creative destruction

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pages: 585 words: 151,239

Capitalism in America: A History by Adrian Wooldridge, Alan Greenspan

"Robert Solow", 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, agricultural Revolution, air freight, Airbnb, airline deregulation, American Society of Civil Engineers: Report Card, Asian financial crisis, bank run, barriers to entry, Berlin Wall, Bonfire of the Vanities, Bretton Woods, British Empire, business climate, business cycle, business process, California gold rush, Charles Lindbergh, cloud computing, collateralized debt obligation, collective bargaining, Corn Laws, corporate governance, corporate raider, creative destruction, credit crunch, debt deflation, Deng Xiaoping, disruptive innovation, Donald Trump, edge city, Elon Musk, equal pay for equal work, Everybody Ought to Be Rich, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, fixed income, full employment, George Gilder, germ theory of disease, global supply chain, hiring and firing, income per capita, indoor plumbing, informal economy, interchangeable parts, invention of the telegraph, invention of the telephone, Isaac Newton, Jeff Bezos, jimmy wales, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, Kitchen Debate, knowledge economy, knowledge worker, labor-force participation, Louis Pasteur, low skilled workers, manufacturing employment, market bubble, Mason jar, mass immigration, means of production, Menlo Park, Mexican peso crisis / tequila crisis, minimum wage unemployment, mortgage debt, Myron Scholes, Network effects, new economy, New Urbanism, Northern Rock, oil rush, oil shale / tar sands, oil shock, Peter Thiel, plutocrats, Plutocrats, popular capitalism, post-industrial society, postindustrial economy, price stability, Productivity paradox, purchasing power parity, Ralph Nader, Ralph Waldo Emerson, RAND corporation, refrigerator car, reserve currency, rising living standards, road to serfdom, Robert Gordon, Ronald Reagan, Sand Hill Road, savings glut, secular stagnation, Silicon Valley, Silicon Valley startup, Simon Kuznets, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, stem cell, Steve Jobs, Steve Wozniak, strikebreaker, supply-chain management, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, total factor productivity, trade route, transcontinental railway, tulip mania, Tyler Cowen: Great Stagnation, union organizing, Unsafe at Any Speed, Upton Sinclair, urban sprawl, Vannevar Bush, War on Poverty, washing machines reduced drudgery, Washington Consensus, white flight, wikimedia commons, William Shockley: the traitorous eight, women in the workforce, Works Progress Administration, Yom Kippur War, young professional

The spread of electricity from 1900 onward had the same effect on the American population as a whole.14 Home appliances and convenience foods reduced the time spent on preparing meals, doing the laundry, and cleaning the house from fifty-eight hours a week in 1900 to eighteen hours a week by 1975.15 The Bureau of Labor Statistics estimated that bar code scanners at checkout counters increased the speed that cashiers could ring up payments by 30 percent and reduced labor requirements of cashiers and baggers by 10 to 15 percent. THE DOWNSIDE OF CREATIVE DESTRUCTION The destructive side of creative destruction comes in two distinct forms: the destruction of physical assets as they become surplus to requirements, and the displacement of workers as old jobs are abandoned. To this should be added the problem of uncertainty. The “gale of creative destruction” blows away old certainties along with old forms of doing things: nobody knows which assets will prove to be productive in the future and which will not. New technologies almost always bring speculative bubbles that can pop, sometimes with dangerous consequences. Partly because people are frightened of change and partly because change produces losers as well as winners, creative destruction is usually greeted by what Max Weber called “a flood of mistrust, sometimes of hatred, above all of moral indignation.”16 The most obvious form of resistance comes from workers who try to defend their obsolescent jobs.

The biggest potential constraint on creative destruction is political resistance. The losers of creative destruction tend to be concentrated while the winners tend to be dispersed. Organizing concentrated people is much easier than organizing dispersed ones. The benefits of creative destruction can take decades to manifest themselves, while the costs are often immediate. Adding to this is the fact that a perennial gale is disconcerting to everyone, winners as well as losers: people have a strong preference for sticking with the familiar rather than embracing change (and explaining to them that you can’t preserve the familiar if you can’t afford it is hard). America has been much better than almost every other country at resisting the temptation to interfere with the logic of creative destruction. In most of the world, politicians have made a successful business out of promising the benefits of creative destruction without the costs.

Arthur Schlesinger Jr., a Kennedy Democrat, condemned the “onrush of capitalism” for its “disruptive consequences.” Daniel Bell, another centrist, worried about the “restless discontent” of capitalism. This unease makes creative destruction a difficult sell at the best of times. To make things worse, creative destruction is dogged by three big problems. The first is that the costs of creative destruction are often more obvious than the benefits. The benefits tend to be diffuse and long-term while the costs are concentrated and up front. The biggest winners of creative destruction are the poor and marginal. Joseph Schumpeter got to the heart of the matter: “Queen Elizabeth [I] owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort. . . .


pages: 547 words: 172,226

Why Nations Fail: The Origins of Power, Prosperity, and Poverty by Daron Acemoglu, James Robinson

"Robert Solow", Admiral Zheng, agricultural Revolution, Albert Einstein, Andrei Shleifer, Atahualpa, banking crisis, Bartolomé de las Casas, Berlin Wall, blood diamonds, BRICs, British Empire, central bank independence, clean water, collective bargaining, colonial rule, conceptual framework, Corn Laws, creative destruction, crony capitalism, Deng Xiaoping, desegregation, discovery of the americas, en.wikipedia.org, European colonialism, failed state, Fall of the Berlin Wall, falling living standards, financial independence, financial innovation, financial intermediation, Francis Fukuyama: the end of history, Francisco Pizarro, full employment, income inequality, income per capita, indoor plumbing, invention of movable type, invisible hand, James Hargreaves, James Watt: steam engine, Jeff Bezos, joint-stock company, Joseph Schumpeter, Kickstarter, land reform, mass immigration, Mikhail Gorbachev, minimum wage unemployment, Mohammed Bouazizi, Paul Samuelson, price stability, profit motive, Rosa Parks, Scramble for Africa, Simon Kuznets, spice trade, spinning jenny, Steve Ballmer, Steve Jobs, trade liberalization, trade route, transatlantic slave trade, union organizing, upwardly mobile, Washington Consensus, working poor

Economic growth and technological change are accompanied by what the great economist Joseph Schumpeter called creative destruction. They replace the old with the new. New sectors attract resources away from old ones. New firms take business away from established ones. New technologies make existing skills and machines obsolete. The process of economic growth and the inclusive institutions upon which it is based create losers as well as winners in the political arena and in the economic marketplace. Fear of creative destruction is often at the root of the opposition to inclusive economic and political institutions. European history provides a vivid example of the consequences of creative destruction. On the eve of the Industrial Revolution in the eighteenth century, the governments of most European countries were controlled by aristocracies and traditional elites, whose major source of income was from landholdings or from trading privileges they enjoyed thanks to monopolies granted and entry barriers imposed by monarchs.

Even though extractive institutions can generate some growth, they will usually not generate sustained economic growth, and certainly not the type of growth that is accompanied by creative destruction. When both political and economic institutions are extractive, the incentives will not be there for creative destruction and technological change. For a while the state may be able to create rapid economic growth by allocating resources and people by fiat, but this process is intrinsically limited. When the limits are hit, growth stops, as it did in the Soviet Union in the 1970s. Even when the Soviets achieved rapid economic growth, there was little technological change in most of the economy, though by pouring massive resources into the military they were able to develop military technologies and even pull ahead of the United States in the space and nuclear race for a short while. But this growth without creative destruction and without broad-based technological innovation was not sustainable and came to an abrupt end.

The stocking frame was an innovation that promised huge productivity increases, but it also promised creative destruction. THE REACTION TO LEE’S brilliant invention illustrates a key idea of this book. The fear of creative destruction is the main reason why there was no sustained increase in living standards between the Neolithic and Industrial revolutions. Technological innovation makes human societies prosperous, but also involves the replacement of the old with the new, and the destruction of the economic privileges and political power of certain people. For sustained economic growth we need new technologies, new ways of doing things, and more often than not they will come from newcomers such as Lee. It may make society prosperous, but the process of creative destruction that it initiates threatens the livelihood of those who work with old technologies, such as the hand-knitters who would have found themselves unemployed by Lee’s technology.


Innovation and Its Enemies by Calestous Juma

3D printing, additive manufacturing, agricultural Revolution, Asilomar, Asilomar Conference on Recombinant DNA, autonomous vehicles, big-box store, business cycle, Cass Sunstein, clean water, collective bargaining, colonial rule, computer age, creative destruction, Daniel Kahneman / Amos Tversky, deskilling, disruptive innovation, energy transition, Erik Brynjolfsson, financial innovation, global value chain, Honoré de Balzac, illegal immigration, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invention of movable type, invention of the printing press, Joseph Schumpeter, knowledge economy, loss aversion, Marc Andreessen, means of production, Menlo Park, mobile money, New Urbanism, Nicholas Carr, pensions crisis, phenotype, Ray Kurzweil, refrigerator car, Second Machine Age, self-driving car, smart grid, smart meter, stem cell, Steve Jobs, technological singularity, The Future of Employment, Thomas Kuhn: the structure of scientific revolutions, Travis Kalanick

In his original view, innovation constitutes five areas: the introduction of new production, development of new processes, opening up of new markets, sourcing of new materials and semimanufactured goods, and finally the reorganization of an industrial sector.16 The term can be applied to any of the five areas of innovation identified by Schumpeter. As elaborated by Swedberg, creative destruction and the associated resistance to innovation can be identified in any of those five areas and any additional ones that expand the categories of new combinations.17 Creative destruction explains why segments of society fear change; at the same time the concept can help individuals embrace innovation. The concept of creative destruction as articulated by Schumpeter gained currency largely because it has universal appeal.18 It manifests itself in a variety of forms across cultures and it is therefore easily applied without precise definition.19 By thinking of the economy as an integrated whole akin to an ecosystem, Schumpeter was able to identify the forces of economic transformation that resulted from waves of technological succession as illustrated by the impact of the introduction of railroads.20 For him, “The essential point to grasp is that in dealing with capitalism we are dealing with an evolutionary process,”21 which he elaborates as the “process of industrial mutation … that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.

As Lynn White observed in Medieval Technology and Social Change, “The acceptance or rejection of an invention, or the extent to which its implications are realized if it is accepted, depends quite as much upon the conditions of society, and upon the imagination of its leaders, as upon the nature of the technological item itself.”15 Schumpeter, Innovation, and Social Transformation The preceding discussion illustrates “creative destruction,” a term coined by Austrian economist Joseph Schumpeter in his 1942 book Capitalism, Socialism and Democracy. Schumpeter believed that capitalism is a system that must always evolve, and with the evolution comes change. The change requires the destruction of something old, replaced by something new, such as the gun replacing archery and the mobile phone replacing the landline. To fully grasp the implications and scope of the process of creative destruction, we need to return to Schumpeter’s original thinking, as laid out in his 1911 book The Theory of Economic Development, about innovation as “creative construction” or the carrying out of new combinations.

He also understood, however, that the process of “creative destruction” caused considerable misery for those affected. He visualized large sections of society being crushed by the wheels of novelty.1 One of the biggest fears people have when new technologies are introduced is becoming unemployed. This is often a genuine concern. New technologies tend to be more efficient and therefore require less manual labor. Or new technologies introduce business models that shift wealth to new and fewer hands. Such shifts are a source of considerable social tension across industries and generations. The shifts sometimes lead to calls by labor organizations to ban certain technologies. Throughout the last century, the music industry developed under a wide range of technological successions. Its Schumpeterian “gales of creative destruction” were in most cases the source of new economic opportunities.


pages: 267 words: 70,250

Defending the Free Market: The Moral Case for a Free Economy by Robert A. Sirico

Affordable Care Act / Obamacare, barriers to entry, Berlin Wall, corporate governance, creative destruction, delayed gratification, Fall of the Berlin Wall, George Gilder, Gordon Gekko, greed is good, happiness index / gross national happiness, Hernando de Soto, informal economy, Internet Archive, liberation theology, means of production, moral hazard, obamacare, On the Revolutions of the Heavenly Spheres, profit motive, road to serfdom, zero-sum game

James is a born and bred Midwesterner. I grew up in Brooklyn, and I was out of my depth. What he was saying made sense to me on a technical level, but all my intuitions cried out against it. It looked horrible. Creative Destruction, Creative Flourishing I relate this story as an illustration of the fact that sometimes what appears to be beaten back and damaged is really healthy and preparing for new growth. This is the case with what economists call creative destruction—the phenomenon whereby old skills, companies, and sometimes entire industries are eclipsed as new methods and businesses take their place. Creative destruction is seen in layoffs, downsizing, the obsolescence of firms, and, sometimes, serious injury to the communities that depend on them. It looks horrible, and, especially when seen through the lives of the people who experience such economic upheaval, it can be heartrending.

We are blessed to live in an alternate reality, and if we are to preserve it we need to recognize that it is only when the process of creative destruction is allowed that new jobs, new skills, new ways of leveraging human energy can spring up and create the opportunities that previous generations never even realized were possible. If our aim is to make progress toward the free and virtuous society, a fatuous nostalgia isn’t going to help us. What is needed, rather, is an economically informed perspective. We need to look more closely at all the factors contributing to creative destruction, and consider both the positives and negatives of a creative market economy. That involves not only attending to the people thrown out of work as industries and technologies change but also thinking about what would happen to the people if there were no creative destruction. Once we realize that we have to attend to all of the long-range consequences, then we can start coming at the problems generated by creative destruction from the most productive angle.

Table of Contents Praise Title Page Dedication Introduction CHAPTER 1 - A Leftist Undone Left Turn Suggestions for Further Reading CHAPTER 2 - Why You Can’t Have Freedom without a Free Economy Freedom and Chaos From Reason to the Reason for Property Property in Practice Trade, Contracts, and Interest Rates Suggestions for Further Reading CHAPTER 3 - Want to Help the Poor? Start a Business Jobs: The Best Anti-Poverty Program The Fallacy of the Fixed Pie Foreign Aid That Doesn’t The Moral Appeal of Good Work A Theology of Enterprise Suggestions for Further Reading CHAPTER 4 - Why the “Creative Destruction” of Capitalism Is More Creative than Destructive Creative Destruction, Creative Flourishing Globalization, Christianity, and Culture Globalization and Coercive Destruction Globalization and Culture Suggestions for Further Reading CHAPTER 5 - Why Greed Is Not Good–and Why You Can Get More of It with Socialism ... What Is Greed? The Role of Profits Excess Profits? Moral Profits Beyond Gordon Gekko The Apostle of Selfishness The Socialist Mirage The Personable Person and the Market Suggestions for Further Reading CHAPTER 6 - The Idol of Equality The Value of the 1 Percent Mind the Floor, Not the Ceiling Do We Know Who We Are?


pages: 453 words: 117,893

What Would the Great Economists Do?: How Twelve Brilliant Minds Would Solve Today's Biggest Problems by Linda Yueh

"Robert Solow", 3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, Fall of the Berlin Wall, fear of failure, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, Gini coefficient, global supply chain, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, low-wage service sector, manufacturing employment, market bubble, means of production, mittelstand, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

The third part of the title refers to whether there would be democracy alongside either capitalism or socialism. Schumpeter makes the case emphatically for capitalism. He argues that people’s lives had improved tremendously because of ‘creative destruction’: The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as US Steel illustrate the same process of industrial mutation – if I may use that biological term – 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.22 Schumpeter’s firms were not powerless to influence the economic environment, in stark contrast to standard economic models. In using the term ‘business strategy’, Schumpeter challenged the assumption of ‘perfect competition’, where all firms are identical, and sell homogeneous products, so have no strategic decisions to take.

The US was home to about half of the world’s biggest companies and yet had a strong entrepreneurial culture. Schumpeter argued that such ‘trustified’ capitalism did not stifle innovation or prevent the growth of new businesses. Alongside US multinationals, thousands of new companies emerged. Through the process of ‘creative destruction’, the most innovative survived. Schumpeter notes that from 1897 to 1904, 4,227 American companies merged into 257 large corporations, including such well-known names as Goodyear, Pepsico, Kellogg, Gillette, Monsanto, 3M and Texaco. In Schumpeter’s view, few monopolies survived in the long term, owing to ‘creative destruction’. The successful innovator might reap monopoly profits for a while, but others in the same industry will soon try to imitate the product. The entrepreneur will preserve his profit for as long as possible through patents, further innovation and advertising, which are all acts of ‘aggression directed against actual and would-be competitors’.23 But every entrepreneur’s profit is temporary because competitors will eventually copy the innovation, causing market prices to fall.

