Creative Destruction Is Creative

There’s an interesting article on Joseph Schumpeter’s theory of creative destruction at Bloomberg by Justin Fox:

In a 2012 paper for the Ewing Marion Kauffman Foundation from which I got much of the data for my Fortune 500 chart above, startup and technology researchers Dane Stangler and Sam Arbesman also question whether the kind of turnover we’re talking about here really is all that reflective of economic change and progress. Departures from and additions to such lists are often driven by waves of mergers and acquisitions that are more about rearranging corporate assets than creation or destruction. “Turnover is less a broad economic trend,” they write, “than a discrete temporal and sectoral phenomenon.” They also cite historical research showing waves of corporate churn in the 1920s and the turn of the 20th century that seem to have been at least as disruptive as those of the 1980s and 1990s.

So yes, modern capitalism produces and probably requires a lot of creative destruction. But this isn’t a relentless, ever-accelerating process. It goes in waves. For about 15 years now we’ve been in a lull, and it’s not at all clear when or how it will end.

There are some things that I think he misses in his piece. One of them is that creative destruction is creative. It results in greater efficiency which in turn leads to more jobs and higher incomes. Another is that there’s a lot more ferment in newly developing sectors than in old, established sectors.

There are multiple reasons for that including that established sectors are much better equipped to harness the force of government in their favor. In my view we missed a prime opportunity a decade ago to foster creative destruction rather than impede it by propping up General Motors and the big banks.

We should be much more closely focused on helping people hurt by the inevitable creative destruction and much less focused on helping companies or even business models.