Learning from reformed alcoholics.

• Author: Robinson, Dave
• Position: ECONOMICALLY SPEAKING - Survey

A group of reformed alcoholics were asked if they would rather have $200 today or $500 in six months. That is a payment of 150 per cent for waiting six months. The question comes from a study about what economists call "time-preference." That's econo-speak for how much you prefer a quick payoff.

A high time-preference can be an economic disease. Billionaire investor George Soros has been warning about the danger for an economy when investors and governments are always looking for for quick payoffs.

A company with a high rate of time preference won't invest unless the payback period is very short. In Wawa, for example, Weyerhauser had the chance to invest in a cogeneration plant and greenhouse system to bring down energy costs for its strandboard plant. Supporters claimed the project would pay for itself in less than four years. But in October, Weyerhauser announced it would close the Wawa plant.

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More self-control and more self confidence seem to go with a lower rate of time-preference. In the study, only 53 per cent of the guys who had been on the wagon for less than two years took the $200, but 70 per cent of those who had been sober for five years or more wanted to hold out for the bigger payoff. Northerners don't have control and they don't seem very confident.

Today's forestry crisis discourages young northerners from planning to stay in the North. Without the promise of their skilled labour there is no way to build the value-added industries that would give them a reason to stay. If we din't expect they will stay, we don't need a good strategy for rebuilding the forests. If we don't have a strategy for adding value to the forest resource, there is no point in investing money in mills or communities.

The crisis is partly a result of a long-run failure to invest. In June, the Parliamentary Standing Committee on Natural Resources concluded that "the capital stock of Canada's forest industry as a whole is older and less productive on average than that its global competitors."The Canadian Labour Council agrees "we face a legacy of chronic industry under-investment in aging mills." Industry experts have been saying the same thing for decades. Low investment is a result of a focus on quick returns and a tendency to undervalue the future--in other words, a high rate of time-preference.

Where does the rate of time preference we use...