Monday, December 15, 2008

Creative Destruction

The economist Joseph Schumpeter popularized and used the term creative destruction to describe the process of transformation that accompanies radical innovation. In Schumpeter's vision of capitalism, innovative entry by entrepreneurs was the force that sustained long-term economic growth, even as it destroyed the value of established companies that enjoyed some degree of monopoly power (Wikipedia).

More than 500 American automobile manufacturers failed over the last 100 years for one reason or another, or were acquired, primarily due to the Schumpeterian forces of "creative destruction." As far I know, not a single one of those auto manufacturers asked for, or was granted, government assistance, or received a government (aka taxpayer) bailout. Should there now be an exception for GM, Ford or Chrysler to get bailed out when none of the 548 defunct companies received assistance?

1 comment:

adam hartung said...

Markets are going through major shifts related to advances in digital solutions and global access to low-cost resources. Those companies that will thrive are those that will create new solutions which adjust to these shifted markets. Just because a company survived last year and has a few bucks does not mean it will succeed in 2009 and onward. It requires innovation to deal with these major changes, and only those companies that innovate will create returns allowing them to emerge as strong, viable competitors. Read more at