In economics, creative destruction (German: ) is a process in which new innovations replace and make older innovations obsolete.
The concept is usually identified with the economist Joseph Schumpeter,
The German sociologist Werner Sombart has been credited with the first use of these terms in his work ' (War and Capitalism, 1913). In the earlier work of Marx, however, the idea of creative destruction or annihilation (') implies not only that capitalism destroys and reconfigures previous economic orders, but also that it must continuously devalue existing wealth (whether through war, dereliction, or regular and periodic economic crises) in order to clear the ground for the creation of new wealth. Despite this, the term subsequently gained popularity within mainstream economics as a description of processes such as downsizing to increase the efficiency and dynamism of a company. The Marxian usage has, however, been retained and further developed in the work of social scientists such as David Harvey, Marshall Berman, Manuel Castells and Daniele Archibugi.
In modern economics, creative destruction is one of the central concepts in the endogenous growth theory.
In Why Nations Fail, a popular book on long-term economic development, Daron Acemoglu and James A. Robinson argue the major reason countries stagnate and go into decline is the willingness of the ruling elites to block creative destruction, a beneficial process that promotes innovation.
History
By Karl Marx
thumb|[[Karl Marx (1818–1883) never explicitly used the mark "creative destruction".]]
Although the modern term "creative destruction" is not used explicitly by Marx, it is largely derived from his analyses, particularly in the work of Werner Sombart, and of Joseph Schumpeter, who discussed at length the origin of the idea in Marx's work (see below).
In The Communist Manifesto of 1848, Karl Marx and Friedrich Engels described the crisis tendencies of capitalism in terms of "the enforced destruction of a mass of productive forces":
<blockquote>In these crises, a great part not only of existing production, but also of previously created productive forces, are periodically destroyed.</blockquote>
In the Theories of Surplus Value ("Volume IV" of Das Kapital, 1863), Marx refines this theory to distinguish between scenarios where the destruction of (commodity) values affects either use values or exchange values or both together.</blockquote>
Social geographer David Harvey sums up the differences between Marx's usage of these concepts and Schumpeter's: "Both Karl Marx and Joseph Schumpeter wrote at length on the 'creative-destructive' tendencies inherent in capitalism. While Marx clearly admired capitalism's creativity he ... strongly emphasised its self-destructiveness. The Schumpeterians have all along gloried in capitalism's endless creativity while treating the destructiveness as mostly a matter of the normal costs of doing business".
By Werner Sombart
In philosophical terms, the concept of "creative destruction" is close to Hegel's concept of sublation. In German economic discourse it was taken up from Marx's writings by Werner Sombart, particularly in his 1913 text ':
<blockquote>Again, however, from destruction a new spirit of creation arises; the scarcity of wood and the needs of everyday life... forced the discovery or invention of substitutes for wood, forced the use of coal for heating, forced the invention of coke for the production of iron.</blockquote>
Other early usage
In the Origin of Species, which was published in 1859, Charles Darwin wrote that the "extinction of old forms is the almost inevitable consequence of the production of new forms". One notable exception to this rule is how the extinction of the dinosaurs facilitated the adaptive radiation of mammals. In this case creation was the consequence, rather than the cause, of destruction.
thumb|In [[Hinduism, the god Shiva is simultaneously destroyer and creator, portrayed as Shiva Nataraja (Lord of the Dance), which is proposed as the source of the Western notion of "creative destruction". In the following passage from On the Genealogy of Morality (1887), Nietzsche argues for a universal principle of a cycle of creation and destruction, such that every creative act has its destructive consequence:
<blockquote>But have you ever asked yourselves sufficiently how much the erection of every ideal on earth has cost? How much reality has had to be misunderstood and slandered, how many lies have had to be sanctified, how many consciences disturbed, how much "God" sacrificed every time? If a temple is to be erected a temple must be destroyed: that is the law – let anyone who can show me a case in which it is not fulfilled! – Friedrich Nietzsche, On the Genealogy of Morality</blockquote>
Other nineteenth-century formulations of this idea include Russian anarchist Mikhail Bakunin, who wrote in 1842, "The passion for destruction is a creative passion, too!" Note, however, that this earlier formulation might more accurately be termed "destructive creation", and differs sharply from Marx's and Schumpeter's formulations in its focus on the active destruction of the existing social and political order by human agents (as opposed to systemic forces or contradictions in the case of both Marx and Schumpeter).
