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July 2, 2004

3 Min Read
Editorial: Creative destruction

MSnyder.jpgThe late artist Andy Warhol was renowned for, among other things, his prediction that in the future everybody would be famous for 15 minutes. His prediction might be extended as well to economic theories. They come and go like so many blades of grass. However, they leave a trail. You might say that economic theories are famous for 15 minutes once a year. They pop up, have their time in the limelight for 15 minutes, and then disappear for another year. Meanwhile they provoke thought, and perhaps even exert some influence in government circles.

Let?s take a look at the concept of "creative destruction." The term originated more than 50 years ago with the late Joseph Schumpeter, who began his career as a lawyer in Vienna and concluded it as an academic economist and author based at Harvard University. The theory held that creative progress in one economic activity was likely to come at the expense of destruction in another. A colorful example sometimes cited is the destruction of the carriage and buggy-whip business by the advent of the automobile. While this is essentially true there are certain durable exceptions.

I grew up in buggy-whip country. There isn?t much of it left, I can tell you. While I am a native-born Coloradan, and returned here decades ago, I spent most of my growing?up years in northern Indiana, in the immediate proximity of several thousand Old Order Amish (no, my parents are not Amish). The Amish still use horse-drawn carriages and, maybe occasionally, buggy whips. An intriguing article about Amish country as a tourist destination appeared in the Travel section of the New York Times on Sunday, July 4, 2004.

"Buggy whip" is really a silly term, anyway. Nobody thinks that the buggy is getting thrashed. The whip is for the horse that pulls the buggy. Even so, it is my observation, and I visit that territory at least annually, that a simple flick of the reins is enough to direct a horse pulling a buggy. The horse knows what to do. It doesn?t need continuous flogging with a buggy whip as if it were carrying a jockey and trying to win the Triple Crown.

Anyway, the point is that there is still a market for horse-drawn carriages, and maybe even a few so-called buggy whips. Granted, it?s not a big market, but it is a surviving niche that has not been entirely wiped out by the automotive industry.

Plastics on the Rampage

What, then, about plastics? Plastics have mostly been on the side of wreaking havoc on the market for every other material it touched: ivory, leather, metal, wood, glass, paper, and even textiles. John Wesley Hyatt specifically set out to capture the market for ivory billiard balls with an alternative to ivory. He succeeded in developing celluloid. Plastics? researchers have engaged in one bout of destruction after another ever since. Plastics have unquestionably been a force of both creativity and destruction in the economy?not that we should feel guilty about it.

If Schumpeter is to be believed, this is part of a natural evolution in the course of economic development. As old markets fade, new ones evolve. It?s not necessarily a direct cause-and-effect relationship, but rather an observation of how things happen on a large scale.

It is much easier to see what is being destroyed than to see what opportunities are being created. Who could have imagined in 1900 that the auto industry would evolve to the point of selling 15 to 20 million vehicles per year in North America? And who now can imagine what opportunities are being created in the wake of the departure of some segments of the plastics processing industry to destinations offshore?

One should be careful to avoid over-simplifying the visions of academic economists. However, I think Schumpeter would agree that economic destruction can be painful even though opportunities are also part of the picture. Let us focus our thought and imaginations on those opportunities.



Snyder-Signature.jpg
Merle R. Snyder
Editor

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