In summary, Schumpeter sees entrepreneurship as ‘essentially one and the same thing’ as technological progress that raises the growth of the economy.40 The challenge of staying on top as innovators Nokia and BlackBerry In the process of ‘creative destruction’, innovative products will displace old ones. In aggregate, the efforts of companies to improve the level of technological innovation hold the key to the success of the economy. The transition from old to new, though, is rarely seamless and includes the rise and fall of not just individual businesses but entire industries. Nokia and BlackBerry phones are good illustrations of Schumpeter’s ‘creative destruction’. Nokia was once worth $150 billion but was eventually sold for just $7 billion. How did all of this market value disappear? For Finland’s Nokia it was the culmination of a rapid rise and fall.


Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages by Carlota Pérez

agricultural Revolution, Big bang: deregulation of the City of London, Bob Noyce, Bretton Woods, business cycle, capital controls, commoditize, Corn Laws, creative destruction, David Ricardo: comparative advantage, deindustrialization, distributed generation, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, Hyman Minsky, informal economy, joint-stock company, Joseph Schumpeter, knowledge economy, late capitalism, market fundamentalism, new economy, nuclear winter, offshore financial centre, post-industrial society, profit motive, railway mania, Robert Shiller, Robert Shiller, Sand Hill Road, Silicon Valley, Simon Kuznets, South Sea Bubble, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, trade route, tulip mania, Upton Sinclair, Washington Consensus

It is precisely this systemic character that makes the whole question of technical change so crucial in understanding capitalist development. A. From Technological Innovations to Institutional Revolutions The notion of ‘creative destruction’, very much influenced by Nietzsche, was a significant element in the European Zeitgeist of the early twentieth century, as the nature of progress by innovation. Much in the same spirit as that of the Renaissance, it was seen as Mankind’s noble and pleasurable duty to invent,23 to break the forces of inertia that threatened to chain and enslave society in a cult of status quo. It was the German economist Werner Sombart, in his Krieg und Kapitalismus, who first used the term ‘the creative spirit of destruction’ in economics.24 Today we usually credit Schumpeter with the notion of ‘creative destruction’ as the way to describe the contradictory nature of technological revolutions.25 In fact, he understood innovation, be it new products, new processes or simply new ways of doing things, as the very essence of the capitalist engine of growth.

The recession creates the conditions for institutional restructuring and for re-routing growth onto a sustainable path. 36 The Propagation of Paradigms: Times of Installation, Times of Deployment Degree of diffusion of the technological revolution Figure 4.1 37 Two different periods in each great surge INSTALLATION PERIOD Turning point DEPLOYMENT PERIOD Time big-bang Next big-bang This chapter takes a broad look at the interrelated technological, economic and institutional changes involved in the process. A. Creative Destruction and Social Polarization Schumpeter’s notion of ‘creative destruction’ aptly portrays the effects of radical innovations. When the core products of a technological revolution start coming together, they inevitably clash with the established environment and the ingrained ways of doing things. Arkwright’s water frame was a clear threat to hand spinners both in England and in India. The Liverpool–Manchester railway announced the demise of the horse-drawn carriage for long-distance passenger travel, affecting various occupations from innkeepers to veterinarians.53 The Suez Canal practically eliminated sailing ships from the route to India, while, by cutting travel time from three months to one, it made obsolete the network of huge cargo depots in England, threatening the power of the big 53.

He saw capitalism as a ‘process of industrial mutation ... that inces- 23. 24. 25. For a discussion of this tradition, see Reinert and Daastøl (1997). Sombart (1913) p. 207. Schumpeter (1942:1975) Ch. VII, p. 83. 22 The Social Shaping of Technological Revolutions 23 santly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.’26 Due to the double nature of the process of creative destruction, Schumpeter saw innovation not only as the force propelling progress but also as the cause of recurring recessions and in general of the cyclical behavior of growth rates and other economic magnitudes. Yet, in spite of his awareness of social and institutional factors, Schumpeter remained very much attached to market equilibrium forces as the determining factor and to the economy alone as the place where the transformation was absorbed.


pages: 383 words: 81,118

Matchmakers: The New Economics of Multisided Platforms by David S. Evans, Richard Schmalensee

Airbnb, Alvin Roth, big-box store, business process, cashless society, Chuck Templeton: OpenTable:, creative destruction, Deng Xiaoping, disruptive innovation, if you build it, they will come, information asymmetry, Internet Archive, invention of movable type, invention of the printing press, invention of the telegraph, invention of the telephone, Jean Tirole, John Markoff, Lyft, M-Pesa, market friction, market microstructure, mobile money, multi-sided market, Network effects, Productivity paradox, profit maximization, purchasing power parity, QR code, ride hailing / ride sharing, sharing economy, Silicon Valley, Snapchat, Steve Jobs, Tim Cook: Apple, transaction costs, two-sided market, Uber for X, uber lyft, ubercab, Victor Gruen, winner-take-all economy

See also critical mass; ignition money side of the platform, 33–34, 93–94 Monster, 50, 124 Motorola, 113, 116 M-PESA, 164, 167–181, 205 additional services in, 178–180 critical mass for, 170–171 economic development and, 180–181 how it works, 170 ignition at, 174–178 pricing in, 173 M-Shwari, 178–179 MSN, 82 multi-homing, 28 multisided platforms building, 35–37 challenges of, 9 communication and trust in, 58–61 as communities, 137 critical issues to address in, 36–37 critical mass for, 9–12, 14, 68, 69–83 definition of, 8 designing, 35–37 differentiation in, 28 discovery of/research on, 14–17 economic influence of, 205–206 economic rules and, 1–2, 12–14 evaluating new/potential, 149–164 examples of, 17–18 foundational, 40 friction reduction by, 55–68 future of, 197–206 governance of, 135–148 groups connected by, 1 growth/prominence of, 37–51 history of, 2–3, 12–14, 39–40, 198, 199–201 how many sides to have in, 109–110 identifying, 18–19 ignition of, 35–37, 68–83 pioneering, 37 pricing in, 85–100 retail transformed by, 183–196 technology in turbocharging, 19–20, 39–51 thick markets and, 30 traditional economic rules and, 1–2 value creation and division in, 57–58 MySpace, 28, 74, 138 governance of, 146–148 Video, 82 near-field communication (NFC) chips, 158, 159, 160–161, 162, 163 Netflix, 105, 191, 192 network effects, 21–31 behavioral externalities and, 136–140 creative destruction and, 49 definition of, 21 demand interdependency and, 32–33 direct, 22–25, 29, 137 first-mover advantages and, 23–24 indirect, 25–30, 136–137, 203 mastering, 27–30 number of platform sides and, 109–110 positive and negative, 22–23, 29 pricing and, 32 on shopping malls, 193 value creation/division and, 57–58 newspapers advertising in, 200–201 creative destruction and, 50 pricing, 94, 96, 99–100 pricing of, 32 New York Times, 184, 192–193 Nokia, 111, 112, 118 omnichannel retailing, 194–196 Open Handset Alliance (OHA), 115–116 open source licensing, 115–116 OpenTable, 7–8, 9–14 creative destruction and, 50 critical mass for, 9–12 ecosystem for, 103–104 fee structure of, 10, 13–14, 82, 90, 95 friction solved by, 57, 152 ignition strategy at, 79, 80, 82, 155 network effects at, 21, 25 no-show policy, 144 table management system, 10 thickness of market, 30 time to reach ignition, 164 two-sided platform of, 16–17 operating systems.

With them, matchmakers have an ever-increasing source of dynamism. In 1942, the economist Joseph A. Schumpeter described the results of innovation in market economies:28 [The] process of industrial mutation … incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one … [This process] must be seen in its role in the perennial gale of creative destruction. These turbocharged matchmakers are the forces behind a gale of “creative destruction” that is revolutionizing economies worldwide. There is plainly more to come, but new turbocharged matchmakers have already roiled existing industries. In some cases, they have created value by reducing frictions without threatening existing firms. OpenTable, for example, helps white-tablecloth restaurants work more efficiently by reducing the amount of labor they need for taking reservations and reducing the number of empty tables.

The prices of taxi medallions—which provide a permanent right to drive a taxicab in some cities—are falling.34 Medallion prices declined 23 percent in New York City between 2013 and 2015.35 In part III of this book, we present case studies of two major examples of creative destruction. In 2007, a multisided platform that uses mobile phones to move money between people started in an impoverished country in Africa. It grew explosively. As a result, it leapfrogged the traditional banking industry as well as payment cards. Meanwhile, in the United States, creative destruction has swept through one of the largest sectors of the economy—retail trade. It has completely destroyed some categories, such as video-rental stores, forced existing players to reinvent their businesses, and resulted in an accelerating wave of innovation in how people shop and buy.


pages: 374 words: 113,126

The Great Economists: How Their Ideas Can Help Us Today by Linda Yueh

"Robert Solow", 3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, Fall of the Berlin Wall, fear of failure, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, Gini coefficient, global supply chain, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, manufacturing employment, market bubble, means of production, mittelstand, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

The third part of the title refers to whether there would be democracy alongside either capitalism or socialism. Schumpeter makes the case emphatically for capitalism. He argues that people’s lives had improved tremendously because of ‘creative destruction’: The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as US Steel illustrate the same process of industrial mutation – if I may use that biological term – 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.22 Schumpeter’s firms were not powerless to influence the economic environment, in stark contrast to standard economic models. In using the term ‘business strategy’, Schumpeter challenged the assumption of ‘perfect competition’, where all firms are identical, and sell homogeneous products, so have no strategic decisions to take.

The US was home to about half of the world’s biggest companies and yet had a strong entrepreneurial culture. Schumpeter argued that such ‘trustified’ capitalism did not stifle innovation or prevent the growth of new businesses. Alongside US multinationals, thousands of new companies emerged. Through the process of ‘creative destruction’, the most innovative survived. Schumpeter notes that from 1897 to 1904, 4,227 American companies merged into 257 large corporations, including such well-known names as Goodyear, Pepsico, Kellogg, Gillette, Monsanto, 3M and Texaco. In Schumpeter’s view, few monopolies survived in the long term, owing to ‘creative destruction’. The successful innovator might reap monopoly profits for a while, but others in the same industry will soon try to imitate the product. The entrepreneur will preserve his profit for as long as possible through patents, further innovation and advertising, which are all acts of ‘aggression directed against actual and would-be competitors’.23 But every entrepreneur’s profit is temporary because competitors will eventually copy the innovation, causing market prices to fall.

In summary, Schumpeter sees entrepreneurship as ‘essentially one and the same thing’ as technological progress that raises the growth of the economy.40 The challenge of staying on top as innovators Nokia and BlackBerry In the process of ‘creative destruction’, innovative products will displace old ones. In aggregate, the efforts of companies to improve the level of technological innovation hold the key to the success of the economy. The transition from old to new, though, is rarely seamless and includes the rise and fall of not just individual businesses but entire industries. Nokia and BlackBerry phones are good illustrations of Schumpeter’s ‘creative destruction’. Nokia was once worth $150 billion but was eventually sold for just $7 billion. How did all of this market value disappear? For Finland’s Nokia it was the culmination of a rapid rise and fall.


pages: 348 words: 83,490

More Than You Know: Finding Financial Wisdom in Unconventional Places (Updated and Expanded) by Michael J. Mauboussin

Albert Einstein, Andrei Shleifer, Atul Gawande, availability heuristic, beat the dealer, Benoit Mandelbrot, Black Swan, Brownian motion, butter production in bangladesh, buy and hold, capital asset pricing model, Clayton Christensen, clockwork universe, complexity theory, corporate governance, creative destruction, Daniel Kahneman / Amos Tversky, deliberate practice, demographic transition, discounted cash flows, disruptive innovation, diversification, diversified portfolio, dogs of the Dow, Drosophila, Edward Thorp, en.wikipedia.org, equity premium, Eugene Fama: efficient market hypothesis, fixed income, framing effect, functional fixedness, hindsight bias, hiring and firing, Howard Rheingold, index fund, information asymmetry, intangible asset, invisible hand, Isaac Newton, Jeff Bezos, Kenneth Arrow, Laplace demon, Long Term Capital Management, loss aversion, mandelbrot fractal, margin call, market bubble, Menlo Park, mental accounting, Milgram experiment, Murray Gell-Mann, Nash equilibrium, new economy, Paul Samuelson, Pierre-Simon Laplace, quantitative trading / quantitative finance, random walk, Richard Florida, Richard Thaler, Robert Shiller, Robert Shiller, shareholder value, statistical model, Steven Pinker, stocks for the long run, survivorship bias, The Wisdom of Crowds, transaction costs, traveling salesman, value at risk, wealth creators, women in the workforce, zero-sum game

See also innovation complex adaptive systems; cause and effect and; control and; properties and mechanisms; stock market complexity theory Complexity (Waldrop) compliance with requests computer industry conformity, preference for consciousness consilience; areas to address Consilience (Wilson) consistency constructs context control: complex adaptive systems and; loss of conventions Cornell, Bradford corporate routines Corporate Strategy Board corpus callosum correctness, frequency vs. magnitude of correlation cost of capital, reversion to costs: agency; portfolio turnover and Craven, John creative destruction Creative Destruction (Foster and Kaplan) creative thinking Crist, Steven critical state cycle time Daimler-Benz Aerospace (DASA) Damasio, Antonio Darwin, Charles decision making: accuracy of collective; analytical; certainty; decentralized systems; decision markets; emotions and; experiential system; frame of; individual vs. collective; input diversity; by insects; markets and; principles; prospect theory; suboptimal; weighing probabilities. See also problem solving decision markets decision rules, adaptive decision trees deductive processes Deep Blue DePodesta, Paul description destruction, creative. See creative destruction determinism digital language DiMaggio, Joe discounted cash flow discount rates disk drive industry distribution; asset price; city size; company size; experience vs. exposure; fat tails normal; power laws and; species diversity; breakdown in; creative thinking; hard-wiring for; stock market and.

Staying Ahead of the Curve 1 In fact, one of the new leader’s first actions is often to kill all of the cubs in the pride. This allows the new leader to sire new cubs that carry his genes. 2 See Richard Foster and Sarah Kaplan, Creative Destruction: Why Companies That Are Built to Last Underperform the Market—and How to Successfully Transform Them (New York: Doubleday, 2001), 47. 3 Alfred Rappaport and Michael J. Mauboussin, Expectations Investing: Reading Stock Prices for Better Returns (Boston: Harvard Business School Press, 2001). 4 See Foster and Kaplan, Creative Destruction; Everett Rodgers, The Diffusion of Innovation (New York: Free Press, 1995); and Geoffrey A. Moore, Paul Johnson, and Tom Kippola, The Gorilla Game: Picking Winners in High Technology (New York: HarperBusiness, 1999). 5 Michael J.

Speculation and Enterprise Visiting El Farol Kidding Yourself Chapter 16 - Right from the Gut Guns and Better (Decisions) Chopping Down the Decision Tree Investing au Naturel The Fine Print Chapter 17 - Weighted Watcher I Do—Do You? Sifting Weights Misleading by Sample Tell Me Something the Market Doesn’t Know Part 3 - Innovation and Competitive Strategy INTRODUCTION Chapter 18 - The Wright Stuff Take Off with Recombination How Does Wealth Happen? Sic Itur ad Astra (This Is the Way to the Stars) Creative Destruction—Here to Stay Chapter 19 - Pruned for Performance Too Clever by Half The Dynamics of Innovation Investors: Use the Brain Chapter 20 - Staying Ahead of the Curve Losing Pride Goldilocks Expectations: Too Cold, Too Hot, Just Right Out with the Old, In with the New The Mind Makes a Promise That the Body Can’t Fill Expectations and Innovation Chapter 21 - Is There a Fly in Your Portfolio?


