Creative Destruction

[JohnnySavage]

In January I'm giving a speech on the economic theory, "Creative Destruction."

A term coined by Joseph Schumpeter in his work entitled "Capitalism, Socialism and Democracy" (1942) to denote a "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one."


Creative destruction occurs when something new kills something older. A great example of this is personal computers. The industry, led by Microsoft and Intel, destroyed many mainframe computer companies, but in doing so, entrepreneurs created one of the most important inventions of this century.

Schumpeter goes so far as to say that the "process of creative destruction is the essential fact about capitalism." Unfortunately, while a great concept, this became one of the most overused buzzwords of the dotcom boom (and bust), with nearly every technology CEO talking about how creative destruction would replace the old economy with the new.

It's basically a bridge between the economic theory of Marx and a free-market economy. I thought it interesting to post here because of the wiki-economists here who say they are for the free-market, yet hate innovation in the energy sector.

AJ?

Want to read up on some economic theory post-1850?

 

[Sean]

Make sure you bring up dialectical materialism.

 

[JohnnySavage]

Make sure you bring up dialectical materialism.

I doubt anyone will google, let alone having ever heard of it. This is more for my catharsis.


It's funny though, that a true free-market supporter was born of Marx.

 

[Sean]

I doubt anyone will google, let alone having ever heard of it. This is more for my catharsis.


It's funny though, that a true free-market supporter was born of Marx.

When I first became really involved in politics, rather than just being interested in it, dialectical materialism was still a fairly common phrase in left wing circles. It seemed to go out of vogue in the nineties.

 

[JohnnySavage]

When I first became really involved in politics, rather than just being interested in it, dialectical materialism was still a fairly common phrase in left wing circles. It seemed to go out of vogue in the nineties.

In the grand scheme of things, since the end of the cold war and the rise of globalism, dialectical materialism has been replaced by creative destruction simply because capital is mobile and if you can build a better widget in a third-world nation, the usefulness of the original widget is negated by the cheaper new widget.


Where we are now, fossil fuel has reached its peak usefulness, and we are happy. But the rise of alternative fuel will destroy that industry, not because alternative energy is better, but because there is an opportunity to create a new industry.

 

[trysail]

In the grand scheme of things, since the end of the cold war and the rise of globalism, dialectical materialism has been replaced by creative destruction simply because capital is mobile and if you can build a better widget in a third-world nation, the usefulness of the original widget is negated by the cheaper new widget.


Where we are now, fossil fuel has reached its peak usefulness, and we are happy. But the rise of alternative fuel will destroy that industry, not because alternative energy is better, but because there is an opportunity to create a new industry.

Keep dreaming.




Word of advice: stop inhaling those Potomac vapors and don't believe everything you hear or read.

 

[JohnnySavage]

Keep dreaming.




Word of advice: stop inhaling those Potomac vapors and don't believe everything you hear or read.

Is your money in buggy whips?

 

[trysail]

Is your money in buggy whips?

At the old ivy-covered school, Schumpeter's Capitalism, Socialism and Democracy was placed in my hands and I was told to write a paper on it. It is not easy reading. I still have the book. I'm well aware of the concept of creative destruction.


In 1972, the Club of Rome predicted we'd run out of petroleum by 2000. In 1979, National Geographic told anyone who would listen that it was "The End of Oil."


You should investigate the role of technology and the astonishing advances that have been made in geophysics, metallurgy, design, construction and engineering relating to the exploration and production of hydrocarbons. There are miracles at work.

 

[Sean]

In the grand scheme of things, since the end of the cold war and the rise of globalism, dialectical materialism has been replaced by creative destruction simply because capital is mobile and if you can build a better widget in a third-world nation, the usefulness of the original widget is negated by the cheaper new widget.


Where we are now, fossil fuel has reached its peak usefulness, and we are happy. But the rise of alternative fuel will destroy that industry, not because alternative energy is better, but because there is an opportunity to create a new industry.

Which brings us to a phrase much beloved of politicians, " the knowledge based economy". When "first world" nations can't compete on manufacturing price, the argument goes, we have to use our superior education and research facilities to outgun the Chinas and Koreas of this world. Unfortunately for that theory, knowledge is a pretty mobile commodity, too.

 

[rosco rathbone]

As I understand it, "creative destruction" is that aspect of free market capitalism which the capitalists themselves will do anything to avoid. Since who wants to be destroyed, creatively or not, after all that work building an enterprise.

