Editing Creative destruction (section)

=={{Anchor|Joseph Schumpeter|Schumpeter}}Association with Joseph Schumpeter==
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 [[Kondratiev wave|long-wave]] cycle which Schumpeter believed was driven by technological innovation.<ref name="Crumbling Walls">{{cite book
|last=McKraw
|first=Thomas K.
|author-link=Thomas K. McKraw
|title=Business History Review 80
|url=http://hbswk.hbs.edu/pdf/20070207_Schumpeter.pdf
|archive-url=https://web.archive.org/web/20080226211528/http://hbswk.hbs.edu/pdf/20070207_Schumpeter.pdf
|url-status=dead
|archive-date=26 February 2008
|access-date=23 February 2012
|year=2006
|publisher=Cambridge Journals Online
|location=London
|page= 239
}}</ref> 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.<ref name="Schumpeter1942_2">{{cite book
|last=Schumpeter
|first=Joseph A.
|author-link=Joseph Schumpeter
|title=Capitalism, Socialism and Democracy
|url=https://books.google.com/books?id=6eM6YrMj46sC
|access-date=23 November 2011
|year=1994
|publisher=Routledge
|location=London
|pages=82–83
|isbn=978-0-415-10762-4
|orig-year=1942
}}</ref></p></blockquote>
In Schumpeter's vision of capitalism, innovative entry by [[entrepreneurs]] was the [[Disruptive innovation|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.<ref>{{cite journal |first1=J. Gregory |last1=Sidak |first2=David J. |last2=Teece |title=Dynamic Competition in Antitrust Law |journal=[[Journal of Competition Law & Economics]] |year=2009 |volume=5  |issue=4 |pages=581–631 [p. 604] |doi=10.1093/joclec/nhp024 |doi-access=free }}</ref> 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.<ref name="Schumpeter1942" /></blockquote>

=== Examples ===
[[File:Polaroid OneStep Express.jpg|thumb|right|Polaroid [[instant camera]]s have disappeared almost completely with the spread of [[digital photography]]. They were only to return once again in 2017 with new cameras and films, as the demand for the instant photo was underestimated.]] Schumpeter (1949) in one of his examples used "the railroadization of the [[Midwestern United States|Middle West]] as it was initiated by the [[Illinois Central Railroad|Illinois Central]]." He wrote, "The Illinois Central not only meant very good business whilst it was built and whilst new cities were built around it and land was cultivated, but it spelled the death sentence for the [old] agriculture of the [[Western United States|West]]."<ref>Schumpeter, J. A. (1941): An economic interpretation of our time: The Lowell Lectures, in The Economics and Sociology of Capitalism, Princeton, N.J.: Princeton University Press, pp. 349. As quoted by "Schumpeter and Regional Innovation" by Esben S. Andersen. Chapter for Handbook of Regional Innovation and Growth. (ed. P. Cooke, Elgar Publ.)</ref>

Companies that once revolutionized and dominated new industries – for example, [[Xerox]] in copiers<ref>{{cite journal |last1=de Figueiredo |first1=John M. |last2=Kyle |first2=Margaret K. |title=Surviving the gales of creative destruction: the determinants of product turnover |journal=Strategic Management Journal |date=March 2006 |volume=27 |issue=3 |pages=241–264 |doi=10.1002/smj.512 |jstor=20142331 }}</ref> or [[Polaroid Corporation|Polaroid]] in instant photography – have seen their [[Profit (accounting)|profits]] fall and their dominance vanish as rivals launched improved designs or cut manufacturing costs. In technology, the [[cassette tape]] replaced the [[8-track tape|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 media|streaming services]].<ref>[https://www.theguardian.com/technology/2015/may/12/warner-music-spotify-streaming-income-downloads Warner Music reveals streaming income has overtaken downloads]''The Guardian'', Tuesday 12 May 2015</ref>  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<ref>[http://johngaynardcreativity.blogspot.com/2009/01/christian-science-monitor-is-to.html Creative Destruction and Innovation in The News Industry] John Gaynard's blog, January 21, 2009.</ref> 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.<ref name="pifrontpage">{{cite news |first=Dan |last=Richman |author2=James, Andrea |title=Seattle P-I to publish last edition Tuesday |url=http://www.seattlepi.com/business/403793_piclosure17.html |work=Seattle Post-Intelligencer |date=2009-03-16 }}</ref> 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.<ref>{{cite web|last=Bureau of Labor Statistics|title=Series ID CES5051913001 and CES5051111001|url=http://www.bls.gov|access-date=22 April 2013}}</ref>  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]].<ref>[http://johngaynardcreativity.blogspot.com/2009/01/could-linkedin-and-viadeo-creatively.html Could LinkedIn and Viadeo Creatively Destroy the Traditional French Networks?] John Gaynard's blog, January 13, 2009.</ref>

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 [[Activation energy|kinetics]] of industrial change: the transition from a [[competitive]] to a monopolistic market, and back again.<ref>{{cite journal |last1=Sidak |first1=J. G. |last2=Teece |first2=D. J. |title=Dynamic Competition in Antitrust Law |journal=Journal of Competition Law and Economics |date=1 December 2009 |volume=5 |issue=4 |pages=581–631 |doi=10.1093/joclec/nhp024 |ssrn=1479874 |doi-access=free }}</ref> It has been the inspiration of [[endogenous growth theory]] and also of [[evolutionary economics]].<ref>{{cite journal |last1=Nelson |first1=Richard R. |last2=Nelson |first2=Katherine |title=Technology, institutions, and innovation systems |journal=Research Policy |date=February 2002 |volume=31 |issue=2 |pages=265–272 |doi=10.1016/S0048-7333(01)00140-8 |citeseerx=10.1.1.500.5013 }}</ref>

[[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.<ref>{{cite book |title=Recent Economic Changes and Their Effect on Production and Distribution of Wealth and Well-Being of Society |last=Wells |first=David A. |year=1890 |publisher= D. Appleton and Co. |location= New York |isbn= 978-0-543-72474-8 |url=https://archive.org/details/recenteconomicc01wellgoog }}</ref>