The Age of Turbulence: Adventures in a New World (Hardback) - Common by Alan Greenspan

"Robert Solow", addicted to oil, air freight, airline deregulation, Albert Einstein, asset-backed security, bank run, Berlin Wall, Bretton Woods, business cycle, business process, buy and hold, call centre, capital controls, central bank independence, collateralized debt obligation, collective bargaining, conceptual framework, Corn Laws, corporate governance, corporate raider, correlation coefficient, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cuban missile crisis, currency peg, Deng Xiaoping, Dissolution of the Soviet Union, Doha Development Round, double entry bookkeeping, equity premium, everywhere but in the productivity statistics, Fall of the Berlin Wall, fiat currency, financial innovation, financial intermediation, full employment, Gini coefficient, Hernando de Soto, income inequality, income per capita, invisible hand, Joseph Schumpeter, labor-force participation, laissez-faire capitalism, land reform, Long Term Capital Management, Mahatma Gandhi, manufacturing employment, market bubble, means of production, Mikhail Gorbachev, moral hazard, mortgage debt, Myron Scholes, Nelson Mandela, new economy, North Sea oil, oil shock, open economy, Pearl River Delta, pets.com, Potemkin village, price mechanism, price stability, Productivity paradox, profit maximization, purchasing power parity, random walk, reserve currency, Right to Buy, risk tolerance, Ronald Reagan, shareholder value, short selling, Silicon Valley, special economic zone, stocks for the long run, the payments system, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, total factor productivity, trade liberalization, trade route, transaction costs, transcontinental railway, urban renewal, working-age population, Y2K, zero-sum game

"I hope you will allow me to agree with the reasons you've given for lowering the rate," he said, "without signing on to your brave-new-world scenario, which I am not quite ready to do." Actually that was fine. I didn't expect the committee to agree with me—yet. Nor was I asking them to do anything. Just ponder. T he fast-paced high-tech boom is what finally gave broad currency to Schumpeter's idea of creative destruction. It became a dot-com buzz phrase—indeed, once you accelerate to Internet speed, creative destruction is hard to overlook. In Silicon Valley, companies were continually remaking themselves and new businesses were constantly flaring up and flaming out. The reigning powers of technology—giants like AT&T, Hewlett-Packard, and IBM—had to scramble to catch up with the trend, and not all succeeded. Bill Gates, the world's biggest billionaire, issued an all points bulletin to Microsoft employees comparing the rise of the Internet to the advent of the PC—upon which, of course, the company's great success was based. 167 More ebooks visit: http://www.ccebook.cn ccebook-orginal english ebooks This file was collected by ccebook.cn form the internet, the author keeps the copyright.

This ethos of bigness had its roots in late-nineteenth-century economic cartelization that was fostered in part by the needs of the military. In the decades immediately following World War II, creative destruction in Europe was largely "creative." Most of the "destruction" of what would have been obsolescent facilities after the war had been done by the bombing during it. The stress of the capitalist process and the need for an economic safety net through the 1970s were minimal. German business expanded rapidly even in the face of formidable regulatory and cultural constraints. By the late 1970s, however, the German economic miracle was fading. West Germany had largely worked through the backlog of reconstruction demand that so buoyed its economy. Demand was easing off and economic growth slowed. Creative destruction—the need for painful economic changes and redeployment of economic resources—largely dormant since the war, reemerged.

G lobalization, the extension of capitalism to world markets, like capitalism itself, is the object of intense criticism from those who see only the destructive side of creative destruction. Yet all credible evidence indicates that the benefits of globalization far exceed its costs, even beyond the realm of economics. For example, economist Barry Eichengreen and political scientist David Leblang, in a paper delivered in late 2006, found "evidence [during the 130-year span from 1870 to 2000] of positive relationships running in both directions between globalization and democracy." They found "that trade openness promotes democracy . . . The impact of financial openness on democracy [is] not as strong but still point[s] in the same direction [and] .. . democracies are more likely to remove capital controls." Accordingly, we should focus on addressing and assuaging the fears induced by the dark side of creative destruction rather than imposing limits on the economic edifice on which worldwide prosperity depends.


pages: 369 words: 94,588

The Enigma of Capital: And the Crises of Capitalism by David Harvey

accounting loophole / creative accounting, anti-communist, Asian financial crisis, bank run, banking crisis, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, call centre, capital controls, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, deskilling, equal pay for equal work, European colonialism, failed state, financial innovation, Frank Gehry, full employment, global reserve currency, Google Earth, Guggenheim Bilbao, Gunnar Myrdal, illegal immigration, indoor plumbing, interest rate swap, invention of the steam engine, Jane Jacobs, joint-stock company, Joseph Schumpeter, Just-in-time delivery, land reform, liquidity trap, Long Term Capital Management, market bubble, means of production, megacity, microcredit, moral hazard, mortgage debt, Myron Scholes, new economy, New Urbanism, Northern Rock, oil shale / tar sands, peak oil, Pearl River Delta, place-making, Ponzi scheme, precariat, reserve currency, Ronald Reagan, sharing economy, Silicon Valley, special drawing rights, special economic zone, statistical arbitrage, structural adjustment programs, the built environment, the market place, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, Thorstein Veblen, too big to fail, trickle-down economics, urban renewal, urban sprawl, white flight, women in the workforce

The Apache believe that wisdom sits in places, and indigenous groups everywhere, from Amazonia to British Columbia and the mountains of Taiwan, celebrate their long-standing and unbreakable bond with the land wherein they dwell. The long history of creative destruction on the land has produced what is sometimes called ‘second nature’ – nature reshaped by human action. There is now very little, if anything, left of the ‘first nature’ that existed before humans came to populate the earth. Even in the remotest regions of the earth and in the most inhospitable environments, traces of human influence (from shifts in climatic regimes, traces of pesticides and in the qualities of the atmosphere and the water) bear the imprint of human influence. Over the last three centuries marked by the rise of capitalism, the rate and spread of creative destruction on the land has increased enormously. In the early years this activity was generally conceptualised in terms of a triumphalist human domination over nature (partly offset by aesthetic sentiments that romanticised the relation to nature).

It is also abundantly clear that the reproduction of capitalism entails the making of new geographies and that the making of new geographies through creative destruction of the old is one very good way to deal with the perpetually present capital surplus disposal problem. But this search for a geographical ‘fix’ to the problem of surplus absorption also constitutes an ever-present danger. While there are innumerable parallels now being drawn between the crisis of the 1930s and the current one, the one potential parallel that is almost totally ignored is the collapse of international collaboration, the descent into geopolitical rivalries and the vast tragedy of one of the greatest of all episodes of creative destruction in human history: the Second World War. 8 What is to be done? and Who is Going to do it? At times of crisis, the irrationality of capitalism becomes plain for all to see.

The irrational way to do this in the past has been through the destruction of the achievements of preceding eras by way of war, the devaluation of assets, the degradation of productive capacity, abandonment and other forms of ‘creative destruction’. The effects are felt not only throughout the world of commodity production and exchange. Human lives are disrupted and even physically destroyed, whole careers and lifetime achievements are put in jeopardy, deeply held beliefs are challenged, psyches wounded and respect for human dignity is cast aside. Creative destruction is visited upon the good, the beautiful, the bad and the ugly alike. Crises, we may conclude, are the irrational rationalisers of an irrational system. Can capitalism survive the present trauma? Yes, of course. But at what cost?


pages: 287 words: 80,180

Blue Ocean Strategy, Expanded Edition: How to Create Uncontested Market Space and Make the Competition Irrelevant by W. Chan Kim, Renée A. Mauborgne

Asian financial crisis, borderless world, call centre, cloud computing, commoditize, creative destruction, disruptive innovation, endogenous growth, haute couture, index fund, information asymmetry, interchangeable parts, job satisfaction, Joseph Schumpeter, Kickstarter, knowledge economy, market fundamentalism, NetJets, Network effects, RAND corporation, Skype, telemarketer, The Wealth of Nations by Adam Smith, There's no reason for any individual to have a computer in his home - Ken Olsen, Thomas Kuhn: the structure of scientific revolutions, Vanguard fund, zero-sum game

This is how blue ocean strategy deals with competition to produce continuous renewal and the growth of industries. Red Ocean Trap Ten: The belief that blue ocean strategy is synonymous with creative destruction or disruption. Creative destruction or disruption occurs when an innovation disrupts an existing market by displacing an earlier technology or existing product or service. The word “displacement” is important here, as without displacement, disruption would not occur. In the case of photography, for example, the innovation of digital photography disrupted the photographic film industry by effectively displacing it. So today digital photography is the norm, and photographic film is seldom used. Disruption is, hence, largely consonant with Schumpeter’s concept of creative destruction, whereby the old is incessantly destroyed or replaced by the new. Unlike disruption, however, blue ocean strategy does not necessitate displacement or destruction.

But again, upon closer examination, deficiencies in some of the visionary companies spotlighted in Built to Last have come to light. As illustrated in the book Creative Destruction, much of the success attributed to some of the model companies in Built to Last was the result of industry-sector performance rather than the companies themselves.15 For example, Hewlett-Packard (HP) met the criteria of Built to Last by outperforming the market over the long term. In reality, while HP outperformed the market, so did the entire computer-hardware industry. What’s more, HP did not even outperform the competition within the industry. Through this and other examples, Creative Destruction questioned whether “visionary” companies that continuously outperform the market have ever existed. If there is no perpetually high-performing company and if the same company can be brilliant at one moment and wrongheaded at another, it appears that the company is not the appropriate unit of analysis in exploring the roots of high performance and blue oceans.

However, in many cases, even when the reconstruction occurs within industries, blue ocean strategy also produces nondestructive creation. Nintendo’s Wii, for example, created a blue ocean in the video game industry. It had an element of creative destruction. However, the new market space it created of physically active, family-centered video gaming had an even larger element of nondestructive creation that complemented, more than disrupted or displaced, existing video games. The important question for practice is, What drives blue ocean strategy to go beyond creative destruction to nondestructive creation, which is a key goal of most companies as well as of governments in their quest to stimulate economic growth? The essential point here is that blue ocean strategy is not about finding a better or lower-cost solution to the existing problem of an industry, both of which trigger disruption and displacement of existing products and services.


pages: 355 words: 63

The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics by William R. Easterly

"Robert Solow", Andrei Shleifer, business climate, business cycle, Carmen Reinhart, central bank independence, clean water, colonial rule, correlation does not imply causation, creative destruction, endogenous growth, financial repression, Gini coefficient, Gunnar Myrdal, income inequality, income per capita, inflation targeting, interchangeable parts, inventory management, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, large denomination, manufacturing employment, Network effects, New Urbanism, open economy, Productivity paradox, purchasing power parity, rent-seeking, Ronald Reagan, selection bias, Silicon Valley, Simon Kuznets, The Wealth of Nations by Adam Smith, Thomas Malthus, total factor productivity, trade liberalization, urban sprawl, Watson beat the top human players on Jeopardy!, Yogi Berra, Yom Kippur War

In our lighting example, high-cost light producers kept getting pushed asideby lower-cost lightproducers.Candleslost out to whale oil lamps, which in turn lost out to kerosene lamps, which inturn lost out to electric lighting.Candlemakers,whalers, and kerosene refiners have successively been driven out of business by new technologies. This is not a new insight. The economist Joseph Schumpeter noted as long ago as 1942 that the process of economic growth ”incessantly revolutionizesthe economic structure from 178 Chapter 9 within, incessantly destroying the oldone, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.”12 The economists Philippe Aghion and Peter Howitt have stressed this kind of approach to growth in recent research.13 They note that the process of creative destruction complicates incentives for innovation. They give more reasons why a free market economy could have a rate of technological innovation that is too slow. Innovators cannot capture all of the returns to their innovation because others can imitate them (Apple never got the full returns to its innovative graphical userinterface because Microsoft imitated it with Windows).

In 1997, there was still only one Internet-linked computer for every twentythree people in the United States, but the number of Internet-linked computers is growing at 50 percent a year.17 In many poorcountries, the Internet is growing even faster, as they can skip some of the intermediate steps and jump to the frontier. Mexico already has 36 Creative 181 Internet service providers, including one in its most backward state of Chiapas. Vested Interests and Creative Destruction Another insight of creative destruction is that there will be losers as well as winners from economic growth. As growth proceeds, old industries die and new ones are created. Growth alters the landscape, turning farms intofast-food restaurants and factory sites. And because growth involves losers as well as winners, it’s easy to see why there has always been a vocal antigrowth faction, even aside from the concern for the environment.

(This effect offsets the advantages of backwardness for imitation and leaping to the frontier mentioned earlier. On balance, backwardness seems to be a disadvantage becauseof the complementaryinvention effect.) New inventions will happenwhere they can draw onexisting inventions. This is path dependence again. Third, sometimes new inventions give new life to existing inventions, as opposed to the creative destruction emphasized for most of this chapter.41 This does not invalidate creative destruction; the two processes can live side by side, with some technologies destroyed by newinventions and other technologies perpetuatedbyeverextending invention. Finally, technological change will accelerate over time. If new inventions are complementary to existing technology, their rate of return will increase as technology advances, meaning faster technological progress.


pages: 1,205 words: 308,891

Bourgeois Dignity: Why Economics Can't Explain the Modern World by Deirdre N. McCloskey

Airbnb, Akira Okazaki, big-box store, Black Swan, book scanning, British Empire, business cycle, buy low sell high, Capital in the Twenty-First Century by Thomas Piketty, clean water, Columbian Exchange, conceptual framework, correlation does not imply causation, Costa Concordia, creative destruction, crony capitalism, dark matter, Dava Sobel, David Graeber, David Ricardo: comparative advantage, deindustrialization, demographic transition, Deng Xiaoping, Donald Trump, double entry bookkeeping, en.wikipedia.org, epigenetics, Erik Brynjolfsson, experimental economics, Ferguson, Missouri, fundamental attribution error, Georg Cantor, George Akerlof, George Gilder, germ theory of disease, Gini coefficient, God and Mammon, greed is good, Gunnar Myrdal, Hans Rosling, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, Hernando de Soto, immigration reform, income inequality, interchangeable parts, invention of agriculture, invention of writing, invisible hand, Isaac Newton, Islamic Golden Age, James Watt: steam engine, Jane Jacobs, John Harrison: Longitude, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Arrow, knowledge economy, labor-force participation, lake wobegon effect, land reform, liberation theology, lone genius, Lyft, Mahatma Gandhi, Mark Zuckerberg, market fundamentalism, means of production, Naomi Klein, new economy, North Sea oil, Occupy movement, open economy, out of africa, Pareto efficiency, Paul Samuelson, Pax Mongolica, Peace of Westphalia, peak oil, Peter Singer: altruism, Philip Mirowski, pink-collar, plutocrats, Plutocrats, positional goods, profit maximization, profit motive, purchasing power parity, race to the bottom, refrigerator car, rent control, rent-seeking, Republic of Letters, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Scientific racism, Scramble for Africa, Second Machine Age, secular stagnation, Simon Kuznets, Social Responsibility of Business Is to Increase Its Profits, spinning jenny, stakhanovite, Steve Jobs, The Chicago School, The Market for Lemons, the rule of 72, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, total factor productivity, Toyota Production System, transaction costs, transatlantic slave trade, Tyler Cowen: Great Stagnation, uber lyft, union organizing, very high income, wage slave, Washington Consensus, working poor, Yogi Berra

In his laboriously gathered notes for The Ladies’ Paradise (he spent a month wandering in Le Bon Marché and its competitors overhearing conversations and interviewing its staff) he wrote, “A department store [smashes] all the small commerce of a neighborhood . . . but I would not weep for them, on the contrary: for I want to show the triumph of modern activity,” of which Zola in his rational optimism by 1882 approved. The local drapers, like the local hardware stores facing Menards and Home Depot, “are no longer of their age, too bad for them!”12 And good for the consumer. The sociologist Georg Simmel—about the economy often more penetrating than his contemporary Max Weber—noted in 1908 that “usually, the poisonous, divisive, destructive effects of competition are stressed” (though it is creative destruction): But, in addition . . . competition compels the wooer who has a co-wooer, . . . to go out to the wooed, come close to him, establish ties with him. . . . To be sure, this often happens at the price of the competitor’s own dignity and of the objective value of his product [that is, by driving down the price]. . . . [Yet] it achieves what usually only love can do: the divination of the innermost wishes of the other, even before he himself becomes aware of them. . . .

Narrative, in other words, has the problem that mere sequence (metonymy is the technical word) gives an impression that the questions of analysis (metaphor, models) have in fact, by that very sequence, been somehow solved. The arrangement of the present book can be summarized thus (in a table of contents, to so speak, for the table of contents): We were poor but now are rich. Why? Answer: The change in attitude toward the bourgeoisie and creative destruction. But why did they change? Answer: The egalitarian accidents of 1517–1789. But why were they important? Answer: Because earlier times were fiercely antibourgeois, being holy and hierarchical, And they were so even though markets and “capitalism” have always existed, contrary to Karl Polanyi. And so, to return from ancient times to our own times: Alarmingly, the clerisy after 1848 came to oppose all this good change.