 

[JohnnySavage]

As I understand it, "creative destruction" is that aspect of free market capitalism which the capitalists themselves will do anything to avoid. Since who wants to be destroyed, creatively or not, after all that work building an enterprise.

In a globalized economy, the have-nots are hot on the heels of the haves. It's the have-nots who seek to destroy the existing, and replace it with their own idea/product. That's capitalism at its purist form.

Time was, capital was fixed and labor was mobile. If you wanted a new castle, you brought in masons from far and wide. Now, if you want a new factory, you transfer your money with the click of a mouse to the place with the cheapest labor.

The classic economists that are quoted here frequently never foresaw such a globalization or the instantaneous flow of capital around the world.

Globalization means that politics are only relevant to the point the political system can create the conditions for the flow of capital into their political boundary.

Alternative energy is a new market that the United States is going after half-heartedly, leaving money on the table by letting China lead in its development.

Telecommunications is another area. Right now, the only political entity that can create an entire 4G network is China. The implications are that we are turning over critical infrastructure to a country that could be inserting nastiness into the system that we don't know about.

 

[trysail]

As I understand it, "creative destruction" is that aspect of free market capitalism which the capitalists themselves will do anything to avoid. Since who wants to be destroyed, creatively or not, after all that work building an enterprise.

If you don't cannibalize yourself, somebody else will do it for you.


IBM learned that lesson the hard way.

Microsoft learned that lesson the hard way.

Netscape learned that lesson the hard way.

AOL learned that lesson the hard way.

Hewlett-Packard is in the process of learning that lesson (the hard way, of course).

CBS, NBC and ABC learned that lesson the hard way.

Research In Motion learned that lesson the hard way.

Nokia learned that lesson the hard way.

Verizon appears to have recognized that truth (but only in the nick of time) though they may still blow it.







There's a very good reason that Warren Edward Buffett doesn't invest in technology-centric businesses.

 

[rosco rathbone]

Alternative energy is a new market that the United States is going after half-heartedly, leaving money on the table by letting China lead in its development.

Telecommunications is another area. Right now, the only political entity that can create an entire 4G network is China. The implications are that we are turning over critical infrastructure to a country that could be inserting nastiness into the system that we don't know about.

Are you saying government should be "picking winners and losers?"

Isn't the market supposed to handle that?

 

[4est_4est_Gump]

In January I'm giving a speech on the economic theory, "Creative Destruction."

A term coined by Joseph Schumpeter in his work entitled "Capitalism, Socialism and Democracy" (1942) to denote a "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one."


Creative destruction occurs when something new kills something older. A great example of this is personal computers. The industry, led by Microsoft and Intel, destroyed many mainframe computer companies, but in doing so, entrepreneurs created one of the most important inventions of this century.

Schumpeter goes so far as to say that the "process of creative destruction is the essential fact about capitalism." Unfortunately, while a great concept, this became one of the most overused buzzwords of the dotcom boom (and bust), with nearly every technology CEO talking about how creative destruction would replace the old economy with the new.

It's basically a bridge between the economic theory of Marx and a free-market economy. I thought it interesting to post here because of the wiki-economists here who say they are for the free-market, yet hate innovation in the energy sector.

AJ?

Want to read up on some economic theory post-1850?

I have.

I do not really see it as some sort of a bridge.

I am busy reading Say currently. I do not find too much new or creative past Human Action.

 

[JohnnySavage]

Are you saying government should be "picking winners and losers?"

Isn't the market supposed to handle that?

I'm just describing the theory in a globalized market. China is becoming the most powerful economy on the planet because its government and industry are one and the same. Private American companies can't compete with Chinese companies because they are, in reality, competing with the Chinese government.

But, as went the American factory worker, so too will go the Chinese factory worker. In the next 20 years, manufacturing will move to Africa because African labor will be cheaper than Chinese labor.

 

[rosco rathbone]

I'm just describing the theory in a globalized market. China is becoming the most powerful economy on the planet because its government and industry are one and the same. Private American companies can't compete with Chinese companies because they are, in reality, competing with the Chinese government.

But, as went the American factory worker, so too will go the Chinese factory worker. In the next 20 years, manufacturing will move to Africa because African labor will be cheaper than Chinese labor.

