Creative Destruction

One cause of polarization and the rise of socialism—and a better way forward.

The idea of creative destruction (Schumpeter, 1942) is well known and simple: as we come up with new ways to mechanize, including with modern technology, the way we do things changes. Those changes can range from the barely noticeable to the revolutionary, but all have effects. When elevators were first used, architects had to alter how they designed buildings—adding elevator shafts and providing fewer staircases. That’s creative destruction: the creation of elevators destroyed some of the need for stairs, railings, etc. Those elevators required operators and thus created new job possibilities. Eventually, elevators were made such that operators were no longer necessary. Elevator operators were out of a job. That’s creative destruction: the creation of simpler operating panels destroyed a job.

Other examples of creative destruction are all around us: Uber and Lyft came about with the creation of sophisticated technologies and destroyed a great deal of the taxi industry; the creation of tablet computers and light weight laptop computers destroyed a great deal of the desktop computer market; the creation of compact fluorescent and LED bulbs technology ushered in the destruction of incandescent bulb market; LED technology also destroyed the market for CRT (cathode ray tube) TVs; today, the creation of drone technology is destroying a large number of jobs in soldiering, delivery services, and security monitoring.

Perhaps most importantly here—though this is certainly not the most recent example—the creation of international trade, especially with super-automation destroyed much (though far from all) of manufacturing in the developed world.

Creative destruction destroys parts of economic systems. That has a clearly worrisome impact on individuals, families, and communities. Factories close down and workers lose their livelihoods, unable to financially support their families, whole communities face the loss. That loss is not merely financial. Some of those who lost their jobs move away in search of better prospects—often in a big city—where there are more jobs. They may do ok or better than they were doing before, but the communities they leave behind lose members, further contributing to their impoverishment. Remaining members find themselves in depressed economies; restaurants and stores have fewer customers and close down. More people move away. Those that stay may do so for a variety of reasons—they may not be in a position to “retool” for other jobs because of their age, they may simply be too attached to their hometown, they may have other reasons. No matter what the reason, they will likely be disaffected. They may blame the government (and/or big business).

Let’s not forget those who left those towns and moved to bigger cities. They might be happy in their new situations. They might not. Perhaps they got better jobs than those they lost. Even so, they may have some disillusionment with the political and economic system they believe made it impossible for them to stay where they were and wanted to be. They likely know some people who stayed behind in worse situations—and again blame the system for the plight of their family and friends. They may be as disaffected with the system as those who stayed behind.

While I don’t claim that the destruction that is part of the creative destruction is the entire explanation of our current polarized situation, it’s part of it. I suspect it also goes some way to explaining why there seems to be growing support for socialism in the US. If markets cause these problems, some may think, perhaps we should do away with them—better to have intelligent design of our economy that can keep everyone in good situations than haphazard destruction. Some may think we just need to pick intelligent leaders, leaders who have perhaps intelligently managed businesses that have been profitable. Socialism meets business elite. Welcome tech bros, who not only seem to have mastered becoming rich but understand contemporary technology and (we are told) where it leads.

Perhaps that makes sense if we can choose the right leaders. I see no reason to think we can—the evidence, so far as I can tell, is that we choose worse and worse leaders as time goes on. Perhaps someone will suggest we should institute a meritocracy (or “intelligentocracy”). One can only think “are you kidding?” Even if we had some way of knowing who these meritocratic or intelligent elite would be, it’s unclear why anyone would believe they wouldn’t succumb to the temptations power would offer and direct the system in their favor and that of their friends and family. The only way to really constrain that temptation is to constrain power. The more power a government has, the more tempting it is to use that power for personal gain; the less power it has, the less tempting. (Alternatively, we somehow manage to get truly intelligent and benevolent leaders who seek to reform the system for the better—given their intelligence and beneficence, would they choose socialism? History does not suggest its the intelligent or beneficent option.)

So what should we do given that markets have brought tremendous creative destruction, destruction that has left us with a large portion of disaffected citizens who vote against what is known rather than for something better?

My suggestion is, as always, to encourage better civil discourse. Part of that should be direct discussion about creative destruction, being honest about the negatives of the “destructive” part but also encouraging its victims to recognize the positives. The creativity in creative destruction is truly magnificent.

I sit at an automotive shop waiting for my car to be ready. My time is not lost; I did some administrative work for my University and wrote a draft of this essay. I could have done any number of other things. I could have done some of this 10, 20, or even 50 years ago too, but not nearly as effectively. Even 10 years ago, I would have been unable to answer emails; while I could have handwritten this essay, I’d later have to transcribe the whole thing into a desktop computer. 50 years ago, I couldn’t have even caught up with phone calls. Today, I could do all of that and even post this essay online without leaving the shop.

Ok, some will say, that’s nice for you, working in “white collar” jobs (an outdated term if there ever was one), but what about the rest of us? Well, many people would use the time to catch up on emails, phone calls, social media, or newspaper reading. But leave that aside. Most of us now have an incredibly sophisticated computer, camera, audio and video recorder, tv, and game system in our pockets—all on the form of a single item we still call “phone” though it is all of other things and more. And the cost of these devices is remarkable. Yes, the newest models can cost more than $1000 (who needs the newest model? mine is about 6 models old.) but even for $1000, these things are great deals given all they do. They are, as I said, phones, cameras, audio and video recorders, computers, TVs, etc.

Some will be unconvinced, thinking this modern tech is nice but not central to their lives. Fair enough. When I was a kid my parents tried to buy clothes for my siblings and I as inexpensively as possible. I recall getting a winter coat for about $100, a price they told me was great. I recently bought myself a new winter coat for $25. And I bought my child one a year or so ago for about that price. That is due to the creativity in creative destruction. Likely both of those jackets were made overseas and some will say “that means less jobs here.” Perhaps—though perhaps not, as other sorts of jobs open up—but a 75% reduction in the price of coats helps all of us (or all of us that live in areas with cold winters).

What is true for phones, computers, and coats, is true for many many things. In the short run, it often looks like prices go up. In the long run, what we can afford greatly increases. Perhaps excepting high fashion and fad fashion, clothes are less expensive now than 50 years ago. Many other things are as well. All because of the creative part of creative destruction. Some of that includes the loss of jobs where we live. Some of it includes creation of new jobs. Delivery drivers and ride sharing drivers—whole industries—rise up.

Yes, I worry about what AI and automation is bringing (delivery drivers and ride sharing drivers may be losing their livelihood soon, for example). Creative destruction does bring pain—always. It did when elevator operators lost their jobs and it likely will when driverless cars and drones are more widespread. But it also brings great improvements. It did when it brought easier to use elevators and when it brought phones, than phone-camera-computer-etcs—into your pockets. It will again.

These things should be part of our civil discourse. If we make clear how creative destruction is simultaneously the cause of pain and the cause of improvement, perhaps we can help encourage the disaffected to be less so. Perhaps we can encourage them to help us seek a better path. To find ways to create goods and services that others will find useful. To find ways to improve the world for themselves, their loved ones, and the rest of us. Encouraging creativity is, I think, encouraging optimism.