Association with Joseph Schumpeter
thumb|[[Joseph Schumpeter (1883–1950) is credited with coining the modern understanding of the term.]]
The expression "creative destruction" was popularized by and is most associated with Joseph Schumpeter, particularly in his book Capitalism, Socialism and Democracy, first published in 1942. Already in his 1939 book Business Cycles, he attempted to refine the innovative ideas of Nikolai Kondratieff and his long-wave cycle which Schumpeter believed was driven by technological innovation. Three years later, in Capitalism, Socialism and Democracy, Schumpeter introduced the term "creative destruction", which he explicitly derived from Marxist thought (analysed extensively in Part I of the book) and used it to describe the disruptive process of transformation that accompanies such innovation:
<blockquote>Capitalism ... is by nature a form or method of economic change and not only never is but never can be stationary. ... The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers' goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.<p>... The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U.S. Steel illustrate the process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in.</p><p>[... Capitalism requires] the perennial gale of Creative Destruction.</p></blockquote>
In Schumpeter's vision of capitalism, innovative entry by entrepreneurs was the disruptive force that sustained economic growth, even as it destroyed the value of established companies and laborers that enjoyed some degree of monopoly power derived from previous technological, organizational, regulatory, and economic paradigms. However, Schumpeter was pessimistic about the sustainability of this process, seeing it as leading eventually to the undermining of capitalism's own institutional frameworks:
<blockquote>In breaking down the pre-capitalist framework of society, capitalism thus broke not only barriers that impeded its progress but also flying buttresses that prevented its collapse. That process, impressive in its relentless necessity, was not merely a matter of removing institutional deadwood, but of removing partners of the capitalist stratum, symbiosis with whom was an essential element of the capitalist schema. [... T]he capitalist process in much the same way in which it destroyed the institutional framework of feudal society also undermines its own.
Companies that once revolutionized and dominated new industries – for example, Xerox in copiers or Polaroid in instant photography – have seen their profits fall and their dominance vanish as rivals launched improved designs or cut manufacturing costs. In technology, the cassette tape replaced the 8-track, only to be replaced in turn by the compact disc, which was undercut by downloads to MP3 players, which is now being usurped by web-based streaming services. Companies that made money out of technology which eventually becomes obsolete do not necessarily adapt well to the business environment created by the new technologies.
One such example is how online ad-supported news sites such as The Huffington Post are leading to creative destruction of the traditional newspaper. The Christian Science Monitor announced in January 2009 that it would no longer continue to publish a daily paper edition, but would be available online daily and provide a weekly print edition. The Seattle Post-Intelligencer became online-only in March 2009. At a national level in USA, employment in the newspaper business fell from 455,700 in 1990 to 225,100 in 2013. Over that same period, employment in internet publishing and broadcasting grew from 29,400 to 121,200. Traditional French alumni networks, which typically charge their students to network online or through paper directories, are in danger of creative destruction from free social networking sites such as LinkedIn and Viadeo.
In fact, successful innovation is normally a source of temporary market power, eroding the profits and position of old firms, yet ultimately succumbing to the pressure of new inventions commercialised by competing entrants. Creative destruction is a powerful economic concept because it can explain many of the dynamics or kinetics of industrial change: the transition from a competitive to a monopolistic market, and back again. It has been the inspiration of endogenous growth theory and also of evolutionary economics.