Luigi Einaudi, who advocated commercial liberty, not regulation (libertà vs. controllo di commercio), wrote in 1919 that I Promessi Sposi was “one of the best treatises on political economy that has ever been written.”13 The master builder in Ibsen’s play of 1892, Halvard Solness, achieves his profit and his transcendence by sitting on other people’s lives, such as that of his gifted young draftsman. His worry about the young (“From the young . . . the change is coming. . . . Then it’s the end of Solness the master builder”) is worry about the creative destruction of entry, characteristic of a liberated economy, which the bourgeoisie advocates but then routinely seeks state protection from.14 In Austen the admiration for prudence is undercut, I say, when it shows as prudence only. The minor characters are often idiotically strategic, mothers pushing their daughters up the marital tree with a single-mindedness that would delight a Marxian or a Samuelsonian economist.


pages: 361 words: 81,068

The Internet Is Not the Answer by Andrew Keen

"Robert Solow", 3D printing, A Declaration of the Independence of Cyberspace, Airbnb, AltaVista, Andrew Keen, augmented reality, Bay Area Rapid Transit, Berlin Wall, bitcoin, Black Swan, Bob Geldof, Burning Man, Cass Sunstein, citizen journalism, Clayton Christensen, clean water, cloud computing, collective bargaining, Colonization of Mars, computer age, connected car, creative destruction, cuban missile crisis, David Brooks, disintermediation, disruptive innovation, Donald Davies, Downton Abbey, Edward Snowden, Elon Musk, Erik Brynjolfsson, Fall of the Berlin Wall, Filter Bubble, Francis Fukuyama: the end of history, Frank Gehry, Frederick Winslow Taylor, frictionless, full employment, future of work, gig economy, global village, Google bus, Google Glasses, Hacker Ethic, happiness index / gross national happiness, income inequality, index card, informal economy, information trail, Innovator's Dilemma, Internet of things, Isaac Newton, Jaron Lanier, Jeff Bezos, job automation, Joi Ito, Joseph Schumpeter, Julian Assange, Kevin Kelly, Kickstarter, Kodak vs Instagram, Lean Startup, libertarian paternalism, lifelogging, Lyft, Marc Andreessen, Mark Zuckerberg, Marshall McLuhan, Martin Wolf, Metcalfe’s law, move fast and break things, move fast and break things, Nate Silver, Nelson Mandela, Network effects, new economy, Nicholas Carr, nonsequential writing, Norbert Wiener, Norman Mailer, Occupy movement, packet switching, PageRank, Panopticon Jeremy Bentham, Paul Graham, peer-to-peer, peer-to-peer rental, Peter Thiel, plutocrats, Plutocrats, Potemkin village, precariat, pre–internet, RAND corporation, Ray Kurzweil, ride hailing / ride sharing, Robert Metcalfe, Second Machine Age, self-driving car, sharing economy, Silicon Valley, Silicon Valley ideology, Skype, smart cities, Snapchat, social web, South of Market, San Francisco, Steve Jobs, Steve Wozniak, Steven Levy, Stewart Brand, TaskRabbit, Ted Nelson, telemarketer, The Future of Employment, the medium is the message, the new new thing, Thomas L Friedman, Travis Kalanick, Tyler Cowen: Great Stagnation, Uber for X, uber lyft, urban planning, Vannevar Bush, Whole Earth Catalog, WikiLeaks, winner-take-all economy, working poor, Y Combinator

In his 1942 magnum opus Capitalism, Socialism and Democracy, Schumpeter used the term “Creative Destruction” to describe the constant cycles of disruptive invention and reinvention that drive capitalism. “This process of Creative Destruction is the essential fact about capitalism,” Schumpeter insisted. “It is what capitalism consists in and what every capitalist concern has got to live with.”106 Internet economics, therefore, needs to be understood as a historical narrative rather than as just a static set of market relationships. In both the Web 1.0 and 2.0 periods, the Internet mostly disrupted media, communications, and retail. And so, in the twenty years after Jim Clark and Marc Andreessen founded Netscape in April 1994, Schumpeter’s gale of creative destruction mostly swirled around the photography, music, newspaper, telecommunications, movie, publishing, and retail industries.

The guy, who might have been outfitted to hang out at the Battery, was wielding a sledgehammer with which he was energetically smashing some plastic objects into smithereens. REALLY CREATIVE DESTRUCTION, the magazine’s headline screamed in letters as black as the dude’s goatee and glasses.8 One doesn’t need to be a semiotician to grasp the significance of seeing this picture—with its “move fast and break things” message—in Rochester, of all places. Much of Rochester’s industrial economy had itself been smashed into smithereens over the last twenty-five years by a Schumpeterian hurricane of creative destruction. The significance of that magazine cover was, therefore, hard to miss: the sledgehammer mirrored the destructive might of the digital revolution; while the plastic objects being destroyed represented the broken city itself.

Indeed, Uber is so disrupting the livelihoods of these professional taxi drivers that in June 2014 there were strikes and demonstrations in many European cities, including London, Paris, Lyon, Madrid, and Milan, against its introduction.118 And yet Uber remains an iconic company in Silicon Valley, where it is “seen as the messiah” and the next $100 billion Internet sensation by San Francisco’s tech crowd.119 Marc Andreessen certainly admires the customer-friendliness of the mobile service. “You watch the car on the map on your phone as it makes its way to you,” he said, complimenting the app’s real-time user interface. “It’s a killer experience.” What’s making its way to us, however, is more than just an image of an Uber limousine blinking across our mobile screen. It’s the creative destruction inflicted by distributed capitalist networks like Uber or Airbnb, in which anyone can become a cabdriver or a hotelier. And Marc Andreessen—whose Mosaic Web browser opened the Internet’s moneyed second act—is right. Uber is certainly going to be a “killer experience” for its early investors, who stand to make 2,000 times their initial outlay.120 But while a lucky handful of investors turned $20,000 angel investments in Uber into $40 million fortunes, the consequences of this casino-style economy are much more troubling for the rest of us.


pages: 504 words: 126,835

The Innovation Illusion: How So Little Is Created by So Many Working So Hard by Fredrik Erixon, Bjorn Weigel

"Robert Solow", Airbnb, Albert Einstein, American ideology, asset allocation, autonomous vehicles, barriers to entry, Basel III, Bernie Madoff, bitcoin, Black Swan, blockchain, BRICs, Burning Man, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, Clayton Christensen, Colonization of Mars, commoditize, corporate governance, corporate social responsibility, creative destruction, crony capitalism, dark matter, David Graeber, David Ricardo: comparative advantage, discounted cash flows, distributed ledger, Donald Trump, Elon Musk, Erik Brynjolfsson, fear of failure, first square of the chessboard / second half of the chessboard, Francis Fukuyama: the end of history, George Gilder, global supply chain, global value chain, Google Glasses, Google X / Alphabet X, Gordon Gekko, high net worth, hiring and firing, Hyman Minsky, income inequality, income per capita, index fund, industrial robot, Internet of things, Jeff Bezos, job automation, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, Joseph Schumpeter, Just-in-time delivery, Kevin Kelly, knowledge economy, laissez-faire capitalism, Lyft, manufacturing employment, Mark Zuckerberg, market design, Martin Wolf, mass affluent, means of production, Mont Pelerin Society, Network effects, new economy, offshore financial centre, pensions crisis, Peter Thiel, Potemkin village, price mechanism, principal–agent problem, Productivity paradox, QWERTY keyboard, RAND corporation, Ray Kurzweil, rent-seeking, risk tolerance, risk/return, Robert Gordon, Ronald Coase, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, Silicon Valley, Silicon Valley startup, Skype, sovereign wealth fund, Steve Ballmer, Steve Jobs, Steve Wozniak, technological singularity, telemarketer, The Chicago School, The Future of Employment, The Nature of the Firm, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, transaction costs, transportation-network company, tulip mania, Tyler Cowen: Great Stagnation, uber lyft, University of East Anglia, unpaid internship, Vanguard fund, Yogi Berra

Of all the internet start-ups, for example, three-quarters fail because of “premature scaling” alone, according to the Startup Genome Report.32 Yet here we are, with rising venture capital investment in internet start-ups – many of them rushing to scale up their businesses faster than the others. Joseph Schumpeter, the Austrian-born economist, argued along the same lines and, partly inspired by German scholar Werner Sombart, portrayed the capitalist innovation process as “a perennial gale of creative destruction.” For Schumpeter, creation and destruction were part of the same process of economic renewal. In fact, in his “vision of capitalism,” the entry of new technologies and entrepreneurs, and the exit of the old, were the central dynamic of progression.33 Capitalism in this school of thought is not a reflection of the way Karl Marx had treated capital accumulation. A capitalist is not necessarily someone who is rich.

Apart from a surge in the mid-1990s, the trend since the late 1970s has been going down. Business investment is generally following the same declining trend as total investment in Western economies. Again, take the United States as an example. Compared to other Western economies, the US economy has followed a pattern of economic growth that is less reliant on a big trade sector but more dependent on Schumpeterian innovation and creative destruction. Figure 2.4 tells the story of business investment in the US economy between 1975 and 2014. The trend of US business investment has been declining since the late 1970s, when measured as a share of GDP.36 Private investment as a share of business capital stock is on the same trend.37 Just as for the West as a whole, there was a spurt in the 1990s, and during that period productivity growth in the US accelerated too as the business sector invested more money in absorbing new technology.

Rentiers make the economy hidebound. 4 THE RISE AND RISE AGAIN OF CORPORATE MANAGERIALISM The modern large Western corporation and the modern apparatus of socialist planning are variant accommodations to the same need. John Kenneth Galbraith, The New Industrial State Modern corporate behavior increasingly conforms to the spirit of managerialism. Gray capital helped to shape such corporations, but firm managers equally assisted in the gradual corrosion of capitalism. Today, the appetite for creative destruction, the zeitgeist of capitalism, is all too often displaced by a custodian corporate culture that is defensive about the future and protective of its privileges. It is a culture that incubates habits, strategies and models that cannot be married with uncertainty or a disposition for radical innovation and life-or-death competition. Managerialism has become an undisputed meta-ideology of the business world.


pages: 366 words: 94,209

Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity by Douglas Rushkoff

activist fund / activist shareholder / activist investor, Airbnb, algorithmic trading, Amazon Mechanical Turk, Andrew Keen, bank run, banking crisis, barriers to entry, bitcoin, blockchain, Burning Man, business process, buy and hold, buy low sell high, California gold rush, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, centralized clearinghouse, citizen journalism, clean water, cloud computing, collaborative economy, collective bargaining, colonial exploitation, Community Supported Agriculture, corporate personhood, corporate raider, creative destruction, crowdsourcing, cryptocurrency, disintermediation, diversified portfolio, Elon Musk, Erik Brynjolfsson, Ethereum, ethereum blockchain, fiat currency, Firefox, Flash crash, full employment, future of work, gig economy, Gini coefficient, global supply chain, global village, Google bus, Howard Rheingold, IBM and the Holocaust, impulse control, income inequality, index fund, iterative process, Jaron Lanier, Jeff Bezos, jimmy wales, job automation, Joseph Schumpeter, Kickstarter, loss aversion, Lyft, Marc Andreessen, Mark Zuckerberg, market bubble, market fundamentalism, Marshall McLuhan, means of production, medical bankruptcy, minimum viable product, Mitch Kapor, Naomi Klein, Network effects, new economy, Norbert Wiener, Oculus Rift, passive investing, payday loans, peer-to-peer lending, Peter Thiel, post-industrial society, profit motive, quantitative easing, race to the bottom, recommendation engine, reserve currency, RFID, Richard Stallman, ride hailing / ride sharing, Ronald Reagan, Satoshi Nakamoto, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Snapchat, social graph, software patent, Steve Jobs, TaskRabbit, The Future of Employment, trade route, transportation-network company, Turing test, Uber and Lyft, Uber for X, uber lyft, unpaid internship, Y Combinator, young professional, zero-sum game, Zipcar

And why shouldn’t companies optimize for victory? Whether it’s MOOCs replacing in-person college courses, Web sites replacing stores, apps replacing newspapers, or streaming MP3s replacing radio, it’s only creative destruction. Either get with the program or get run over by it. That’s the sanguine interpretation of creative destruction, held by the winners since industrialism began. If you’re the unhappy victim of a plant closing, the resident of an abandoned community, or the owner of an undercut small business, you are an unfortunate but necessary sacrifice to business innovation and free-market competition. Free-market advocates celebrate creative destruction as the way that scrappy young upstarts come and unseat the most powerful companies on the block. But Schumpeter also suggested that each new winner takes over its sector in a much more complete way than its predecessors, potentially destroying more businesses and opportunities than it creates—certainly in the short term.

A traditional livery service must legally assume liability for all on-the-clock drivers, whether they’re currently transporting a passenger or not.25 This is how Uber can be valued at over $18 billion while many of its drivers make below minimum wage after expenses. Meanwhile, the company’s path to success involves destroying the dozens or hundreds of independent taxi companies in the markets it serves. On the surface, it’s the creative destruction of centralized taxi commissions and bureaucracy. The result, however, is the elimination of independently operating businesses and their replacement with a single platform. Former business owners become Uber’s unprotected contractors.* Market pricing and competition are replaced by a monopoly’s algorithmic price-fixing. Creative destruction? Perhaps—but with a twist: the new businesses of the digital era aren’t stand-alone companies like stores or manufacturers but, as they say, entire platforms. This makes them capable of reconfiguring their whole sectors almost overnight.

What algorithms do to the trading floor, digital business does to the economy. In the purely rational light of the computer program, a digital corporation is optimized to convert cash into share price—money and value into pure capital. Most of the people enabling this have no reason to believe it is harmful to the business landscape, much less to human beings. At worst, argue today’s generation of technopreneurs, we are undergoing a whole lot of “creative destruction.” That’s the process, first coined by Marx but popularized by Austrian-American economic philosopher Joseph Schumpeter,20 through which the economy achieves a natural churn. Simply put, it’s a description of how young companies with superior technologies or processes invariably unseat established ones. Old ways of doing things are replaced by better ones. There’s pain, as companies go out of business and people lose jobs, but ultimately there’s gain, as the new market establishes itself.


pages: 345 words: 75,660

Prediction Machines: The Simple Economics of Artificial Intelligence by Ajay Agrawal, Joshua Gans, Avi Goldfarb

"Robert Solow", Ada Lovelace, AI winter, Air France Flight 447, Airbus A320, artificial general intelligence, autonomous vehicles, basic income, Bayesian statistics, Black Swan, blockchain, call centre, Capital in the Twenty-First Century by Thomas Piketty, Captain Sullenberger Hudson, collateralized debt obligation, computer age, creative destruction, Daniel Kahneman / Amos Tversky, data acquisition, data is the new oil, deskilling, disruptive innovation, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, everywhere but in the productivity statistics, Google Glasses, high net worth, ImageNet competition, income inequality, information retrieval, inventory management, invisible hand, job automation, John Markoff, Joseph Schumpeter, Kevin Kelly, Lyft, Minecraft, Mitch Kapor, Moneyball by Michael Lewis explains big data, Nate Silver, new economy, On the Economy of Machinery and Manufactures, pattern recognition, performance metric, profit maximization, QWERTY keyboard, race to the bottom, randomized controlled trial, Ray Kurzweil, ride hailing / ride sharing, Second Machine Age, self-driving car, shareholder value, Silicon Valley, statistical model, Stephen Hawking, Steve Jobs, Steven Levy, strong AI, The Future of Employment, The Signal and the Noise by Nate Silver, Tim Cook: Apple, Turing test, Uber and Lyft, uber lyft, US Airways Flight 1549, Vernor Vinge, Watson beat the top human players on Jeopardy!, William Langewiesche, Y Combinator, zero-sum game

Also, we thank our colleagues for discussions and feedback, including Nick Adams, Umair Akeel, Susan Athey, Naresh Bangia, Nick Beim, Dennis Bennie, James Bergstra, Dror Berman, Vincent Bérubé, Jim Bessen, Scott Bonham, Erik Brynjolfsson, Andy Burgess, Elizabeth Caley, Peter Carrescia, Iain Cockburn, Christian Catalini, James Cham, Nicolas Chapados, Tyson Clark, Paul Cubbon, Zavain Dar, Sally Daub, Dan Debow, Ron Dembo, Helene Desmarais, JP Dube, Candice Faktor, Haig Farris, Chen Fong, Ash Fontana, John Francis, April Franco, Suzanne Gildert, Anindya Ghose, Ron Glozman, Ben Goertzel, Shane Greenstein, Kanu Gulati, John Harris, Deepak Hegde, Rebecca Henderson, Geoff Hinton, Tim Hodgson, Michael Hyatt, Richard Hyatt, Ben Jones, Chad Jones, Steve Jurvetson, Satish Kanwar, Danny Kahneman, John Kelleher, Moe Kermani, Vinod Khosla, Karin Klein, Darrell Kopke, Johann Koss, Katya Kudashkina, Michael Kuhlmann, Tony Lacavera, Allen Lau, Eva Lau, Yann LeCun, Mara Lederman, Lisha Li, Ted Livingston, Jevon MacDonald, Rupam Mahmood, Chris Matys, Kristina McElheran, John McHale, Sanjog Misra, Matt Mitchell, Sanjay Mittal, Ash Munshi, Michael Murchison, Ken Nickerson, Olivia Norton, Alex Oettl, David Ossip, Barney Pell, Andrea Prat, Tomi Poutanen, Marzio Pozzuoli, Lally Rementilla, Geordie Rose, Maryanna Saenko, Russ Salakhutdinov, Reza Satchu, Michael Serbinis, Ashmeet Sidana, Micah Siegel, Dilip Soman, John Stackhouse, Scott Stern, Ted Sum, Rich Sutton, Steve Tadelis, Shahram Tafazoli, Graham Taylor, Florenta Teodoridis, Richard Titus, Dan Trefler, Catherine Tucker, William Tunstall-Pedoe, Stephan Uhrenbacher, Cliff van der Linden, Miguel Villas-Boas, Neil Wainwright, Boris Wertz, Dan Wilson, Peter Wittek, Alexander Wong, Shelley Zhuang, and Shivon Zilis. We also thank Carl Shapiro and Hal Varian for their book Information Rules, which served as a source of inspiration for our project. The Creative Destruction Lab and Rotman School staffs have been fantastic, particularly Steve Arenburg, Dawn Bloomfield, Rachel Harris, Jennifer Hildebrandt, Anne Hilton, Justyna Jonca, Aidan Kehoe, Khalid Kurji, Mary Lyne, Ken McGuffin, Shray Mehra, Daniel Mulet, Jennifer O’Hare, Gregory Ray, Amir Sariri, Sonia Sennik, Kristjan Sigurdson, Pearl Sullivan, Evelyn Thomasos, and the rest of the Lab team and Rotman staff. We thank our dean, Tiff Macklem, for his enthusiastic support of our work on AI at the Creative Destruction Lab and throughout the Rotman School. Thanks also to the leadership and staff at The Next 36 and The Next AI. We also thank Walter Frick and Tim Sullivan for stellar editing, as well as our agent, Jim Levine.

