Explorer Explains: Creative Destruction
Economists believe innovation destroys jobs in one part of the economy, but creates more jobs, better jobs or better stuff elsewhere in the economy. The result is a more growth and better livelihoods. But not everyone agrees with the theory.
In the 12,000 years since humans invented agriculture, they have innovated all manner of devices and services to make living easier. The wheel, the printing press and the steam turbine all made earlier forms of work obsolete. Better medicines, food recipes and musical instruments made life more enjoyable than before. Each time something new is invented, an older product or service is replaced and the job that went with it often disappears.
This is the principle of creative destruction, an idea elaborated by Austrian economist Joseph Schumpeter. According to this theory, economic history is largely a story of growth and replacement. At the heart of the matter is productivity, the ability to get more value out of the same degree of work. Because new technologies save labor, they make people more productive, or on the flip side, let people buy more with less.
For example, the invention of e-mail dramatically reduced the need for postal workers to deliver letters cross-country. Instead, people can get messages instantaneously and usually for free. Though many postal workers may lose their jobs, the economy as a whole improves, because everyone gains a little bit from the added value.
Not only is the principle at work for individual products, it’s also supposed to act on the makeup of society itself.
The industrial revolution destroyed a largely agricultural way of life and replaced it with one ruled by factory work. As machines took over the usual tasks on the farm, the masses poured into cities looking for a new form of labor they could sell. The labor savings meant food was cheaper because it no longer included the cost of all that farm labor. The quality of life also increased in the 1800s.
Another massive social shift was in the cards, as it turned out. Gradually, as more and more industrial machines replaced the need to work in the factory, new, unforeseen kinds of needs cropped up. Lawyers, doctors, writers, professionals of every stripe appeared in greater number. The service or “knowledge” economy was born and a “middle class” rose to do its labor.
From the farm field to the factory line to the office computer, each demolition brings a new and better life for the whole, according to the principle of creative destruction.
But others wonder if it’s really always good, or even works that way. For example, authors Erik Brynjolfsson and Andrew McAfee argue those big shifts may be based on some fortunate circumstances.
Humans have two kinds of skill sets: physical and cognitive, they say. Backbreaking physical labor was replaced by automation, freeing us up for more comfortable and higher paying cognitive jobs in the knowledge economy. But now a new destructive shift may be occurring, where even those cognitive jobs are being automated. Law clerks, radiologists and stock traders are just some jobs being replaced by robots.
The jury is still out on whether all cognitive skills, like creativity, can really be replicated. But if both skill sets can be automated, it’s not clear if there’s a new kind of economy waiting where human skills are still viable.
With less and less reason to employ costly humans, the owners of machines may reap all the value.
Featured Image: “Rain, Steam and Speed – The Great Western Railway” by J. M. W. Turner.