David Ames Wells (1890), who was a leading authority on the effects of technology on the economy in the late 19th century, gave many examples of creative destruction (without using the term) brought about by improvements in steam engine efficiency, shipping, the international telegraph network, and agricultural mechanization.
Later developments
Ludwig Lachmann
David Harvey
Geographer and historian David Harvey in a series of works from the 1970s onwards (Social Justice and the City, 1973; The Limits to Capital, 1982; The Urbanization of Capital, 1985; Spaces of Hope, 2000; Spaces of Capital, 2001; Spaces of Neoliberalization, 2005; The Enigma of Capital and the Crises of Capitalism, 2010), elaborated Marx's thought on the systemic contradictions of capitalism, particularly in relation to the production of the urban environment (and to the production of space more broadly). He developed the notion that capitalism finds a "spatial fix" for its periodic crises of overaccumulation through investment in fixed assets of infrastructure, buildings, etc.: "The built environment that constitutes a vast field of collective means of production and consumption absorbs huge amounts of capital in both its construction and its maintenance. Urbanization is one way to absorb the capital surplus". While the creation of the built environment can act as a form of crisis displacement, it can also constitute a limit in its own right, as it tends to freeze productive forces into a fixed spatial form. As capital cannot abide a limit to profitability, ever more frantic forms of "time-space compression" (increased speed of turnover, innovation of ever faster transport and communications' infrastructure, "flexible accumulation") ensue, often impelling technological innovation. Such innovation, however, is a double-edged sword:
Globalization can be viewed as some ultimate form of time-space compression, allowing capital investment to move almost instantaneously from one corner of the globe to another, devaluing fixed assets and laying off labour in one urban conglomeration while opening up new centres of manufacture in more profitable sites for production operations. Hence, in this continual process of creative destruction, capitalism does not resolve its contradictions and crises, but merely "moves them around geographically".
Marshall Berman
In his 1987 book All That is Solid Melts into Air: The Experience of Modernity,
Here Berman emphasizes Marx's perception of the fragility and evanescence of capitalism's immense creative forces, and makes this apparent contradiction into one of the key explanatory figures of modernity.
In 2021, Berman's younger son applied the elder's conception of creative destruction to the field of art history, writing in Hunter College's graduate art history journal. The essay reconsiders the modern media of photography, photomontage, and collage through the lens of "creative destruction". In doing so, the younger Berman attempts to show that in certain works of art of the above-mentioned media, referents (such as nature, real people, other works of art, newspaper clippings, etc.) can be given new and unique significance even while necessarily being obscured by the very nature of their presentation.
Manuel Castells
thumb|[[Manuel Castells in 2020]]
The sociologist Manuel Castells, in his trilogy on The Information Age: Economy, Society and Culture (the first volume of which, The Rise of the Network Society, appeared in 1996), While technological innovation has enabled this unprecedented fluidity, this very process makes redundant whole areas and populations who are bypassed by informational networks. Indeed, the new spatial form of the mega-city or megalopolis, is defined by Castells as having the contradictory quality of being "globally connected and locally disconnected, physically and socially". Castells explicitly links these arguments to the notion of creative destruction:
Daniele Archibugi
thumb|[[Daniele Archibugi in 2006]]
Developing the Schumpeterian legacy, the school of the Science Policy Research Unit of the University of Sussex further detailed the importance of creative destruction. In particular, new technologies are often incompatible with the existing productive regimes and will bankrupt companies and even industries that change too slowly. Chris Freeman and Carlota Perez developed these insights. More recently, Daniele Archibugi and Andrea Filippetti associated the 2008 economic crisis with the slow-down of opportunities offered by information and communication technologies (ICTs). Archibugi used the 1982 film Blade Runner as a metaphor to argue that of the innovations shown, all those associated with ICTs have become part of everyday life. However, none in the field of biotechnology have been fully commercialized. A new economic recovery will occur when some key technological opportunities are identified and sustained.