Joseph Alois Schumpeter was an economist from Austria who settled at Harvard University in the last two decades of his life. He was colorful and controversial. One of his lasting legacies is that he was perhaps the first major economist who focused frequently on the role and importance of entrepreneurs in a free market economy.
From this interest in entrepreneurs in a capitalistic model came a concept that he popularized if not invented. It has become known as Creative Destruction. Simply put, it states that innovation constantly destroys the existing old structure and creates a new one in an industry or even an entire economy.
Entrepreneurs bursting with ideas created significant increases in productivity and this leads to the demise of older, less established players or industries.
I have always loved this concept and we can see both historically and recently how it rings true in many situations. The industrial age took over from the agrarian economy and then electricity and automobiles changed the face of the world and how we lived. Yes, buggy whip manufacturers went broke in the early 20th century but the automotive industry opened up millions of jobs throughout the western world and triggered the growth of suburban life.
With the word “destruction” as part of the term, clearly, everyone is not a winner when the winds of change roar through an industry. Yet, over the years, when one door closes due to creative destruction a few new ones open up which creates jobs and prosperity for many. Certainly, some people lose out as their skills are no longer needed. Politicians always promise job re-training plans but they never seem to live up to expectations.
Pressure groups are a different story. Affected industries lobby their congressmen and ask for protective tariffs or tax breaks if foreign players are upsetting their pot of gold. Sometimes they succeed and the consumer suffers.
Why do I say revisit Creative Destruction? Well, to me this time it is different as a result of globalization. When jobs are eliminated increasingly new ones are not created that are equal or higher paying. Shoe manufacturers went abroad years ago and those jobs were not replaced. Consumers may grouse about wishing to buy American made but do they really want to pay $220 for a pair of athletic shoes? That would be a reasonable price if many more were made in the United States. So, once a job leaves the West these days, it almost never returns due to outsourcing (producing overseas for lower cost of labor, land, capital or energy).
Creative Destruction is not limited to heavy industry. Amazon has killed thousands of retail jobs and small retailers and robots are a bigger presence in their distribution centers. Newspapers got hurt by the 24 news cycle in cable and then by social media as did many magazine titles. Streaming video has taken a huge bite out of advertiser supported TV and cable channels.
“Experts” say that the solution to lost jobs is simple—education and retraining. Well, some people resist it and others cannot move from their locations. Also, does this still work when we are in a global economy where high skill levels are readily available via an internet connection for an often tiny fraction of the salary required in the U.S., Canada, or parts of Western Europe.
Creative Destruction has always tied into my sunny view of the future. Advances in technology and medicine will make life better for most of us and in tech areas will also help fight climate change perhaps faster than legislation.
Yet, in a global economy will the level of displaced people working in dying or soon to be obsolete jobs be out of luck as no door will open for them within a few thousand miles?
The major media have rarely addressed this topic meaningfully. It is not a simple issue and cannot be addressed in a 30 second sound bite.
If you would like to contact Don Cole directly you may reach him at doncolemedia@gmail.com or leave a message on the blog.
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