Hey everyone!
So anyone who has studied economics will no doubt have looked in depth at some famous economic theorists- Keynes, Marx and also Schumpeter. Joseph Schumpeter, titled 'The Father of Creative Destruction' by Wired magazine (March 2002), was a law graduate who drew his theories through aspects of scentific exploration and market transitions, made famous mainly due to his adaption of Marx's 'Creative Destruction' theory.
In his own words, Schumpeter describes 'Creative Destruction' as: "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one" Schumpeter, J (1942:82). Put simply, he sees it as being where creating a new product destroys the old one, for example creative destruction can be seen in television market- colour tv destroyed the black and white tv market, HDTV destroyed the standard definition market and potentially 3D TV could creatively destroy the HDTV market. Capitalism is a form of economic change and creative destruction "is the essential fact about capitalism" Schumpeter, J (1942:82). The graph below sums up the process of creative destruction:
Image from: ClemsonEDU [online] accessed 17/1/12
Although an economist, Schumpeter's theory is underpinned by innovation- if we use an example from the image above: electrictry came about due to the destruction of steam powered energy. But why did this occur? The answer is simple: because of innovation. It was innovation that brought about this 'new wave'; as we can see the pace of innovation slowly increased until it reached a peak, upon which time this product becomes out-of-date and a new one replaces it, destroying the old one theoretically. Through scientific exploration, we discover more about the world we live in and how we can utilise it to our advantage, and through this scientific exploration leading to new findings, we can impliment these findings within the global economy; be that by creating a faster computer or inventing a more greener energy source. These new products bring about a market transition, with the main benefit being a greater choice of goods and services for the public, but at what cost?
1984-1985 saw the closure of around 20 mines under Margret Thatchers power. Although a huge number of factors contributed to this (trade unions, new government laws etc); this can also be seen as the end of a 'wave' of creative destruction, leading the way for nuclear power to replace it. Unemployment levels soared, it was not uncommon for some villages to have half it's population unemployed because of the closure of the mines and although an extreme example, the basic concept is the same. When one product comes to an end, unemployment occurs. People who had skills that were suitable for mine production did not have skills suitable for power plants, people who had skills suitable for creating a laptop do not have the neccessary skills for producing a tablet etc. As much as you can train people, this takes time and so there will be a period of time in which these people are learning the new skill and so will be unemployed. As much as companies try and compete with their competitors; there are always going to be some who can not survive when faced with a new product threating to destroy theres, and this concept of 'creative destruction' shows no sign of stopping in the future, as the proverb goes: history is doomed to repeat itself.
References:
Anderson, C "Wired Magazine" (2002:1), published by: Wired
ClemsonEDU [online], found at: http://www.clemson.edu/caah/history/FacultyPages/PamMack/lec122/techrev.htm, accessed 17/1/12
Schumpeter, S "Creative Destruction" (1942:82-83), published by: Harper
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