Creative Destruction

Creative destruction, or Schumpeter’s gale as it’s occasionally referred to, is an economic phenomenon that, whether you know it or not, you’ve seen in action over the past decade.

When a new product, service, or idea takes over from a predecessor, in the process revolutionising the economic structure of the industry, making the existing framework and job force obsolete, whilst instantaneously creating a new one.

Whilst in the short-term there is a decrease in employment, there is a long-term net gain to the economy.

“The process of industrial mutation that incessantly revolutionises the economic structure from within, incessantly destroying the old one, incessantly creating a new one”. — Joseph Schumpeter.

Initially the destruction is viewed with trepidation. This disruption of the status quo, and the imminent change is terrifying to some.

As alarming as destruction to an entire industry may sound, we have over the past century, repeatedly seen creative destruction in action as a force to enable positive change.

During the early 20th century pianos were big business. Becoming the staple home entertainment centre. In 1910, during the peak of the golden age of pianos, over 350,000 were sold in the US alone, totalling over $50m in sales.

Fast forward 10 years. The piano is no longer king, and sales of record players hit $158m.

Now a lot of piano business went bust. Generations old piano makers, tuners, salesmen, left without a job. Now you might see one lurking in the depths of Aunt May’s loft, or perhaps being given away on a local For Sale forum. In 2011 just 41,000 acoustic pianos were sold in the US, this is about 8% of what they sold in their hey-day back in 1909.

A century on we have 23,000 people employed the BBC worldwide, and as of December 2016 Comcast- the biggest entertainment and broadcasting company in the world had 153,000 employees.

That’s far more than were ever employed through the piano industry, whilst the net enjoyment garnered from the entertainment industry now far outweighs that of 1909 (although arguably appreciation of such entertainment may be lower.)

The point here is that even though some businesses went bust, and many jobs were lost when pianos fell out of popularity; without record player sales exploding and consuming the piano industry, long-term there would be nowhere near as many people employed as there are now.

When Blockbuster went into liquidation 1,200 people lost their jobs in the UK. Whilst the reasons for this are wildly different to the piano industry, the fact remains the same. One industry had to implode to shepherd in a new era of entertainment. An era that seems simply unimaginable now; Blockbuster and chill doesn’t exactly have the same ring to it, now does it?

The same can be applied to when the automobile industry took over from horse power. Since then we have now automated most of the car manufacturing process. The cycle continues.

With the dawn of automation knocking on our doors, we can only expect creative destruction to increase.

The question is: will the rate of destruction overtake the new job creation? Where will the people ordinarily employed in these process-driven roles find work?

That we don’t know yet, and while many may feel threatened by this change it is simply par for the course. Especially when we want to be able to watch unlimited (advert free) television through the internet, and find out the weather by asking our mobile phones a question. We can’t have one without the other, right?

Have you been affected by Schumpeter’s gale first hand? Let us know your opinion in the comment section!