See also trade-offs computers cheap arithmetic from, 12 programming of, effect of prediction on, 38, 40 conditional average, 33 consumer preferences data, 176–177 Consumer Reports, 169 Cook, Tim, 189–190 cookies, 175 Copenhagen metro, 104 corn, hybrid, 158–160, 181 correlations, unanticipated, 36–37 cost, 7–20 of data acquisition, 44 effects of reduced AI, 9–11 of foundational inputs, 11–13 internet, 10–11 of prediction, 13–15, 29 strategy and, 15–17, 169 counterfactual, 62–63 crashes, 200 creative destruction, 215 Creative Destruction Lab (CDL), 2, 134 credit card fraud detection, 24–25, 27, 91 judgment in, 84–88 creditworthiness, 27–28, 66–67 Croesus, King of Lydia, 23 crowd behavior, alterations in, 191 crystal balls, 24 customer churn, 32–36 Daimler, 164 Dartmouth College conference, 31–32, 39 data, 18, 43–51 acquiring, 46–47 business transformation and, 174–176 on customer churn, 35–36 decisions about, 47–49 economies of scale and, 49–50, 216 feedback, 43, 46, 204–205 homogeneity in, 201–202 how machines learn from, 45–47 input, 43 necessity of for prediction, 44–45 prediction with little, 98–102 privacy issues with, 189–190 quality of, 163, 200 real world, autonomous vehicles and, 186–187 retention practices, 216 roles of, 43 security risks with, 199–205 selling consumer, 176–177 signal vs. noise in, 48 strategic advantage from unique, 176–177 as strategic asset, 163–164 strategy and, 174–176 training, 43, 45–47, 202–204 types that humans have and machines don’t, 98 decision making, 18, 73–82.

Joshua is also chief economist at the University of Toronto’s Creative Destruction Lab. Joshua has over 120 peer-reviewed academic publications and is the editor (strategy) of Management Science. He also has authored two successful textbooks and written five popular books, including Parentonomics (2009), Information Wants to Be Shared (2012), The Disruption Dilemma (2016), and Scholarly Publishing and Its Discontents (2017). Joshua holds a PhD in economics from Stanford University and, in 2008, was awarded the Economic Society of Australia’s Young Economist Award (the Australian equivalent of the John Bates Clark medal). AVI GOLDFARB is the Ellison Professor of Marketing at the Rotman School of Management, University of Toronto. Avi is also chief data scientist at the Creative Destruction Lab, senior editor at Marketing Science, and a research associate at the National Bureau of Economic Research.


pages: 288 words: 64,771

The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality by Brink Lindsey

"Robert Solow", Airbnb, Asian financial crisis, bank run, barriers to entry, Bernie Sanders, Build a better mousetrap, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, collective bargaining, creative destruction, Credit Default Swap, crony capitalism, Daniel Kahneman / Amos Tversky, David Brooks, diversified portfolio, Donald Trump, Edward Glaeser, endogenous growth, experimental economics, experimental subject, facts on the ground, financial innovation, financial intermediation, financial repression, hiring and firing, Home mortgage interest deduction, housing crisis, income inequality, informal economy, information asymmetry, intangible asset, inventory management, invisible hand, Jones Act, Joseph Schumpeter, Kenneth Rogoff, Kevin Kelly, knowledge worker, labor-force participation, Long Term Capital Management, low skilled workers, Lyft, Mark Zuckerberg, market fundamentalism, mass immigration, mass incarceration, medical malpractice, Menlo Park, moral hazard, mortgage debt, Network effects, patent troll, plutocrats, Plutocrats, principal–agent problem, regulatory arbitrage, rent control, rent-seeking, ride hailing / ride sharing, Robert Metcalfe, Ronald Reagan, Silicon Valley, Silicon Valley ideology, smart cities, software patent, too big to fail, total factor productivity, trade liberalization, transaction costs, tulip mania, Uber and Lyft, uber lyft, Washington Consensus, white picket fence, winner-take-all economy, women in the workforce

III STIFLING GROWTH Modern growth theory, beginning with the pioneering work of Robert Solow and continuing with more recent “endogenous growth” models, makes clear that the ultimate source of economic growth is innovation: the development of new products and production methods that increase the level of output per given unit of capital and labor inputs.15 Of course, the mere introduction of new products and methods is only the first step; innovation’s full effect comes as the new products and methods diffuse throughout the economy. Introduction and diffusion together make for the dynamic process of creative destruction: new ideas originate and spread, old ways of doing things are displaced, and resources are reallocated from less to more productive combinations of capital and labor. Economists’ best measure of this process is total factor productivity (TFP) growth, or growth in output per unit of capital and labor. Regulatory rents do their main damage by interfering with creative destruction. By hampering the formation and growth of new businesses, they impede both the introduction of new products and production methods and the reallocation of resources that accompanies the diffusion of innovations.

Unless we take steps to unrig our liberal democracy, we run a serious risk that the tide of authoritarian populism will extend itself, all the while entrenching the very crony capitalism that it purports to assault. Market rigging by the already powerful is the primary mechanism by which high status is entrenched. While markets naturally produce unequal returns, they also have powerful mechanisms of creative destruction as well. When there are extraordinary returns by a particular firm, a market with low barriers to entry will encourage challengers to undercut incumbents, thereby driving down their rate of return. Challengers, or even the prospect of challenge, can force incumbents to invest their resources in innovation rather than accumulation, thereby driving economic growth. Competition is, in this way, essential to contain inequality as well as produce abundance.

It requires combining the best of the two liberal traditions of the left and right into a liberalism that fuses both sides of a modernized Madisonian vision—a state strong enough to support a capitalist economy, but one made less susceptible to exploitation by the powerful. At the root of our political economy problem is a failure of competition. As we will show in Chapter 2, the machinery of creative destruction is slowing down, the evidence of which is increasing corporate profits, declining new firm formation, and disturbingly increasing stability of the top firms over time. There is growing recognition of the connection between our sclerotic economy and increasing concentration of ownership, which has generated increasing monopoly rents. But competition is also essential for restraining inequality, by encouraging new firms to enter into the market and undercut or outperform incumbents with abnormally high profits.


pages: 382 words: 92,138

The Entrepreneurial State: Debunking Public vs. Private Sector Myths by Mariana Mazzucato

"Robert Solow", Apple II, banking crisis, barriers to entry, Bretton Woods, business cycle, California gold rush, call centre, carbon footprint, Carmen Reinhart, cleantech, computer age, creative destruction, credit crunch, David Ricardo: comparative advantage, demand response, deskilling, endogenous growth, energy security, energy transition, eurozone crisis, everywhere but in the productivity statistics, Financial Instability Hypothesis, full employment, G4S, Growth in a Time of Debt, Hyman Minsky, incomplete markets, information retrieval, intangible asset, invisible hand, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, knowledge worker, natural language processing, new economy, offshore financial centre, Philip Mirowski, popular electronics, profit maximization, Ralph Nader, renewable energy credits, rent-seeking, ride hailing / ride sharing, risk tolerance, shareholder value, Silicon Valley, Silicon Valley ideology, smart grid, Steve Jobs, Steve Wozniak, The Wealth of Nations by Adam Smith, Tim Cook: Apple, too big to fail, total factor productivity, trickle-down economics, Washington Consensus, William Shockley: the traitorous eight

It is not just about setting up a new business (the more common definition), but doing so in a way that produces a new product, or a new process, or a new market for an existing product or process. Entrepreneurship, he wrote, employs ‘the gale of creative destruction’ to replace, in whole or in part, inferior innovations across markets and industries, simultaneously creating new products including new business models, and in so doing destroying the lead of the incumbents (Schumpeter 1949). In this way, creative destruction is largely responsible for the dynamism of industries and long-run economic growth. Each major new technology leads to creative destruction: the steam engine, the railway, electricity, electronics, the car, the computer, the Internet. Each has destroyed as much as they have created but each has also led to increased wealth overall.

It was indeed Leonardo’s work with Ford that inspired the first meetings and work that led to another research project, funded by the Institute for New Economic Thinking (INET), in which Randy Wray and I are today banging heads: a project on how to bring together the thinking of Joseph Schumpeter on innovation and Hyman Minsky on finance, to understand the degree to which finance can be turned into a vehicle for creative destruction rather than its current obsession with Ponzi-like destructive creation. Amongst other friends and colleagues who have provided inspiration through interaction and feedback, I want to mention Fred Block, Michael Jacobs, Paul Nightingale and Andy Stirling, the latter two from SPRU, my new academic home. SPRU, founded by Chris Freeman, is one of the most dynamic environments in which I have worked – a place where innovation is understood to be at the core of capitalist competition, and where rather than mythologizing the process, it is studied ‘critically’ – in both its rate and its direction.

It builds on the notion of the ‘Developmental State’ (Block 2008; Chang 2008; Johnson 1982) pushing it further by focusing on the type of risk that the public sector has been willing to absorb and take on. While Chapters 3 and 4 look at sectors, Chapter 5 focuses on the history of one particular company – Apple – a company that is often used to laud the power of the market and the genius of the ‘garage tinkerers’ who revolutionize capitalism. A company that is used to illustrate the power of Schumpeterian creative destruction.4 I turn this notion on its head. Apple is far from the ‘market’ example it is often used to depict. It is a company that not only received early stage finance from the government (through the SBIC programme, which is related to the SBIR programme discussed in Chapter 4), but also ‘ingeniously’ made use of publicly funded technology to create ‘smart’ products. In fact, there is not a single key technology behind the iPhone that has not been State-funded.


pages: 72 words: 21,361

Race Against the Machine: How the Digital Revolution Is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy by Erik Brynjolfsson

"Robert Solow", Amazon Mechanical Turk, Any sufficiently advanced technology is indistinguishable from magic, autonomous vehicles, business cycle, business process, call centre, combinatorial explosion, corporate governance, creative destruction, crowdsourcing, David Ricardo: comparative advantage, easy for humans, difficult for computers, Erik Brynjolfsson, factory automation, first square of the chessboard, first square of the chessboard / second half of the chessboard, Frank Levy and Richard Murnane: The New Division of Labor, hiring and firing, income inequality, intangible asset, job automation, John Markoff, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Khan Academy, Kickstarter, knowledge worker, Loebner Prize, low skilled workers, minimum wage unemployment, patent troll, pattern recognition, Paul Samuelson, Ray Kurzweil, rising living standards, Robert Gordon, self-driving car, shareholder value, Skype, too big to fail, Turing test, Tyler Cowen: Great Stagnation, Watson beat the top human players on Jeopardy!, wealth creators, winner-take-all economy, zero-sum game

For information about quantity discounts, email info@raceagainstthemachine.com www.RaceAgainstTheMachine.com Library of Congress Cataloging-in-Publication Data Brynjolfsson, Erik Race against the machine : how the digital revolution is accelerating innovation, driving productivity, and irreversibly transforming employment and the economy. p. cm. eISBN 978-0-9847251-0-6 1. Technological innovations – Economic Aspects. I. McAfee, Andrew. II. Title. eBooks created by www.ebookconversion.com Contents 1. Technology’s Influence on Employment and the Economy 2. Humanity and Technology on the Second Half of the Chessboard 3. Creative Destruction: The Economics of Accelerating Technology and Disappearing Jobs 4. What Is to Be Done? Prescriptions and Recommendations 5. Conclusion: The Digital Frontier 6. Acknowledgments To my parents, Ari and Marguerite Brynjolfsson, who always believed in me. To my father, David McAfee, who showed me that there’s nothing better than a job well done. Chapter 1. Technology’s Influence on Employment and the Economy If, in like manner, the shuttle would weave and the plectrum touch the lyre without a hand to guide them, chief workmen would not want servants.

And what, if anything, can be done about it? Chapter 2 discusses digital technology, giving examples of just how astonishing recent developments have been and showing how they have upset well-established ideas about what computers are and aren’t good at. What’s more, the progress we’ve experienced augurs even larger advances in coming years. We explain the sources of this progress, and also its limitations. Creative Destruction: The Economics of Accelerating Technology and Disappearing Jobs Chapter 3 explores the economic implications of these rapid technological advances and the growing mismatches that create both economic winners and losers. It concentrates on three theories that explain how such progress can leave some people behind, even as it benefits society as a whole. There are divergences between higher-skilled and lower-skilled workers, between superstars and everyone else, and between capital and labor.

And these days, that means essentially all industries; even the least IT-intensive American sectors like agriculture and mining are now spending billions of dollars each year to digitize themselves. Note also the choice of words by Basu and Fernald: computers and networks bring an ever-expanding- set of opportunities to companies. Digitization, in other words, is not a single project providing one-time benefits. Instead, it's an ongoing process of creative destruction; innovators use both new and established technologies to make deep changes at the level of the task, the job, the process, even the organization itself. And these changes build and feed on each other so that the possibilities offered really are constantly expanding. This has been the case for as long as businesses have been using computers, even when we were still in the front half of the chessboard.


pages: 386 words: 122,595

Naked Economics: Undressing the Dismal Science (Fully Revised and Updated) by Charles Wheelan

"Robert Solow", affirmative action, Albert Einstein, Andrei Shleifer, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, business cycle, buy and hold, capital controls, Cass Sunstein, central bank independence, clean water, collapse of Lehman Brothers, congestion charging, creative destruction, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, Daniel Kahneman / Amos Tversky, David Brooks, demographic transition, diversified portfolio, Doha Development Round, Exxon Valdez, financial innovation, fixed income, floating exchange rates, George Akerlof, Gini coefficient, Gordon Gekko, greed is good, happiness index / gross national happiness, Hernando de Soto, income inequality, index fund, interest rate swap, invisible hand, job automation, John Markoff, Joseph Schumpeter, Kenneth Rogoff, libertarian paternalism, low skilled workers, Malacca Straits, market bubble, microcredit, money market fund, money: store of value / unit of account / medium of exchange, Network effects, new economy, open economy, presumed consent, price discrimination, price stability, principal–agent problem, profit maximization, profit motive, purchasing power parity, race to the bottom, RAND corporation, random walk, rent control, Richard Thaler, rising living standards, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Sam Peltzman, school vouchers, Silicon Valley, Silicon Valley startup, South China Sea, Steve Jobs, The Market for Lemons, the rule of 72, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, transaction costs, transcontinental railway, trickle-down economics, urban sprawl, Washington Consensus, Yogi Berra, young professional, zero-sum game

There is a crucial distinction, however, between using the political process to build a safety net for those harmed by creative destruction and using the political process to stop that creative destruction in the first place. Think about the telegraph and the Pony Express. It would have been one thing to help displaced Pony Express workers by retraining them as telegraph operators; it would have been quite another to help them by banning the telegraph. Sometimes the political process does the equivalent of the latter for reasons related to the mohair problem. The economic benefits of competition are huge but spread over a large group; the costs tend to be smaller but highly concentrated. As a result, the beneficiaries of creative destruction hardly notice; the losers chain themselves to their congressman’s office door seeking protection, as any of us might if our livelihood or community were at risk.

Suppose one of our newly educated farmers designs a plow that produces even better yields, putting the first plow salesman out of business—creative destruction. True, this technological breakthrough eliminates one job in the short run. In the long run, though, the town is still better off. Remember, all the farmers are now richer (as measured by higher corn yields), enabling them to hire the unemployed agronomist to do something else, such as develop new hybrid seeds (which will make the town richer yet). Technology displaces workers in the short run but does not lead to mass unemployment in the long run. Rather, we become richer, which creates demand for new jobs elsewhere in the economy. Of course, educated workers fare much better than uneducated workers in this process. They are more versatile in a fast-changing economy, making them more likely to be left standing after a bout of creative destruction. Human capital is about much more than earning more money.

