In this episode of the Innovation Book Club, Alex Drago and Wais Pirzad discuss Joseph Schumpeter’s ideas on Creative Destruction. From Investopedia: “The term creative destruction was first coined by Austrian economist Joseph Schumpeter in 1942. Schumpeter characterized creative destruction as innovations in the manufacturing process that increase productivity, describing it as the "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one." Basically, the theory of creative destruction assumes that long-standing arrangements and assumptions must be destroyed to free up resources and energy to be deployed for innovation. To Schumpeter, economic development is the natural result of forces internal to the market and is created by the opportunity to seek profit. Creative destruction theory treats economics as an organic and dynamic process. This stands in stark contrast with the static mathematical models of traditional Cambridge-tradition economics. Equilibrium is no longer the end goal of market processes. Instead, many fluctuating dynamics are constantly reshaped or replaced by innovation and competition. As is implied by the word destruction, the process inevitably results in losers and winners. Producers and workers committed to the older technology will be left stranded. Entrepreneurs and workers in new technologies, meanwhile, will inevitably create disequilibrium and highlight new profit opportunities. In describing creative destruction, Schumpeter was not necessarily endorsing it. In fact, his work is considered to be heavily influenced by The Communist Manifesto, the pamphlet by Karl Marx and Friedrich Engels which decried the bourgeoisie for its "constant revolutionizing of production [and] uninterrupted disturbance of all social conditions." Here’s a highbrow YouTube lecture on Schumpeter’s Creative Destruction: shorturl.at/rGU08 Here’s a lowbrow YouTube introduction to Schumpeter’s Creative Destruction: shorturl.at/qFZ23 Here’s three questions to help you reflect on what you’ve just heard: 1, To what extent do you agree with Schumpeter’s observations about how capitalism functions? 2, If you were a politician would you embrace creative destruction, reject it, or just try and manage its impact? Why? 3, When was the last time the sector you worked in experienced creative destruction? What will be the underlying factors that would have to change to make it happen again? Contact us: [email protected] or [email protected]