Creative destruction
[1] The concept is usually identified with the Austrian economist Joseph Schumpeter,[2][3][4] who derived it from the work of Karl Marx and popularized it as a theory of economic innovation and the business cycle.
In Marxian economic theory, the concept refers more broadly to the linked processes of the accumulation and annihilation of wealth under capitalism.
In contrast with Marx - who argued that the creative-destructive forces unleashed by capitalism would eventually lead to its demise as a system - Schumpeter reinforced the evolutionary nature of capitalist economies, downplaying the concerns of static competition analysis (i.e., market concentration), and reinforcing the importance of dynamic competiton analysis (i.e., threat of entry, new technologies and means of production, competition in dimensions different than price).
[9] Despite this, the term subsequently gained popularity within mainstream economics as a description of processes such as downsizing to increase the efficiency and dynamism of a company.
The Marxian usage has, however, been retained and further developed in the work of social scientists such as David Harvey,[10] Marshall Berman,[11] Manuel Castells[12] and Daniele Archibugi.
[14] In Why Nations Fail, a popular book on long-term economic development, Daron Acemoglu and James A. Robinson argue the major reason countries stagnate and go into decline is the willingness of the ruling elites to block creative destruction, a beneficial process that promotes innovation.
Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation, had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed; and why?
[32] In fact, successful innovation is normally a source of temporary market power, eroding the profits and position of old firms, yet ultimately succumbing to the pressure of new inventions commercialised by competing entrants.
Creative destruction is a powerful economic concept because it can explain many of the dynamics or kinetics of industrial change: the transition from a competitive to a monopolistic market, and back again.
[34] David Ames Wells (1890), who was a leading authority on the effects of technology on the economy in the late 19th century, gave many examples of creative destruction (without using the term) brought about by improvements in steam engine efficiency, shipping, the international telegraph network, and agricultural mechanization.
: "The built environment that constitutes a vast field of collective means of production and consumption absorbs huge amounts of capital in both its construction and its maintenance.
The result is to exacerbate insecurity and instability, as masses of capital and workers shift from one line of production to another, leaving whole sectors devastated ....
[48]Globalization can be viewed as some ultimate form of time-space compression, allowing capital investment to move almost instantaneously from one corner of the globe to another, devaluing fixed assets and laying off labour in one urban conglomeration while opening up new centres of manufacture in more profitable sites for production operations.
Berman elaborates this into something of a Zeitgeist which has profound social and cultural consequences: The truth of the matter, as Marx sees, is that everything that bourgeois society builds is built to be torn down.
"All that is solid"—from the clothes on our backs to the looms and mills that weave them, to the men and women who work the machines, to the houses and neighborhoods the workers live in, to the firms and corporations that exploit the workers, to the towns and cities and whole regions and even nations that embrace them all—all these are made to be broken tomorrow, smashed or shredded or pulverized or dissolved, so they can be recycled or replaced next week, and the whole process can go on again and again, hopefully forever, in ever more profitable forms.
The pathos of all bourgeois monuments is that their material strength and solidity actually count for nothing and carry no weight at all, that they are blown away like frail reeds by the very forces of capitalist development that they celebrate.
Even the most beautiful and impressive bourgeois buildings and public works are disposable, capitalized for fast depreciation and planned to be obsolete, closer in their social functions to tents and encampments than to "Egyptian pyramids, Roman aqueducts, Gothic cathedrals".
[50]Here Berman emphasizes Marx's perception of the fragility and evanescence of capitalism's immense creative forces, and makes this apparent contradiction into one of the key explanatory figures of modernity.
[52] While technological innovation has enabled this unprecedented fluidity, this very process makes redundant whole areas and populations who are bypassed by informational networks.
Indeed, the new spatial form of the mega-city or megalopolis, is defined by Castells as having the contradictory quality of being "globally connected and locally disconnected, physically and socially".
[54] Developing the Schumpeterian legacy, the school of the Science Policy Research Unit of the University of Sussex further detailed the importance of creative destruction.
[55] More recently, Daniele Archibugi and Andrea Filippetti associated the 2008 economic crisis with the slow-down of opportunities offered by information and communication technologies (ICTs).
ICTs have already changed our lifestyle even more than our economic life: they have generated jobs and profits, but above all they have transformed the way we use our time and interact with the world.
In 1995, Harvard Business School authors Richard L. Nolan and David C. Croson released a book advocating downsizing to free up slack resources, which could then be reinvested to create competitive advantage.
The authors explored the efforts to redevelop a waterfront area that reflected a vibrant new culture while paying sufficient homage to the history of the region.
Alan Ackerman and Martin Puncher (2006) edited a collection of essays under the title Against Theater: Creative destruction on the modernist stage.
They speak of how theater has reinvented itself in the face of anti-theatricality, straining the boundaries of the traditional to include more physical productions, which might be considered avant-garde staging techniques.
In his 1999 book, Still the New World, American Literature in a Culture of Creative Destruction, Philip Fisher analyzes the themes of creative destruction at play in literary works of the twentieth century, including the works of such authors as Ralph Waldo Emerson, Walt Whitman, Herman Melville, Mark Twain, and Henry James, among others.
[72] The following text appears to be the source of the phrase "Schumpeter's Gale" to refer to creative destruction: The opening up of new markets and the organizational development from the craft shop and factory to such concerns as US Steel illustrate the process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one ... [The process] must be seen in its role in the perennial gale of creative destruction; it cannot be understood on the hypothesis that there is a perennial lull.Politicians often impose impediments to the forces of creative destruction by regulating entry and exit rules[73] that make it difficult for churning to take place.
The film Other People's Money (1991) provides contrasting views of creative destruction, presented in two speeches regarding the takeover of a publicly traded wire and cable company in a small New England town.