Fisheries managed with transferable quotas were half as likely to collapse as fisheries that use traditional methods.14 Two other points regarding incentives are worth noting. First, a market economy inspires hard work and progress not just because it rewards winners, but because it crushes losers. The 1990s were a great time to be involved in the Internet. They were bad years to be in the electric typewriter business. Implicit in Adam Smith’s invisible hand is the idea of “creative destruction,” a term coined by the Austrian economist Joseph Schumpeter. Markets do not suffer fools gladly. Take Wal-Mart, a remarkably efficient retailer that often leaves carnage in its wake. Americans flock to Wal-Mart because the store offers an amazing range of products cheaper than they can be purchased anywhere else. This is a good thing. Being able to buy goods cheaper is essentially the same thing as having more income.


pages: 238 words: 73,121

Does Capitalism Have a Future? by Immanuel Wallerstein, Randall Collins, Michael Mann, Georgi Derluguian, Craig Calhoun, Stephen Hoye, Audible Studios

affirmative action, blood diamonds, Bretton Woods, BRICs, British Empire, business cycle, butterfly effect, creative destruction, deindustrialization, demographic transition, Deng Xiaoping, discovery of the americas, distributed generation, eurozone crisis, fiat currency, full employment, Gini coefficient, global village, hydraulic fracturing, income inequality, Isaac Newton, job automation, joint-stock company, Joseph Schumpeter, land tenure, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, loose coupling, low skilled workers, market bubble, market fundamentalism, mass immigration, means of production, mega-rich, Mikhail Gorbachev, mutually assured destruction, offshore financial centre, oil shale / tar sands, Ponzi scheme, postindustrial economy, reserve currency, Ronald Reagan, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, too big to fail, transaction costs, Washington Consensus, WikiLeaks

We find hope against doom exactly in the degree to which our future is politically underdetermined. Systemic crisis loosens and shatters the structural constraints that are themselves the inheritance of past dilemmas and the institutional decisions of prior generations. Business as usual becomes untenable and divergent pathways emerge at such historical junctures. Capitalism, along with its creative destruction of older technologies and forms of production, has also been a source of inequality and environmental degradation. Deep capitalist crisis may be an opportunity to reorganize the planetary affairs of humanity in a way that promotes more social justice and a more livable planet. Our big contention is that historical systems can have more or less destructive ways of going extinct while morphing into something else.

These figures show the magnitude of what technological displacement can do. A similar reduction in the administrative/service sector is plausible. Schumpeter, the best theorist of capitalist innovation, theorizes that new products—and hence the major sources of profit—come on the market by reorganizing the factors of production into new combinations; this always involves what Schumpeter called “creative destruction.” Nevertheless, Schumpeter-inspired economists also rely on nothing more than extrapolation of past trends for the argument that the number of jobs created by new products will make up for the jobs lost by destruction of old markets. None of these theories take account of the technological displacement of communicative labor, the escape valve that in the past has brought new employment to compensate for the loss of old employment.

Whoever dreamt of this fifty years ago? What will our grandchildren consume fifty years from now? We cannot begin to envisage their consumer fads, but we can be sure there will be some. Markets are not fixed by territory. Planet Earth can be filled and yet new markets can be created. That, of course, depends on what some have called the “technological fix” and it is more or less what Joseph Schumpeter called “creative destruction,” which he identified as being the core of capitalist dynamism—entrepreneurs pour money into technological innovation which results in the creation of new industries and the destruction of old ones. The Great Depression in the United States was partially caused by the stagnation of the major traditional industries, while the new emerging industries, though vibrant, were not yet big enough to absorb the surplus capital and labor of the period.


pages: 537 words: 200,923

City: Urbanism and Its End by Douglas W. Rae

agricultural Revolution, barriers to entry, business climate, City Beautiful movement, complexity theory, creative destruction, desegregation, edge city, ghettoisation, Gunnar Myrdal, income per capita, informal economy, information asymmetry, interchangeable parts, invisible hand, James Watt: steam engine, Jane Jacobs, joint-stock company, Joseph Schumpeter, Kickstarter, manufacturing employment, New Economic Geography, new economy, New Urbanism, Peter Calthorpe, plutocrats, Plutocrats, Saturday Night Live, the built environment, The Death and Life of Great American Cities, the market place, urban planning, urban renewal, War on Poverty, white flight, Works Progress Administration

I apologize to my colleagues in the Daniels administration both for the numerous deficiencies in my performance on the field of battle in 1990–91 and for the timing of my analysis of the city’s problems nearly a decade after they left office in 1994. With that, I will not further delay the reader. xix C H A P T E R 1 CREATIVE DESTRUCTION AND THE AGE OF URBANISM Industrial mutation . . . incessantly revolutionizes the economic structure from within, incessantly destroying the old, 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.— JOSEPH SCHUMPETER, 1946 All fixed, fast-frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new formed ones become antiquated before they can ossify.

Rents on apartments near the old plant fall, yet vacancy rates still rise little by little from year to year. Seen a day or a year at a time, and a neighborhood at a time, the changes seem increasingly normal—as unworthy of discussion as, say, the sharpening cold of morning while the calendar pages for October and November fall away. Only as changes shingle up—one over another and another—does the cumulative effect of creative destruction emerge for all to know.6 Classic Phases of Creative Destruction At any given moment, there will be zones where creation rises and other places where the lengthening shadows of destruction fall. In one such moment, cities of a given type may create themselves and grow larger, only to be eroded with the passage of time. None of this follows a tidy plan; all of it unfolds with the complex interaction of capital, technology, and the gifts of nature or intellect available to each place.

The sum of such casual, public contact at a local level—most of it fortuitous, most of it associated with errands, all of it metered by the person concerned and not thrust upon him by anyone—is a feeling for the public identity of people, a web of public respect and trust, and a resource in time of personal or neighborhood need. The absence of this trust is a disaster to a city street. Its cultivation cannot be institutionalized. Jane Jacobs, 1961 CONTENTS Preface, ix 1 Creative Destruction and the Age of Urbanism, 1 PART ONE / URBANISM 2 Industrial Convergence on a New England Town, 35 3 Fabric of Enterprise, 73 4 Living Local, 113 5 Civic Density, 141 6 A Sidewalk Republic, 183 PART TWO / END OF URBANISM 7 Business and Civic Erosion, 1917–1950, 215 C O N T E N T S 8 Race, Place, and the Emergence of Spatial Hierarchy, 254 9 Inventing Dick Lee, 287 10 Extraordinary Politics: Dick Lee, Urban Renewal, and the End of Urbanism, 312 11 The End of Urbanism, 361 12 A City After Urbanism, 393 Notes, 433 Bibliography, 477 Acknowledgments, 499 Index, 503 viii PREFACE City: Urbanism and Its End pursues the course of urban history across the boundaries that separate political science from sociology, geography, economics, and history itself.


pages: 573 words: 115,489

Prosperity Without Growth: Foundations for the Economy of Tomorrow by Tim Jackson

"Robert Solow", bank run, banking crisis, banks create money, Basel III, basic income, bonus culture, Boris Johnson, business cycle, carbon footprint, Carmen Reinhart, Cass Sunstein, choice architecture, collapse of Lehman Brothers, creative destruction, credit crunch, Credit Default Swap, David Graeber, decarbonisation, dematerialisation, en.wikipedia.org, energy security, financial deregulation, Financial Instability Hypothesis, financial intermediation, full employment, Growth in a Time of Debt, Hans Rosling, Hyman Minsky, income inequality, income per capita, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invisible hand, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, laissez-faire capitalism, liberal capitalism, Mahatma Gandhi, mass immigration, means of production, meta analysis, meta-analysis, moral hazard, mortgage debt, Naomi Klein, new economy, offshore financial centre, oil shale / tar sands, open economy, paradox of thrift, peak oil, peer-to-peer lending, Philip Mirowski, profit motive, purchasing power parity, quantitative easing, Richard Thaler, road to serfdom, Robert Gordon, Ronald Reagan, science of happiness, secular stagnation, short selling, Simon Kuznets, Skype, smart grid, sovereign wealth fund, Steve Jobs, The Chicago School, The Great Moderation, The Rise and Fall of American Growth, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, universal basic income, Works Progress Administration, World Values Survey, zero-sum game

‘In such an environment, no firm dares to fall behind in the innovation race, in which the penalty for the laggards is often the death of the company.’22 Clearly, the economy as a whole doesn’t care if individual companies go to the wall. Indeed that must inevitably be the destruction part of the process of creative destruction. It’s a different matter, though, if the process of creative destruction stops, because without it economic expansion eventually stops as well. The role of the entrepreneur – as visionary – is critical here. But so is the role of the investor. It is only through the continuing cycle of investment that creative destruction is possible. When credit dries up, so does innovation. And when innovation stalls, according to Schumpeter, so does the long-term potential for growth itself. At this point, it’s tempting to wonder what the connection is between this self-perpetuating but somewhat abstract vision of creative capitalism, and the needs and desires of ordinary human beings.

At the basic level, these constraints are laid down by the laws of thermodynamics.19 The second is that failing to diversify and innovate risks losing out to competitors producing newer and more exciting products. The economist Joseph Schumpeter was the first to suggest that it is in fact novelty, the process of innovation, that is vital in driving economic growth. Capitalism proceeds, he said, through a process of ‘creative destruction’. New technologies and products continually emerge and overthrow existing technologies and products. Ultimately, this means that even successful companies cannot survive simply through cost minimisation.20 The Venezuelan economist Carlota Perez describes how creative destruction has given rise to successive ‘epochs of capitalism’. Each technological revolution ‘brings with it, not only a full revamping of the productive structure, but eventually a transformation of the institutions of governance, of society, and even of ideology and culture’.21 In this climate, the ability to adapt and to innovate – to design, produce and market not just cheaper products but newer and more exciting ones – is vital.

The circular flow of production and consumption may once have been a useful way of organising human society to ensure that people’s material needs are catered for. But what does this continual cycle of creative destruction have to do with human flourishing? Does this self-perpetuating system really contribute to prosperity in any meaningful sense? Isn’t there a point at which enough is enough and we should simply stop producing and consuming so much? One of the things that prevents this happening, clearly, is the structural reliance of the system itself on continued growth. The imperative to sell more goods, to innovate continually, to stimulate higher and higher levels of consumer demand is driven forwards by the pursuit of growth. But this imperative is now so strong that it seems to undermine the interests of those it’s supposed to serve. The cycles of creative destruction become ever more frequent. Product lifetimes plummet as durability is designed out of consumer goods and obsolescence is designed in.


pages: 293 words: 78,439

Dual Transformation: How to Reposition Today's Business While Creating the Future by Scott D. Anthony, Mark W. Johnson

activist fund / activist shareholder / activist investor, additive manufacturing, Affordable Care Act / Obamacare, Airbnb, Amazon Web Services, autonomous vehicles, barriers to entry, Ben Horowitz, blockchain, business process, business process outsourcing, call centre, Clayton Christensen, cloud computing, commoditize, corporate governance, creative destruction, crowdsourcing, death of newspapers, disintermediation, disruptive innovation, distributed ledger, diversified portfolio, Internet of things, invention of hypertext, inventory management, Jeff Bezos, job automation, job satisfaction, Joseph Schumpeter, Kickstarter, late fees, Lean Startup, Lyft, M-Pesa, Marc Andreessen, Mark Zuckerberg, Minecraft, obamacare, Parag Khanna, Paul Graham, peer-to-peer lending, pez dispenser, recommendation engine, self-driving car, shareholder value, side project, Silicon Valley, Skype, software as a service, software is eating the world, Steve Jobs, the market place, the scientific method, Thomas Kuhn: the structure of scientific revolutions, transfer pricing, uber lyft, Watson beat the top human players on Jeopardy!, Y Combinator, Zipcar

And this is only about the fundamental decision to change strategy. Any leader who has gone through a reorganization or reinvention will tell you that, as hard as it is to decide to change, it is easier than actually making the change. The term often used to describe what happened to Kodak, newspaper companies, and Nokia is creative destruction. The phrase is generally credited to economist Joseph Schumpeter from his landmark book Capitalism, Socialism and Demography. In that work he vividly described the “gale of creative destruction” that tears down established institutions. Schumpeter described the destructive power of this gale, coupled with the innovative creation spurred by entrepreneurs, noting, “[T]he problem that is usually being visualized is how capitalism administers existing structures, whereas the relevant problem is how it creates and destroys them.”

The emergence of a new hill creates tremendous growth for its creator. However, while we celebrate these vibrant gains, let’s stop and consider the losses when the transition involves the rise of a new company and the death of an old one. Thousands of jobs, if not tens of thousands, are displaced. Communities that grew up around enterprises are torn apart. Tens of thousands of years of accumulated know-how are lost. This kind of creative destruction carries a heavy transaction tax. What if, instead, leaders could harness the underlying forces behind these kinds of changes to power new waves of growth for their companies? More specifically, what if a company sensed the gale coming early enough and built a wall to protect its core business? Or, even better, what if it built a wind turbine to harness the energy in the gale? This book teaches you how to do just that.

It is worth emphasizing, however, that if you can do what you’re currently doing better, faster, and cheaper, that may be good, is likely necessary, and certainly helps support what follows; but it is not the kind of strategic transformation described in this book. Cost cutting, in particular, might be brutally difficult, but on its own it is not what we mean by the word transformation. If all you are doing is playing yesterday’s game better, your odds of surviving Schumpeter’s creative destruction are low. FIGURE 1-5 Strategic choices for leaders Janssen’s decision to focus on disease area strongholds and develop the capability to identify and ingest external innovation is transformation A, because it is a new way to solve an old problem—a move along the horizontal axis of figure 1-5. By this action, Janssen is doing the same job it historically did for the end customer—helping manage a select number of medical conditions via pharmaceutical products—but doing it in a fundamentally different way.


pages: 418 words: 128,965

The Master Switch: The Rise and Fall of Information Empires by Tim Wu

accounting loophole / creative accounting, Alfred Russel Wallace, Apple II, barriers to entry, British Empire, Burning Man, business cycle, Cass Sunstein, Clayton Christensen, commoditize, corporate raider, creative destruction, disruptive innovation, don't be evil, Douglas Engelbart, Douglas Engelbart, Howard Rheingold, Hush-A-Phone, informal economy, intermodal, Internet Archive, invention of movable type, invention of the telephone, invisible hand, Jane Jacobs, John Markoff, Joseph Schumpeter, Menlo Park, open economy, packet switching, PageRank, profit motive, road to serfdom, Robert Bork, Robert Metcalfe, Ronald Coase, sexual politics, shareholder value, Silicon Valley, Skype, Steve Jobs, Steve Wozniak, Telecommunications Act of 1996, The Chicago School, The Death and Life of Great American Cities, the market place, The Wisdom of Crowds, too big to fail, Upton Sinclair, urban planning, zero-sum game

“In capitalist reality as distinguished from its textbook picture, it is not that kind of competition which counts,” argued Schumpeter, but rather, “the competition from the new commodity, the new technology, the new source of supply, the new type of organization.” It is a vision to out-Darwin Darwin: “competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives.” Schumpeter termed this process “creative destruction.” As he put it, “Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in.”* Schumpeter’s cycle of industrial life and death is an inspiration for this book. His thesis is that in the natural course of things, the new only rarely supplements the old; it usually destroys it. The old, however, doesn’t, as it were, simply give up but rather tries to forestall death or co-opt its usurper—à la Kronos—with important implications.

Owning a patent on the lightbulb, or a cure for baldness, means that only you (or your licensee) can profit from its sale. The attendant gains are meant to encourage investment in invention. But in the hands of an outside inventor, a patent serves a different function: as sort of corporate shield that can prevent a large industrial power from killing you off or seizing control of your company and the industry. In that oblique sense, a strong patent can sow the seeds of creative destruction. The Bell patent is an example, perhaps the definitive example, of such a seeding patent. Had it not existed, there would never have been a telephone industry independent of the telegraph. Yet it was hardly a foregone conclusion that Bell’s patent would be its salvation. The validity of the license was somewhat in question: Elisha Gray, remember, had filed a similar patent, arguing, not without foundation, that Alexander Bell had stolen from his design the features that made the telephone actually work.

