon is it likely to be imitated by
competing firms that spent none of their own money in inventing the product? [This
is the free rider problem].

6.

It is possible that a government regulatory agency, or a court decision, may destroy

expected profits through regulatory requirements or a judicial ruling. In the US
pharmaceutical industry the Food and Drug Administration requires that new
pharmaceutical products go through a protracted period of testing before they may be
sold to the public. Many new pharmaceutical products must be tested for several
years before they can be marketed in some cases the testing period may be more
than a decade, as in the cases of vaccines or new contraceptive technologies.
Estimates of the cost of bringing a wholly new pharmaceutical product to market in
the US now routinely exceed the USD 500 million Mark.
Additionally, almost everyone in Switzerland must be familiar with ABBs
devastating financial losses due to its acquisition of an American firm called
Combustion Engineering. It turned out that ABB eventually inherited (if that is the
right word) the unexpected liabilities of its subsidiary. These liabilities resulted from
the decision of an American court, in a gigantic class action suit, involving the
potential damage to human health resulting from Combustion Engineerings
extensive use of asbestos. The class action suit has already involved more than
200 000 claimants, with over 100 000 more claimants still to be dealt with.

7.

Finally, how soon will a new and superior product come along, either from a
competitor or from the introduction of some entirely new technology? It is no
paradox to say that one of the greatest uncertainties confronting new technologies is
the invention of still newer technologies.

There is one further source of uncertainty that I feel obliged at least to insert here, even though it
has nothing to do with innovation, and even though you are already painfully familiar with its
consequences to tourism. That is, of course, the possibility of encountering acts of terrorism.
Terrorism has already had a devastating impact on travel, especially travel by air as well as travel to
countries (or areas) where the risks of terrorism are perceived to be high. No other industry is nearly as
vulnerable to terrorism as tourism.
Thus, it is fundamental to an understanding of the nature of innovation to recognise that
uncertainties are still at the heart of innovative activities. The basic fact of life here is that it is
extremely difficult to forecast how the market will respond to the introduction of some new
technology. One obvious reason is that, in societies that have become as affluent as most of the OECD
member countries, it is difficult in the extreme to anticipate how certain new products (or services)
will fit in with consumer preferences and priorities.

OECD, 2004

A few examples of innovation

Let me expand on this point by citing for you an absurdly incorrect failure to anticipate consumer
reactions, on the part of a group of people who were certainly both intelligent and well informed: the
reporters and editorial staff of The New York Times. In 1939 the New York Times reported on the
success of recent experiments that obviously foretold the arrival of a potentially fascinating new
product: television. But the New York Times did not think that television had much of a future at
least not in the United States. This most prominent and influential of all American newspapers
solemnly declared: Television will never be a serious competitor for radio, because people must sit
and keep their eyes glued on a screen; the average American family hasnt time for it. How do you
explain the complete failure to anticipate that TV was to become the most influential and widely-used
household consumer good of the 20th century? Frankly, I dont know how to answer that question, but
it has been characteristic of many of the most important innovations of the 20th century that no-one
correctly forecast their future impact. Indeed, far from being unwilling to keep their eyes glued to a
television screen, a disturbingly high percentage of American families seem to have very little time for
anything else!
Suppose we now consider a much more recent innovation: the mobile phone. In 1983, when
AT&T was being divested in an anti-trust suit, it was considering whether it should attempt to retain
the frequencies that would be essential for the operation of mobile phones. AT&T therefore hired one
of Americas best-known consulting firms to forecast the likely number of American subscribers for
mobile phones by the year 1999. The forecast that was eventually given to AT&T was that there might
be as many as one million subscribers to mobile phones in 1999. In fact, the number of subscribers
passed the 70 million mark in that year!
How can you account for what now appears (in retrospect, of course) to have been an absurd
underestimate? Partly, there was a failure to appreciate the very large number of ways in which such
phones would be useful. But the underestimate was also caused by neglect of another consideration
that is widespread in accounting for the future demand for innovations. The fact is that most major
innovations enter the world in a very primitive condition, and go through a long process of technical
improvements and cost reduction. The airplane first left the ground in 1903. The initial flight was less
than the length of a football field, and the airplane was not an innovation of great commercial
significance until the late 1930s. Why not? It took fully one-third of a century because many
thousands of design improvements were necessary before airplanes became sufficiently safe and
reliable to become widely used by the general public. I suspect, if any of us had been present at that
first flight in December 1903, we would not have left the scene with visions of regularly-scheduled
flights crossing the Atlantic Ocean in six hours or so, with passengers in a reasonably comfortable
state.
The situation with respect to the mobile phone in 1983 was, in some important respects, very
similar. Those phones were primitive. They were so heavy and bulky that they hardly deserved to have
been called mobile. The quality of voice transmission was extremely poor. And, most important, the
original mobile phones of 1983 sold for around USD 3 000, compared with much less than USD 100
in the United States today.
Consider one other recent technology: the laser. In 1960 the laser was merely a fascinating
scientific breakthrough of no obvious usefulness to anyone. But, as a result of the intense competitive
pressures generated in market economies to develop and introduce new products, the laser came to
serve as the platform for a bewildering variety of new applications. It has become the primary
instrument of research in the science of chemistry. It is the instrument of choice in a wide range of
surgical procedures. There are in fact five medical journals in English that deal exclusively with the
OECD, 2004

