creative-destruction

What Is Creative Destruction? Creative Destruction In A Nutshell

Creative destruction was first described by Austrian economist Joseph Schumpeter in 1942, who suggested that capital was never stationary and constantly evolving. To describe this process, Schumpeter defined creative destruction as the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” Therefore, creative destruction is the replacing of long-standing practices or procedures with more innovative, disruptive practices in capitalist markets.

Understanding creative destruction

Essentially, the theory behind creative destruction argues that the market status quo must be destroyed to free up the resources and energy required to innovate. From Schumpeter’s point of view, economic development was driven by the opportunity to seek profit with many dynamic market forces constantly reshaped or replaced by innovation and competition. This assumption contradicted the static mathematical models of traditional economic philosophies, which saw the balancing of supply with demand as the end goal of market processes. 

As the name suggests, there are winners and losers during creative destruction. A society cannot reap the rewards of growth and innovation without accepting that some individuals or businesses will suffer in the short or long term. History has shown that any attempts to reduce the negative aspects of creative destruction by preserving jobs or protecting vulnerable industries simply delays the inevitable. As a result, many consider the dichotomous nature of creative destruction to be the “paradox of progress”.

Examples of creative destruction

The evolution of the transportation industry is a classic example of creative destruction at work. 

During the late 1800s and early 1900s, there were incremental improvements to horse-drawn transport which allowed it to dominate the market. When the Ford Model T was released in 1908, improvements in horse-drawn transport were quickly superseded by a more innovative form of transport which has itself undergone many improvements in the last century.

Creative destruction has also occurred in the following industries:

Photography

Where Kodak film cameras were replaced with digital cameras and to a lesser extent, smartphones. What is unfortunate about the Kodak story is that the company developed one of the first digital cameras but failed to capitalise on it.

Music

The music industry has undergone many changes in the last century. Records were replaced with tapes, CDs, DVDs, mp3s, and digital music stores. Today, digital music stores have also been superseded by streaming services such as Spotify.

Internet

Many industries have also suffered because of the internet, though the internet has perhaps created more industries than it has destroyed. Nevertheless, high-speed connections rendered VHS and DVD rental obsolete. Mobile internet also disrupted taxi drivers and mapmakers. Travel agents and other service providers have also suffered because of the sheer abundance of information available online.

Key takeaways:

  • Creative destruction is the replacing of long-standing practices or procedures with more innovative, disruptive practices in capitalist markets. The term was first described by Austrian economist Joseph Schumpeter in 1942.
  • Creative destruction is sometimes called the paradox of progress because, for industries to grow, there must necessarily be losers. 
  • Creative destruction is arguably most associated with advances in personal transportation, but it has also been seen in photography, music, travel, and entertainment.

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