Vail was acutely aware of how important the telephone network would be to the nation, and there is no evidence that he ever put AT&T’s profitability ahead of its obligation to serve. He presents us therefore with a challenging figure: an unabashed monopolist, but a benign one, who lived up to his own ideals of enlightened despotism. The fault in this arrangement therefore lay not so much with Theodore Vail as with the men who would succeed him. * There is a difference between creative destruction and merely destructive destruction. * Technically, Congress declared telephony and the telegraph a common carrier in the Mann Elkins Act of 1910. But more important was Vail’s embrace of the role. † The alternative phrase for a common carrier is a “public calling,” and the latter may capture more of the original meaning. * Opponents of regulation in the twentieth century pushed the idea that only true monopolies ought to be considered public callings or common carriers.


pages: 398 words: 108,889

The Paypal Wars: Battles With Ebay, the Media, the Mafia, and the Rest of Planet Earth by Eric M. Jackson

bank run, business process, call centre, creative destruction, disintermediation, Elon Musk, index fund, Internet Archive, iterative process, Joseph Schumpeter, market design, Menlo Park, Metcalfe’s law, money market fund, moral hazard, Network effects, new economy, offshore financial centre, Peter Thiel, Robert Metcalfe, Sand Hill Road, shareholder value, Silicon Valley, Silicon Valley startup, telemarketer, The Chicago School, the new new thing, Turing test

While this is an impressive track record by most standards, it’s far short of what our group initially hoped to accomplish. I may not have fully appreciated it when I accepted the CEO’s invitation to join what was then a tiny startup, but it stands to reason that the creation of most technology ventures is by necessity a tumultuous process. Joseph Schumpeter, a Harvard economist, dubbed the process of entrepreneurs unleashing new innovations into the marketplace as “creative destruction” because it invariably shakes up the existing economic order.1 Looking back, this term is certainly appropriate to describe what PayPal set out to do, and it also hints at the turbulence that accompanied our efforts. Vigorous competition provided one source of that tumult. A torrent of competitors, including multinational banks and established Internet players, also saw the profit potential of our startup’s payment system and raced to construct their own versions.

Scheming Mafioso, capricious regulators, opportunistic lawyers, savvy online identity thieves, volatile capital markets, an antagonistic press—collectively these external challenges proved more daunting than we could have ever foreseen. The modern business environment itself turned out to be more hostile to our band of entrepreneurs than even our fiercest competitor. While Schumpeter intended to imply a certain level of instability when he coined the phrase “creative destruction,” he didn’t mean to suggest that entrepreneurs should have to worry more about these non-competitive threats than about the products they wanted to bring to market. And yet, as PayPal’s experience suggests, today’s innovators must often do just that. These daunting threats and the blood, sweat, and tears they extracted make PayPal’s story all the more important to tell. While this book documents the amazing exploits of the talented men and women I had the pleasure of working alongside, it is primarily a cautionary tale told firsthand from the high tech trenches.

Every successful company needs some form of a big-picture vision to guide its decision-making processes. Management teams also need to motivate their employees by making them feel that their company is somehow special. Both cases certainly applied to Confinity. But those observations alone don’t diminish the magnitude of Peter’s vision. Even though he never used the exact words, he was pledging to turn Confinity into nothing less than an initiator of the “creative destruction” that Joseph Schumpeter described sixty years earlier. He genuinely seemed to believe that this little startup had the ability to upend the world’s financial systems by giving consumers unparalleled power over their own finances. Say what you will about this vision’s credibility, but in the days that followed his speech I became convinced that Peter wasn’t the only person in the office who believed it.


pages: 337 words: 103,273

The Great Disruption: Why the Climate Crisis Will Bring on the End of Shopping and the Birth of a New World by Paul Gilding

airport security, Albert Einstein, Bob Geldof, BRICs, carbon footprint, clean water, cleantech, Climategate, commoditize, corporate social responsibility, creative destruction, decarbonisation, energy security, Exxon Valdez, failed state, fear of failure, income inequality, Intergovernmental Panel on Climate Change (IPCC), Joseph Schumpeter, market fundamentalism, mass immigration, Naomi Klein, Nelson Mandela, new economy, nuclear winter, oil shock, peak oil, Ponzi scheme, purchasing power parity, Ronald Reagan, shareholder value, The Spirit Level, The Wealth of Nations by Adam Smith, union organizing, University of East Anglia

Schumpeter’s creative destruction means that many of our current companies simply won’t make it, though many will. It also means that a good proportion of the world’s top one hundred companies in twenty years’ time are names you haven’t heard of yet but exist today and are champing at the bit for the race to start and the opportunity to knock over some of the old players. This is exactly what markets are good at. What the final shape of all this will be, with what technologies, what companies, and which countries end up winners and losers, is full of uncertainty, but the outcome is not. When we act, we will eliminate net CO2e emissions from the economy in an amazingly fast transformation and then move on to the rest of sustainability. Slow, but not stupid. CHAPTER 12 Creative Destruction on Steroids—Out with the Old, In with the New Whenever I give a presentation to a business audience about how dramatic the change is going to be, there are always some who respond, “Yes, I can see why it should be like that, but I can’t see how it’s going to happen, so I just don’t think it’s going to.”

An Economic and Social Hurricane 2. The Scream—We Are Their Children’s Children 3. A Very Big Problem 4. Beyond the Limits—The Great Disruption 5. Addicted to Growth 6. Global Foreshock—The Year That Growth Stopped 7. The Road Ahead—Our Planetary Sat Nav 8. Are We Finished? 9. When the Dam of Denial Breaks 10. The One-Degree War 11. How an Austrian Economist Could Save the World 12. Creative Destruction on Steroids—Out with the Old, In with the New 13. Shifting Sands—From Middle Eastern Oil to Chinese Sun 14. The Elephant in the Room—Growth Doesn’t Work 15. The Happiness Economy 16. Yes, There Is Life After Shopping 17. No, the Poor Will Not Always Be with Us 18. Ineffective Inequality 19. The Future Is Here, It’s Just Not Widely Distributed Yet 20. Guess Who’s in Charge? Acknowledgments Notes Further Reading A Note on the Author Imprint To the prescient pioneers of sustainability of the 1960s and 1970s who spent their lives alerting us to what was coming: Rachel Carson, Donella and Dennis Meadows, Jorgen Randers, Paul Ehrlich, E.

I do so partly because many readers will be working in business and will be wondering what it means for them. I also do so because I have believed for many years that we are going to need business and markets fully mobilized if we are to achieve the historic task ahead of us. This is where my favorite economist comes in. Both as an activist and as an entrepreneur, I have always been particularly fond of the Austrian economist Joseph Schumpeter and his theories of creative destruction. He pointed out that markets are basically “a process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” When I first read these words, I realized they could be describing an ecosystem like a rain forest. It is, after all, a stable overall system, but within it there is a process of constant and dynamic change as old things die or are destroyed and new life is created.


pages: 464 words: 116,945

Seventeen Contradictions and the End of Capitalism by David Harvey

accounting loophole / creative accounting, bitcoin, Branko Milanovic, Bretton Woods, BRICs, British Empire, business climate, California gold rush, call centre, central bank independence, clean water, cloud computing, collapse of Lehman Brothers, colonial rule, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Deng Xiaoping, deskilling, drone strike, end world poverty, falling living standards, fiat currency, first square of the chessboard, first square of the chessboard / second half of the chessboard, Food sovereignty, Frank Gehry, future of work, global reserve currency, Guggenheim Bilbao, Gunnar Myrdal, income inequality, informal economy, invention of the steam engine, invisible hand, Isaac Newton, Jane Jacobs, Jarndyce and Jarndyce, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Just-in-time delivery, knowledge worker, low skilled workers, Mahatma Gandhi, market clearing, Martin Wolf, means of production, microcredit, new economy, New Urbanism, Occupy movement, peak oil, phenotype, plutocrats, Plutocrats, Ponzi scheme, quantitative easing, rent-seeking, reserve currency, road to serfdom, Robert Gordon, Ronald Reagan, short selling, Silicon Valley, special economic zone, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, Tyler Cowen: Great Stagnation, wages for housework, Wall-E, women in the workforce, working poor, working-age population

But notice something important here: resort to fossil fuels relieved one contradiction but now, centuries later, it anchors another contradiction between fossil fuel use and climate change. Contradictions have the nasty habit of not being resolved but merely moved around. Mark this principle well, for we will come back to it many times in what follows. The contradictions of capital have often spawned innovations, many of which have improved the qualities of daily life. Contradictions when they erupt into a crisis of capital generate moments of ‘creative destruction’. Rarely is it the case that what is created and what is destroyed is predetermined and rarely is it the case that everything that is created is bad and everything that was good was destroyed. And rarely are the contradictions totally resolved. Crises are moments of transformation in which capital typically reinvents itself and morphs into something else. And the ‘something else’ may be better or worse for the people even as it stabilises the reproduction of capital.

The long and painful history of deindustrialisation has left whole cities, like Detroit, bereft of activity and therefore sinks of lost value even as other cities, like Shenzhen or Dhaka, become hubs of activity that demand massive investments in fixed capital coupled with rental extractions and property market booms if they are to succeed. The history of capital is rife with stories of localised booms and crashes in which the contradiction between fixed and circulating capital, between fixity and motion, is strongly implicated. This is the world where capital as a force of creative destruction becomes most visible in the physical landscape we inhabit. The balance between creativity and destruction is often hard to discern, but the costs imposed on whole populations through deindustrialisation, gyrations in property values and land rents, disinvestment and speculative building all emanate from the underlying and perpetual tension between fixity and motion which periodically and in specific geographical locations heightens to the point of an absolute contradiction and, hence, produces a serious crisis.

It sets up a train of technological accommodations and of new problems, and in so doing it creates new opportunity niches that call forth fresh combinations which in turn introduce further technologies – and further problems … The economy therefore exists always in a perpetual openness of change – in perpetual novelty. It exists perpetually in a process of self-creation. It is always unsatisfied … The economy is perpetually constructing itself.6 New technological configurations displace the old and in so doing initiate phases of what the economist Joseph Schumpeter famously dubbed ‘gales of creative destruction’.7 Whole ways of life and modes of being and thinking have to drastically alter to embrace the new at the expense of the old. The recent history of deindustrialisation and its association with dramatic technological reconfigurations is an obvious case in point. Technological change is neither costless nor painless and the cost and the pain are not evenly shared. The question always to be asked is: who gains from the creation and who bears the brunt of the destruction.


The Half Has Never Been Told: Slavery and the Making of American Capitalism by Edward E. Baptist

banks create money, barriers to entry, British Empire, California gold rush, Cass Sunstein, colonial rule, creative destruction, desegregation, double helix, financial innovation, Joseph Schumpeter, manufacturing employment, Monroe Doctrine, moral hazard, mortgage debt, new economy, Ralph Waldo Emerson, Scientific racism, Silicon Valley, South Sea Bubble, Thomas Malthus, trade route, transatlantic slave trade, transcontinental railway, Works Progress Administration

Instead, they figure out how to reap their benefits in order to rip market share and profits away from other capitalists who are invested in status-quo technologies and staler business models. They are architects of the dynamic of “creative destruction” that iconoclastic economist Joseph Schumpeter identified as the core engine of capitalism’s growth. Creative destruction produces wrenching shocks, devastating depressions following dramatic expansions, wars and conquests and enslavements. Here, in New Orleans, cotton—and slaves—enabled creative destruction to produce the modern economy.20 Nolte said he did what he did because of something he wanted to feel—what he called “the charm,” the spell he wove upon himself by knitting a “vast web of extended commerce” with himself at the center. And Maspero’s was a room full of Noltes, for whom creative destruction was motivation as much as process. Along with McDonogh and Shepherd and Nolte, their ranks at the tables included such men as Beverley Chew and Richard Relf, William Kenner, Stephen Henderson, and French-speakers like merchant Louis Lecesne and broker P.

And all the while, every new hand in every new cotton field meant markets for northern produce, more foreign exchange, cheaper raw materials for northern industry, and more opportunities for young Vermonters and Pennsylvanians who moved to Natchez. Slavery’s defenders had won the arguments that mattered. Even a man whose parents had named him after Granville Sharp had become a speculator.23 In the 1820s, enslaved people on slavery’s frontier faced the yoked-together powers of the world economy, a high demand for their most crucial commodity, and the creatively destructive ruling class of a muscular young republic. And they faced it all alone. For many years, enslaved people could only push back with hushed breaths around ten thousand fires on the southwestern cotton plantations—or in the Southeast, among those left behind. Although they had to keep them from white ears, the words that made up their critique of slavery mattered tremendously to them and to the future.

Continuously seeking new adherents—often by utilizing the most “modern” tools of marketing to spread their message—evangelicals have inhabited a process of constant transformation. True believers’ competing claims have led to constant denominational splintering among evangelicals, with each group typically insisting that it possessed a truer fundamentalism than any other and that it was rebuilding the “primitive church” of Jesus’s first followers. By the early twenty-first century, believers around the world had, in this process of creative destruction, created more than 30,000 Protestant denominations, most of which were born in the United States. Evangelical Protestantism claimed almost as many adherents worldwide as Catholicism or Islam. A young tradition, created in large part on slavery’s frontier out of elements that included a healthy dose of West African religious practices, has become one of the most influential cultural exports in world history.54 Back to the early nineteenth century, however, and to an encounter between a white man and Pompey, a black Methodist preacher in Mississippi.


pages: 183 words: 17,571

Broken Markets: A User's Guide to the Post-Finance Economy by Kevin Mellyn

banking crisis, banks create money, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, business cycle, buy and hold, call centre, Carmen Reinhart, central bank independence, centre right, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, credit crunch, crony capitalism, currency manipulation / currency intervention, disintermediation, eurozone crisis, fiat currency, financial innovation, financial repression, floating exchange rates, Fractional reserve banking, global reserve currency, global supply chain, Home mortgage interest deduction, index fund, information asymmetry, joint-stock company, Joseph Schumpeter, labor-force participation, light touch regulation, liquidity trap, London Interbank Offered Rate, market bubble, market clearing, Martin Wolf, means of production, mobile money, money market fund, moral hazard, mortgage debt, mortgage tax deduction, negative equity, Ponzi scheme, profit motive, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, rising living standards, Ronald Coase, seigniorage, shareholder value, Silicon Valley, statistical model, Steve Jobs, The Great Moderation, the payments system, Tobin tax, too big to fail, transaction costs, underbanked, Works Progress Administration, yield curve, Yogi Berra, zero-sum game