use of lasers in medical practice [dermatologists, ophthalmologists, surgeons, etc]. The laser is
essential for the high quality reproduction of music in compact discs (CDs). Transactions at
supermarket checkout counters have been speeded up by lasers that can read (i.e. scan) the bar codes
on each item purchased. The best computer printers today make use of the laser. Lasers, together with
optical fibers, have totally revolutionised the worldwide telecommunications system. Last, but surely
not least, the FDA has recently approved the laser as a much less painful substitute for the dentists
drill.
The behaviour of lasers had been predicted, on a purely theoretical basis, by Einstein, using no
more than a blackboard and a piece of chalk, as long ago as 1916. But it took over 40 years before
scientists could actually create a laser beam (Light Amplification by Stimulated Emission of
Radiation).
Finally, the computer. The first digital, electronic computer was operating at the University of
Pennsylvania, school of engineering at the end of 1945, and a number of firms were already engaged
in the manufacture and sale of computers by 1950. And yet, as late as 1956 Howard Aiken, a brilliant
physics instructor at Harvard and one of the great pioneers in computer development, continued to
conceive of the computer as no more than a highly specialised scientific instrument. In 1956, in
testifying before a congressional committee he was still, obviously, thinking of the computer as no
more than an instrument suitable for only a narrow range of scientific research purposes. Aiken stated
in that congressional testimony: ...if it should ever turn out that the basic logics of a machine
designed for the numerical solution of differential equations coincide with the logics of a machine
intended to make bills for a department store, I would regard this as the most amazing coincidence that
I have ever encountered. That is, of course, precisely how it turned out, but it was hardly a
coincidence. A technology that was originally invented for one specific purpose - the numerical
solution of large sets of differential equations - could easily be reprogrammed to solve problems in
entirely different contexts, such as the making out of bills for a department store. But it was obviously
not obvious. Now, nothing could be further from my intention here than to hold Aiken up for ridicule.
Quite the contrary. He was a brilliant scientist and inventor, and yet he hadnt the most elementary
sense of the potential impact of the invention to which he had made very large contributions.
The impact of a technological innovation
The impact of a technological innovation will generally depend not only on its inventors, but also
on the creativity of the eventual users of the new technology.
Consider the electrification of factories. So long as factories depended on steam as their primary
power source, the organization and layout of activities on the factory floor had to be determined by
proximity to a single power source: the steam engine. Each machine on the factory floor, in turn, drew
upon this power source through a clumsy and extremely wasteful transmission system of leather belts
and pulleys. The introduction of electricity, with separate electric motors attached to each machine,
allowed the layout of work to be organized in a far more flexible and efficient way, depending on the
sequence of activities required by the needs of the production process rather than by the location of the
steam engine. The parallels with the introduction of the computer are obvious. But it is also relevant to
point out that economic historians have recently devoted a great deal of attention to the electrification
of American factories. The consensus of their studies is that it took about 40 years from the 1880s to
the 1920s before the application of electric power produced a measurable increase in factory
productivity. And one could also make a plausible argument that the interface between people and
computers is a far more complex one than the interface between people and electric power.