Since China's economic assets are allocated by a political process, they must ipso facto be misallocated. Any appearance of success is illusory.

 

[JohnnySavage]

Since China's economic assets are allocated by a political process, they must ipso facto be misallocated. Any appearance of success is illusory.

Yes, it's illusory, and that's why it's unsustainable. Capital will eventually move out of China - that's the destruction. Where it moves, will be the creation.

 

[4est_4est_Gump]

In a globalized economy, the have-nots are hot on the heels of the haves. It's the have-nots who seek to destroy the existing, and replace it with their own idea/product. That's capitalism at its purist form.

Time was, capital was fixed and labor was mobile. If you wanted a new castle, you brought in masons from far and wide. Now, if you want a new factory, you transfer your money with the click of a mouse to the place with the cheapest labor.

The classic economists that are quoted here frequently never foresaw such a globalization or the instantaneous flow of capital around the world.

Globalization means that politics are only relevant to the point the political system can create the conditions for the flow of capital into their political boundary.

Alternative energy is a new market that the United States is going after half-heartedly, leaving money on the table by letting China lead in its development.

Telecommunications is another area. Right now, the only political entity that can create an entire 4G network is China. The implications are that we are turning over critical infrastructure to a country that could be inserting nastiness into the system that we don't know about.

Yeah, China is a great model for centralized planning.

High-speed rail that cannot go high speed.

Empty cities.

4G access? Have you been to China? Most of it is more barren than our deserts...

Most of it is more backward than Appalachia, and meanwhile, we keep growing and expanding thanks to the invisible hand and despite the governments failures in centralized "picking."

Hell, we might be farther along with Hydrogen technology if the government were not confiscating so much Capital from the private sector to dole out to its campaign contributors...

"Creative Destruction" is probably just new packaging for the improvements to industry due to the Capitalization of innovation.

 

[rosco rathbone]

Yes, it's illusory, and that's why it's unsustainable. Capital will eventually move out of China - that's the destruction. Where it moves, will be the creation.

I think you just blew my fragile eggshell mind.

 

[trysail]

I'm just describing the theory in a globalized market. China is becoming the most powerful economy on the planet because its government and industry are one and the same. Private American companies can't compete with Chinese companies because they are, in reality, competing with the Chinese government.

But, as went the American factory worker, so too will go the Chinese factory worker. In the next 20 years, manufacturing will move to Africa because African labor will be cheaper than Chinese labor.

...as capitalism spreads around the globe, slowly lifting humanity from the miasma of poverty.

 

[JohnnySavage]

...as capitalism spreads around the globe, slowly lifting humanity out of poverty.

Overall yes. At the local level, it sucks to be an auto worker. Or a rotary dial phone assembler. Or a textile worker...

 

[4est_4est_Gump]

Yeah, our climb up the ladder of prosperity for every single class has really sucked there comrade...




We went from one rented rotary phone in the home and no computers to cell phones and ipads, but the working man, boy does life ever suck for him...



IN MY LIFETIME!!!

You want me to tell you how my grandparents lived?

 

[rosco rathbone]

Yeah, our climb up the ladder of prosperity for every single class has really sucked there comrade...




We went form one rented rotary phone in the home and no computers to cell phones and ipads, but the working man, boy does life ever suck for him...

Slightly off topic, but have you ever heard of Karl Hess?

 

[JohnnySavage]

Yeah, China is a great model for centralized planning.

High-speed rail that cannot go high speed.

Empty cities.

4G access? Have you been to China? Most of it is more barren than our deserts...

Most of it is more backward than Appalachia, and meanwhile, we keep growing and expanding thanks to the invisible hand and despite the governments failures in centralized "picking."

Hell, we might be farther along with Hydrogen technology if the government were not confiscating so much Capital from the private sector to dole out to its campaign contributors...

"Creative Destruction" is probably just new packaging for the improvements to industry due to the Capitalization of innovation.

You miss the point.

What China or the Chinese have is irrelevant. Chinese companies are the only one's in the world that can build a 4G network - you know, the one that's being rolled out in the United States.

The technology destroyed the existing, to create the new. My first cell phone was analog.

 

[4est_4est_Gump]

Slightly off topic, but have you ever heard of Karl Hess?

I do not know...

... give me a second, I have to run down to the library and consult with a librarian...

http://en.wikipedia.org/wiki/Karl_Hess


She's telling me about him now...