Creative destruction

Creative destruction is an expression used in economics, coined by Joseph Schumpeter. Creative destruction reflects the way technology acts.

The main idea of this principle is that innovation creates economic growth and so helps capitalism's functioning. Innovation by one company leads to destruction of complacent firms monopoly market share. Hi Xerox, Polaroid, Kodak.

There are several kinds of new technologies:

• New processes
• New products and goods
• New ways to transport
• New plants organization
• New markets
• New institutions

All these technologies contribute to growth but lead also to the (gradual) death of old technologies. Indeed, old technologies produce at higher costs.

For Schumpeter, the main principle of capitalism was innovation and technology (creative destruction) and not competition (invisble hand).

It is hard to argue that long-term economic growth is the product of anything other than technological innovation. It is thus a scandal that Schumpeter is absent from many 600 page elementary economic texts indexes. Schumpeters solution would be for a new generation of textbooks to emerge, which students would choose, in partial defiance of their lecturers. Wikipedia is now one of those texts!

History

Schumpeter was probably influenced by Charles Darwin.

This expression was published first in the book "Capitalism, Socialism and Democracy." 1942

Miscellaneous

Several books concerning economics have creative destruction in their titles:

• Creative Destruction: Why Companies That Are Built to Last Underperform the Market--And How to Successfully Transform Them . A book by Richard Foster and Sarah Kaplan. ISBN 0385501331