While Karl Marx (1818-1883) may be credited with the initial conceptualization of an economic theory of creative destruction, the theory has come to be adopted and raised from adolescence by Joseph Schumpeter (1883-1950). While he was not the biological father, economic history has come to associate the paternity of these ideas more with Schumpeter who undoubtably nurtured them in directions unimagined by Marx. Issues of attribution aside, for our purposes, the general notion of wealth accumulation and annihilation in a capitalistic system take on a decidedly new flavor when the question of technological innovation (Schumpeter’s emphasis) is thrown into the mix.
‘Out with the old and in with the new.’ This common expression obfuscates the mechanisms by which economic growth mandates such a replacement. Why is the old destined to wither and die? Does the new gain anything from the old other than its place in the market? Is the transition necessary? Should we stave it off as long as possible or try to embrace the change and perhaps even accelerate it?
Schumpeter begins to clarify some of these issues by refocusing our attention on the underlying nature of technological advancement. The tools of manufacturing and trade from any given time period quickly wear on us. They become ‘heavy’ and inadequate due to their inherent limitations. We start to perceive more refined products, a greater diversity of applications, possibilities for miniaturization, stronger materials, advanced design features, extra pleasing form factors. Can we do more with less? Can we do it faster? Can we save money in the process?
Innovative progress responds to these challenges. In rendering an old technology obsolete, a new one is born in its place; one which is presumably not just new but better. Why rent a horse when you can have a car? Anyone in the market for a typewriter anymore? Do you prefer texting or telegraph?
We live in a time of unprecedented creative destruction. Vinyl records gave way to cassette tapes which then suddenly yielded to CD’s only to be dematerialized into MP3 files on your iPod. Many inventions of a bygone era would enjoy decades of healthy sales. Not now. Today, if a product line is not refreshed every year it will rapidly lose its market share and risks being outstripped by the competition. One needn’t look further than the smart phone market to see this loud and clear. Innovation is the key to survival.
How many farmers did the tractor put out of work? What will happen to the remaining agricultural workers when recent breakthroughs such as completely automated robotically driven tractors and crop pickers are widely deployed? Place your bets on the showdown between the copyist and the photocopier. Computers, RFID tags, GPS, nanotechnologies, wireless networks…the picture is crystal clear.
Out of the decimation of the antiquated paradigm comes the emergence of the next advancement. The destruction of the film camera created the economic place for the digital one. The destruction ‘fed’ the creation of a new source of wealth. At the same time, the low cost of digital photographs has greatly expanded the use of that technology which now enjoys a market whose proportions were inconceivable with the associate costs and complexities of paying for film, development and storage. If all the pictures on the web were physical we would be literally buried in them as they number in the billions. Facebook alone (as of 2011) had over 100 billion photos!
“A time to be born, and a time to die…” Ecclesiastes 3:2.
Its not just people. Its products. Its the means of wealth generation. Creative destruction is everywhere. In fact, there is no shortage of examples of creative destruction in Jewish thought throughout the ages from the Talmud to Chassidic philosophy (its hard to forget that Marx was Jewish too). Even the Jewish calendar is punctuated with reflections on creative destruction as we will explore in Part 2.