OECD, 2004

In thinking about high tech innovation, we tend to be excessively preoccupied with the work of
the scientists and engineers whose R&D activities have created the new technologies in the first place.
This is a case of misplaced emphasis. The benefits that can be made to flow from lasers,
microprocessors, computers and information technology generally, will ultimately depend not only on
its inventors, but also on the creativity of the potential users of the new technology.
Of course, it is also important to remember that the computer itself has been transformed since
the giant mainframes were supplemented (and, to a considerable extent, replaced) by desk-top personal
computers. The result has been an explosion of new efficiency opportunities, insofar as data
processing could now be carried out in ways, and in places, with a degree of flexibility that was not
possible with mainframes alone.
Merely applying much greater computer speed to patterns of work that were designed for an older
and slower technology is likely to yield very little in the way of productivity improvement.
Redesigning the work process is a very complex problem in its own right, and it necessarily takes a
long time, as the early history of electricity amply demonstrates. The introduction of the PC has
required the reorganization of long-standing business practices, along with the design of new, complex
software, tailored specifically for the employees of the business firm. This, in turn, continues to
require the application of managerial skills of a very high order of sophistication in determining how
the patterns of work might be optimally redesigned in order to exploit the vastly expanded capabilities
of the latest generation of computers.

OECD, 2004

Canadian productivity: Even worse than previously thought

GLEN HODGSON
Special to The Globe and Mail
Published Wednesday, Aug. 28 2013, 5:00 AM EDT
Last updated Wednesday, Aug. 28 2013, 10:28 AM EDT
http://www.theglobeandmail.com/report-on-business/economy/economy-lab/canadianproductivity-even-worse-than-previously-thought/article13988435/

For three decades, growth in Canadian labour productivity (at its simplest, output in dollars per
hour worked) has lagged behind productivity growth in the United States and other major
countries. A recent update of the productivity data by Statistics Canada, to the end of 2011, has
revealed that the problem has gotten even worse.
If we continue to discount or dismiss the productivity issue, Canadians future incomes will be
threatened particularly if there is a sustained downward adjustment in the price of key natural
resources. If there ever was a time to take poor productivity growth seriously, that time has
arrived.
For years now, the Conference Board of Canada and others have been warning Canadians about
our poor track record on productivity growth compared with the U.S. and other major industrial
countries. The result of lagging productivity growth is a significant gap in per-capita income that
has opened up between Canadians and Americans at least $7,000, and still rising.
Statistics Canada recently updated the data comparing Canadian labour productivity growth with
that of the United States from 1960 to 2011. While the productivity performance of the two
countries was comparable up to 1980, the trend lines have diverged since then. Labour
productivity in Canada grew by 1.4 per cent annually over the 1980-2011 period, while it grew at
a much faster 2.2 per cent in the U.S.
Even more striking are the different growth trends for the specific components of labour
productivity growth. Capital deepening (i.e. greater use of cutting-edge physical capital such as
information technology or robotics) has been a bit better in Canada than the United States.
Labour composition growth (or the deepening skills and knowledge of the work force) has also
been a bit better in Canada. So for two of the three underlying factors, Canada's labour
productivity growth was slightly better than that of the U.S.
But there is a big difference between the two countries in terms of the third factor, multi-factor
productivity (MFP) or what we have previously labelled as innovation. MFP is calculated as
whatever is left over once growth in labour composition and capital deepening is subtracted from

overall labour productivity growth. As hard as it is to believe, Canada had zero growth in MFP
over the 32-year period covered by Statistics Canada.

There are several possible explanations for this stunning result. Canadian business investment
has shifted away from manufacturing toward resource development, and there is likely a long
payback period from innovative investment in resources. Some key resource sectors, such as the
oil sands, have absorbed significant and innovative investment, but have yet to see a significant
and sustained increase in output that would boost productivity. Innovation may be embedded in
the growth in capital deepening and changing labour composition, where Canada did slightly
better than the United States.
Due to anticipated labour shortages, Canadian firms may be more inclined to hire workers within
an existing business model than American firms. Or maybe there is excessive protection or
insufficient competition in some important business market segments in Canada, reducing the
drive for innovation.
Just as there is no single explanation, there is unlikely to be a quick fix to the problem. Canada
continues to lack an overarching productivity strategy. There has been some action for
example, governments have taken steps to make the business tax environment more attractive to
private investment, but with little apparent return so far. And this issue is not solely the
responsibility of governments; many Canadian businesses have yet to embrace innovation as a
core element of their business culture. The Conference Boards Centre for Business Innovation is
undertaking original research on how an innovation culture and related good practices can be
fostered within Canadian firms.

But the inescapable bottom line is that growth in Canadian labour productivity is falling further
behind that of our American neighbours; the problem is even worse than previously thought.
Unless productivity growth becomes more of a national priority, there is no reason to expect that
long-term pattern to change.
Glen Hodgson is senior vice-president and chief economist at the Conference Board of Canada.