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What is Creative Destruction?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 30 November 2016
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Creative destruction is a concept which posits that in a healthy capitalist system, new things are constantly overtaking the old, tearing down previous economic and technological systems to make way for progress. In a simple example of this concept, the advent of affordable cars caused the use of horses to go into decline. Some people believe that the process of creative destruction is vital to the maintenance of a healthy economy, and that if an economy is to thrive, this process must be allowed happen. Others feel that, unchecked, it can damage an economy or the welfare of a population.

Numerous writers have brought up the concept, under various names. Joseph Schumpeter is generally credited with raising awareness about creative destruction, in his 1942 book Capitalism, Socialism and Democracy. In fact, he brought up the concept as part of a larger discussion about how capitalist systems eventually turn into socialist ones, but many economists leave this part of the discussion out, focusing entirely on creative destruction.

In a healthy economic system, entrepreneurs and innovators are rewarded for their work, and businesses which are unable to change or adapt find themselves penalized. People who are able to think outside the box and predict future market trends can use creative destruction to their advantage, developing the products which will replace the products currently on the market. In addition to dealing with products, this concept also covers supply lines, management techniques, advertising, and many other aspects of the business world.

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The idea of creative destruction may seem like common sense to some people: if a new product or method is better, obviously many people are going to be driven to adopt it, thereby eclipsing the old product. However, creative destruction has some far-reaching implications. The rise of Internet media, for example, has threatened traditional print newspapers. While some people argue that the death of print newspapers is a natural and acceptable part of the evolution of modern culture, others feel that print papers, magazines, and journals are an important resource, and that losing this resource could have unpleasant consequences.

When creative destruction is interfered with, other problems can arise, sometimes creating a backlash. Government assistance to failing companies, for example, could be viewed as interference with free market capitalism, and a failure to promote innovation. Likewise, protests about the use of robotics and mechanized systems in manufacturing also impede the process of creative destruction, while highlighting the plight of the workers who find themselves unemployable after being replaced by machinery.

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parmnparsley
Post 3

I have just started reading Tyler Cowen's Creative Destruction and it starts by raising an interesting point about how free markets destroy culture. I thought that was an interesting point about how trade creates a homogenized society. I am only through the first chapter, but I will be sure to comment more on this topic once I have read enough to form my own opinion.

Amphibious54
Post 2

@ Alchemy- I agree with you about the idea that this country lacks resiliency. I feel like the United States is struggling so much because we lack the ability to let institutions fail, and be replaced by new ones. The government tends to prop up inefficient and outdated industries through subsidies and bailouts. Taxpayers instead should be cutting those subsidies and redirecting that funding to re-educate the population and build up new technologies and industries that will give this country a competitive edge.

I will soon be entering the professional workforce and I already see that foreign companies and foreign nations are out pacing us in many vital technologies. China and countries in Northern Europe are world leaders in renewable

energy technologies. India is producing more scientists and innovators than almost any other nation. We are losing our competitive edge. I personally would like to see more investment in our nation instead of watch it wither away as if it were a relic of the past. I would welcome a model of growth through creative destruction.
Alchemy
Post 1

What a great article. I have never heard of creative destruction, but after this article, I would like to learn a little more about the Schumpeterian creative destruction theory. I agree with what I have read on the subject so far, and I think that many systems are ripe for a little creative destruction (energy, medicine, transportation, banking system just to name a few). Sometimes I think that our systems, both political and economic, move too slow compared to the growth in population. I think that many of our systems lack adaptability, thus lacking resilience.

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