Photo: “Etna Volcano Paroxysmal Eruption Jan 12 2011″ posted to Flickr by gnuckx.
Is Disruption The Same As “Creative Destruction?”
While thinking about creating this blog on disruption, several ideas have circled in my head:
- the accelerating rate of disruptive change
- dying business models
- entire sections of the workforce being replaced by automation, or computers, or robots, or being moved offshore
- the ever-increasing worldwide demand for energy and natural resources
- the great promise from advances in biotechnology, robotics, quantum computing, nanotechnology, DNA sequencing, etc.
Perhaps being married to an economist (who is also a business attorney) inclines me to look at disruption from a “system-wide,” societal and economic point of view. Nevertheless, during this thought process I happened to hear a March 27, 2012 broadcast of NPR’s Planet Money podcast with the title, “What A 16th Century Guild Teaches Us About Competition.” The episode was an interview of Sheilagh Ogilvie, an economic historian at the University of Cambridge, and it began a line of thought for about the phenomenon of disruption, about the economic principle known as “creative destruction,” and whether the two are the same or different.
The NPR Interview: “What A 16th Century Guild Teaches Us About Competition”
In the interview, Ms. Ogilvie discussed the creation and workings of 16th-century German weaver guilds and then engaged in the following comparison to the current business environment:
Interviewer (Adam Davidson): There are analogues to our modern situation as well, where you do see industries that are on the ropes in America do go to Washington and try and prevent new upstarts. In fact, many would argue that Hollywood and the music industry, their obsession right now with copyright protection, or the software industry, some of their obsession with patent protection is this in practice. I mean, this is an argument that basically there are the young upstarts who see a completely different way of distributing music and movies, or see a completely different way of creating software and the old established ones who got rich off the old system, the last thing they want is to encourage the free movement of data and information around the internet because they were so successful and because they were so profitable on an old system they don’t have an incentive to really explore some new business model all that well and that we’re seeing, certainly not the identical thing, but we’re seeing a similar political economy right now.
Sheilagh Ogilvie: Exactly, and I mean I think it’s one of the great challenges for any policy maker in any society – in medieval Europe, in early modern Europe, or during the Industrial Revolution or today – which is to try to insure that the sort of creative destruction which we associate with a dynamic economy that’s really good at inventing new things and responding flexibly to changes and satisfying consumers as well as producers, that that sort of creative destruction happens because, if a firm or business is producing in an inefficient way it’s using large amounts of inputs to produce not very much output and not very good output and it’s very important for the economy at large that that sort of business should actually be allowed to quietly stop being a business and stop using up resources so that those resources can be used more efficiently. It’s sad for the existing producer and I think that’s very much why guilds existed and why the kind of lobbying to prevent huge car companies, for example, that are not producing very efficiently any more – there’s always lobbying to stop them from going out of business.
Interviewer (Adam Davidson): Right. Capitalism requires failure as much as success, it’s a central part of the system, and you lose the failure and the whole system eventually becomes sclerotic and dies.
Sheilagh Ogilvie: Yes.
(A link to the interview is embedded at the end of this post.)
[For more on the economic term "creative destruction" that was coined by Austrian economist Joseph Schumpeter, I would refer you to the discussion contained in The Concise Encyclopedia of Economics on the website of the Library of Economics and Liberty.]
So What Does That Mean To Us?
My point in quoting the interview excerpt above is not to vouch for the analogy’s accuracy (indeed, there are interesting contrary opinions in the comments on the podcast’s website). Rather, I quote it to bring into focus the historical nature of “creative destruction.” Of necessity, it would seem that it has always been simultaneously positive and negative: positive for those who benefit from the creation of a new market or means of distribution or new product; negative for those whose old market or distribution method or product are displaced.
And yet, historical developments come to mind that, to me, seem to have been at least predominantly, if not completely, positive. As an example, Jonas Salk’s vaccine discovery wiped out polio – a disruptive event in the medical field in which I struggle to find a “destructive” effect. Similar predominantly positive, yet disruptive, events are the discovery of the transistor, the computer’s development, and the creation and development of the internet.
What Do You Think?
And so we come to the purpose of this blog, Disruption News. My plan is to frequently post news of discoveries, developments, events, etc. that have the potential of being disruptive. I want to provide a source for those who, like me, are interested in developments in many different fields: biotechnology, computing, internet technology, medicine, physics and other sciences, publishing, or society and culture. My hope is that these posts will spark discussion and/or debate that will enhance the material I post – for me and other readers.
I earnestly invite comments and discussion. Should anyone become so enthused by a post or topic that they would like to contribute a guest post, I can be reached through the methods described on the “Contact Me” page of this site. I look forward to interesting comments, discussions, thoughts and analyses.
[Promised embed of the March 27, 2012 Planet Money podcast, "What A 16th Century Guild Teaches Us About Competition."]:
Author: Jim Browning