w 163 I Index A C Anglo-Saxon capitalism, 84 Card Act, 68, 70 Anglo-Saxon-type banking systems, 156 CHIPS.See Clearing House Interbank Payment System Asset securitization, 66 Association of Community Organizers for Reform Now (ACORN), 65 Austerity definition, 98 Euro, real unification, 99 Germany, 99–101 B BankAmericard, 29 Bankcard association/card scheme, 29 Bank-centric system, 110 Bank for International Settlements (BIS), 108 Basel III process, 50–51 Basel process, 27–28 Basel standards, 61 Bipartisan government policy, 72 Boom optimistic entrepreneurs, 77 Bretton Woods system, 26, 111 Bureaucracies, 21 Civilization, 64 Clearing House Interbank Payment System (CHIPS), 106, 107 Committee of Payment and Settlement Systems (CPSS), 108 Community Reinvestment Act (CRA), 65–66 Consumer banking BankAmericard, 29 bankcard association/card scheme, 29 branch-based customer relationship, 29 credit card industry, 30 Depression-era Glass-Steagall Act, 33 “diseconomies of scale”, 35 FDIC, 34 four-party model, 29 institutional investors, 34 “market-centric” financial system, 33 merchant/customer relationship, 29 Pac-Man banking, 34 risky business, 31–33 RTC, 31 SEC, 33 S&L industry, 28, 30 1 166 Index Consumer banking (continued) statistical analysis, 30 US “flow-of-funds” data, 28 usury laws, 30 Consumer Finance Protection Bureau (CFPB), 68 Continuous Linked Settlement (CLS), 108 Creative destruction, 85 Credit-driven economy, 76–77 Crony capitalism, 85 Cross-Pacific economy, 97 D Debtor Nation, 64 Dirigisme, 83 Dollar-centric financial system, 112 Durbin Amendment, 70 E ECB.See European Central Bank Economic consequences, financial regulation, 55 bank P & Ls and balance sheets bureaucratic regulation, 59 capital allocation, 57 capitalism, 57 clearinghouse/transaction switch, 58 contradictory rules, 59 creative destruction, 63 free-market capitalism, 57 full-blown panic leading, 57 lender-of-last-resort function, 58 payments system, 58–59 private-sector banks, 58 consumer protection vs. access, 67–68 financial access restriction brick-and-mortar branches, 66 civilization, 64 clearinghouse, 63 CRA, 65–66 credit judgments, 65 economic enfranchisement, 64 government paternalism, 65 joint-stock banks, 63 loan securitization, 66 mass-market retail banking, 66 national and multilateral development agencies, 65 non-credit worthy segments, 66 ownership society, 66 paychecks, 64 premium/reward cards, 66 individual banker accountability, 55 interest reduction, 56 predatory lending, 56 product differentiation, 68–69 public utility, 55, 56 regulatory, capital, and litigation costs, 56 regulatory compliance and fraud losses, 56 savers and investors, 71–73 shell game asset-securitization process, 61 commercial and industrial loans, 62 credible assessment, 62 Dodd-Frank Act, 63 Federal Reserve Bank, 63 free-market creative destruction, 63 globalization, 62–63 Great Depression, 61 Great Moderation, 61 least-regulated jurisdictions, 61 regulatory arbitrage, 61 relationship banking, 62 retail banking revolution, 63 return-on-equity business, 62 rules-based regulation, 61 securitization and market-based funding, 63 supervision vs. rule making, 59–60 unbanking, 70–71 utility-style banking, 56 European Central Bank (ECB), 6, 99, 102–103 F Federal Deposit Insurance Corporation (FDIC), 34 Index Federal Reserve, 101 Finance consumers, 117 American Revolutionary War song, 118 bondholders and money market funds, 138 Bureau of Labor Statistics, 126 business-to-business commerce, 119 consumerism, 118 credit score, 120–121 debt free, 138–139 “dot-com” bubble, 1264 employment and consumer credit, 121–122 Gallup polling organization, 127 Great Society, 126 house prices, 133 “infrastructure”, 119 innovation and education, America advantage, 129 American living standards, 129 global success, 128 high-stakes examinations, 130 industrial policy, 128 student loans, 131 mass-market pottery, 119 money saving, 136–137 New Class, new elite educated caste, 132–133 non-tradable private sector, 127 one’s station in life, 118 overseas trade, 119 pent-up demand, 119 private-sector employment, 125 property taxes, 127 “self-liquidating”, definition, 119 shelter asset bubbles and distorts markets, 133 electoral process, 134 Japanese economy, 135–136 retirement plans and financial advisors, 134 Travellers Club, 133 wealth effect, 133 short-term insurance scheme, unemployment assistance, 127 stock market, 137–138 structural unemployment American economy, 123–125 labor force participation rate, 123 labor markets, Europe, 122 solidarity, 123 three-tiered system, 122 subsidy-based industries, 125 super-safe government debt, 125 technological creativity and economic progress, 117 unionized public-service employees, 125 US job growth, 126 “welfare to work” requirements, 126 You, Inc., 139 Finance-driven economy, 1, 72 anti-capitalism, 2 capitalism, 1 chronic debt crisis, 22 corporate America, 20 current movie artificial bank earnings, 7 asset prices, 6 banking implosions, 6 borrowers and investors connection, 10 borrowing demand, 7 catastrophic financial bubble, 10 civilization, 10 corporatism, 9 democratic crony capitalism, 9 Dodd-Frank act, 8 economic growth and social stability, 10 financial repression, 9 Glass-Steagall Act, 8 human ingenuity, 10 interbank funding markets, 6 low interest rates and easy money, 6 market collapse, 10 money market, 6 overexuberence, 6 overinvestment and speculation, 6 pre-crisis conditions, 8 printing money, 7 private capital, 7 167 168 Index Finance-driven economy (continued) profitability, 7 quantitative easing, 8 recovery, 8 regulation, 8 regulatory capital rules, 8 resources and tools, 9 shell-shocked enterprises and households, 8 end of employment, 21–22 financial leverage magic and poison CEO class, 14–15 consumer debt, 15–16 disconnection problem, 11–12 market bargain, 10 real economy, 10 wealth financialization, 13–14 working capital, 11 global financial crisis, 2 Great Moderation, 16–18 Great Panic, 18–19 household sector agony, 19–20 investor class, 22 Marx, Karl asset bubble, 5 cash nexus, 4 dot-com bubble, 5 economic revolution, 3 First World War, 4 free markets, 3 French Revolution, 3 globalization, 3 Great Depression, 5 liberalism, 3 normalcy, 4 overproduction and speculation, 3 Wall Street, 4, 5 revolutionary socialism, 2 sovereign debt, 8, 22 Finance reconstruction, 142 bank bashing, 146 “bankers”, 142 business model, challenges, 145 Citigroup, 145 cyclical businesses, 143 government management, 142 legitimacy bonus culture, 148–150 privileged opportunity, longestablished bank, 146 short-term share-price manipulation, 148 state and legal systems, 147 stock price, 147 mark-to-market price, 144 “producers”, 143 profession, definition, 163 prudence, 145, 161–163 root-and-branch transformation, 145 talent pool, 144 “the race for talent”, 143 trust cash management, 160 Financial Market Meltdown, 159 FSA, 159 hackneyed term, 159 information asymmetry, 159 non-bank financial service provider, 161 oversold/up-sold products, 159 utility Anglo-Saxon-type banking systems, 156 big data tools, 158 bills-of-exchange market, 150 branch and payment services, 157 clearinghouse creation, 158 core banking, 154 economic value transmission, 150 exchange of claims, 151 fee-income growth, 155 fiat money system, 151 financial intermediation, 150 financial transactions, 157 flexible contractor/subcontractor relationship, 158 information technology, 156 “liquidity premium”, 152 multidivisional/M-form organization, 153 non-interest income, 155 old-media companies, 157 Index overhead value analysis, 154 “privileged opportunity”, 152 quill pen–era practice, 158 sheer utility value, 155 silos, product business, 153 transaction accounts, 152 venture capital industry, 142 “War for Talent”, 143 Financial crises, 23 affordable housing, 24 banking “transmission” mechanism, 43 Basel III process, 50–51 basel process, 27–28 consumer banking(see Consumer banking) Dodd-Frank, 49–50 domestic banking system, 38 European Union, 51–53 FDIC, 40 finance-driven economy’s leverage machine, 43 Financial Market Meltdown, 25 GDP, 38 Government Policy and Central Banks, market meltdown(see Regulation process) government policy failure, 45 “government-sponsored” public companies, 24 Great Depression, 44 GSEs, 24 legal missteps, 47–48 New Deal, 43 panic-stricken markets, 40 political missteps, 45–47 Ponzi scheme, 42 postwar financial order, 25–27 printing money, 38 private profits and socialized losses, 40 private-sector demand, 43 public-sector demand, 42 quantitative approach, 25 TARP, 39 too-big-to-fail institutions, 41 Triple A bonds, 41 US Federal Reserve System, 38 Financial liberalization, 89 Financial Market Meltdown, 25, 61, 89, 109, 159 Financial repression, 9, 78, 111 Financial Services Authority (FSA), 60, 159 Food and Drug Administration (FDA), 69 Fordism, 68 Free-market capitalism, 89 Free markets, 3 French Revolution, 3 Front-end trading systems, 107 FSA.See Financial Services Authority G GDP, 11 “Giro” payments systems, 151 Global imbalance, 96 Globalization, 3 Global whirlwinds, 93 Asia, finance movement cultural differences, 110–111 Financial Market Meltdown, 109 Interest Equalization Tax, 109 language, law, and business culture, 109 primacy, 109 austerity(see Austerity) British Empire, 30 Chimerica, 97 China and United States cross-Pacific economy, 97 foreign interference and aggression, 98 headline growth rates, 97 repression revolution and series, 97–98 Second World War, 98 Smoot-Hawley Tariff, 98 surpluse trade, 97 sustainable development, 98 Chinese ascendancy, 113 clearing and settlement bottleneck, 106–107 Dynastic China, 112 169 Download from Wow!

The markets and the largest investment-banking operations increasingly came to believe that the authorities would step in to prevent any reckoning for financial bets gone wrong. In this sense, the Great Moderation was at least as much a product of governments as it was of markets, something that pains the heart of free-market fundamentalists. The problem is that in a free market, everyone is free to fail. Indeed, something that Joseph Schumpeter called “creative destruction” is essential to economic progress.The Great Moderation was largely a one-way bet for market participants. Financial crises of one sort or another, which affected companies ranging from Japanese and Swedish banks to Long Term Capital, an American hedge fund, continued to occur. In fact, they became more frequent. However, the US Federal Reserve and Treasury were always quick to flood the market with money and slash interest rates in order to limit the damage to the financial 17 18 Chapter 1 | The Rise and Fall of the Finance-Driven Economy economy.

eBook <www.wowebook.com> Distortion of Bank P & Ls and Balance Sheets Banking is often viewed by the uninformed as the very model and engine of capitalism, which is why critics of capitalism choose to occupy Wall Street and the City of London. Actually, banking has always been in many ways a creature of government and politics. Capitalism demands what the great Austrian economist Josef Schumpeter called “creative destruction.” When markets decide which firms deserve money and which don’t, the latter will fail; and along with the failure of firms, whole communities and thousands of workers may suffer real hardship. However, by trial and error, markets will tend to give capital to new, innovative companies, such as Apple, and take it away from companies with no future, such as GM. People want iPads and don’t want Chevy Volts.


Driverless: Intelligent Cars and the Road Ahead by Hod Lipson, Melba Kurman

AI winter, Air France Flight 447, Amazon Mechanical Turk, autonomous vehicles, barriers to entry, butterfly effect, carbon footprint, Chris Urmson, cloud computing, computer vision, connected car, creative destruction, crowdsourcing, DARPA: Urban Challenge, digital map, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Google Earth, Google X / Alphabet X, high net worth, hive mind, ImageNet competition, income inequality, industrial robot, intermodal, Internet of things, job automation, Joseph Schumpeter, lone genius, Lyft, megacity, Network effects, New Urbanism, Oculus Rift, pattern recognition, performance metric, precision agriculture, RFID, ride hailing / ride sharing, Second Machine Age, self-driving car, Silicon Valley, smart cities, speech recognition, statistical model, Steve Jobs, technoutopianism, Tesla Model S, Travis Kalanick, Uber and Lyft, uber lyft, Unsafe at Any Speed

In the 1940s economist Joseph Schumpeter coined the term creative destruction to describe the restructuring process that follows the introduction of a disruptive technology. While this restructuring process touches several major parts of the economy, including equipment used and regulatory structures, its most visible and controversial manifestation is in the destruction of jobs. Economists who are Schumpeterians take a positive view of the cycle of creative destruction. They believe that the net long-term effect of disruptive technology is job creation. Although a disruptive technology may displace an entire sector of workers, Schumpeterian thinking would argue that the long-term effect will be the creation of more and better jobs, as new industries spring out of the ashes of the old one. Proponents of creative destruction point out that as technology destroys old industries, new industries emerge.

Proponents of creative destruction point out that as technology destroys old industries, new industries emerge. Countless examples of creative destruction abound. Desktop-publishing software eliminated typesetting jobs, but it created new market opportunities for creative people and small firms who finally had their own tools to design and publish their own brochures, books, and newsletters. In the travel industry, web sites such as Expedia led to the near-elimination of the occupation of travel agents. Yet when travelers gained the ability to make their own travel arrangements, Expedia also helped spark the creation of a much larger and more active global tourism industry. As artificial-intelligence software and robots become increasingly sophisticated and skilled, however, the notion that the process of creative destruction ushers in newer and better jobs for displaced workers is falling under greater scrutiny.

In contrast, in recent years as the automation of jobs climbs the skill ladder from manual factory jobs to white-collar analytical jobs, it’s harder to find uses for the human workers automation displaces. Because of the efficiencies enabled by modern information technologies, when old jobs go away, frequently the number of new jobs created is far fewer and these new jobs are poorly paid. As more and more future work will be handled by intelligent software and robots, two key questions will determine whether the process of creative destruction winds up eventually being truly creative, or whether its long-term impact will be merely destructive. The first question is whether new jobs are better than the old ones, meaning as secure, interesting, and well paid. The second question involves the length of the period of displacement. Will displaced workers be unemployed for just a few months, or will their displacement stretch on for years?


pages: 387 words: 110,820

Cheap: The High Cost of Discount Culture by Ellen Ruppel Shell

barriers to entry, Berlin Wall, big-box store, business cycle, cognitive dissonance, computer age, creative destruction, Daniel Kahneman / Amos Tversky, delayed gratification, deskilling, Donald Trump, Edward Glaeser, fear of failure, Ford paid five dollars a day, Frederick Winslow Taylor, George Akerlof, global supply chain, global village, Howard Zinn, income inequality, interchangeable parts, inventory management, invisible hand, James Watt: steam engine, Joseph Schumpeter, Just-in-time delivery, knowledge economy, loss aversion, market design, means of production, mental accounting, Monkeys Reject Unequal Pay, Pearl River Delta, Ponzi scheme, price anchoring, price discrimination, race to the bottom, Richard Thaler, Ronald Reagan, side project, Steve Jobs, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas L Friedman, trade liberalization, traveling salesman, ultimatum game, Victor Gruen, washing machines reduced drudgery, working poor, yield management, zero-sum game

Schumpeter, the Harvard economist who in 1943 published the iconic Capitalism, Socialism, and Democracy. The seventh chapter of that work, entitled “The Process of Creative Destruction,” is for many academics a sacred text. “The process of creative destruction,” Schumpeter writes, “is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in.” Creative destruction is an elegantly simple idea describing the industrial mutation of old structures into new ones. The department store evolves from and “creatively destructs” the country store; the auto industry evolves from and replaces the horse and buggy business, automation makes many factory and farm jobs obsolete but creates new jobs in information technology, engineering, healthcare, and biotech. Creative destruction is a critical and necessary driver of progress. In the stampede toward ever greater efficiencies we have come to expect that institutions will get torn down, factories closed, stores shuttered, workers made redundant, and lives detoured.

In the stampede toward ever greater efficiencies we have come to expect that institutions will get torn down, factories closed, stores shuttered, workers made redundant, and lives detoured. And that is as it should be: Nostalgia aside, we know deep down that the good old days were not always so good. Few of us would want our own children operating a dangerous machine in a hot, dirty factory or spending blistering summers under the sun behind a plow. But in the Age of Cheap we have lost our balance: Creative destruction is as destructive as ever. It’s the creative part that is in doubt. “One of the great insights of twentieth-century economics is that you need excessive profits to create innovation,” Harvard trade economist Robert Lawrence told me. “When prices are kept too low, innovation is nearly impossible.” Underlying this is what economists call “perfect competition,” a state characterized by a multitude of buyers and sellers, many products that are essentially interchangeable, and few if any barriers to entry in a given market.

“When a good or service is produced more cheaply abroad, it makes more sense to import it than to make or provide it domestically. This can be difficult for workers who are displaced and need to find jobs in new growing industries. But the economy overall benefits.” Mankiw’s comments echoed those made by former Federal Reserve Chairman Alan Greenspan, by which he reassured workers hurt by outsourcing by saying they “can be confident that new jobs will displace old ones as they always have.” This brand of “creative destruction,” Mankiw, Greenspan, and others have argued, will allow Americans to focus on what we do best: invention and entrepreneurship. On the surface this seems to make sense. The United States is an innovative powerhouse, a place where ideas are born, raised, and coaxed into profitable ventures. Indian and Chinese workers indeed do good work, and they do it cheaply. But what held true for the trade of wine and cloth in the eighteenth century does not necessarily hold true in the post-Internet age.


pages: 385 words: 101,761

Creative Intelligence: Harnessing the Power to Create, Connect, and Inspire by Bruce Nussbaum

3D printing, Airbnb, Albert Einstein, Berlin Wall, Black Swan, Chuck Templeton: OpenTable:, clean water, collapse of Lehman Brothers, creative destruction, Credit Default Swap, crony capitalism, crowdsourcing, Danny Hillis, declining real wages, demographic dividend, disruptive innovation, Elon Musk, en.wikipedia.org, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, follow your passion, game design, housing crisis, Hyman Minsky, industrial robot, invisible hand, James Dyson, Jane Jacobs, Jeff Bezos, jimmy wales, John Gruber, John Markoff, Joseph Schumpeter, Kickstarter, lone genius, longitudinal study, manufacturing employment, Marc Andreessen, Mark Zuckerberg, Martin Wolf, new economy, Paul Graham, Peter Thiel, QR code, race to the bottom, reshoring, Richard Florida, Ronald Reagan, shareholder value, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, six sigma, Skype, Steve Ballmer, Steve Jobs, Steve Wozniak, supply-chain management, Tesla Model S, The Chicago School, The Design of Experiments, the High Line, The Myth of the Rational Market, thinkpad, Tim Cook: Apple, too big to fail, tulip mania, We are the 99%, Y Combinator, young professional, Zipcar

If Americans shifted just half of their combined $30 trillion of investments in multinational conglomerates to local businesses, argues Cortese, “we’d be living in a far different world.” CREATIVE DESTRUCTION AND CREATIVE EDUCATION In Capitalism, Socialism and Democracy, Joseph Schumpeter wrote, “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.” Schumpeter, the father of “creative destruction,” saw a version of capitalism in which entrepreneurs were the central, disruptive energy sustaining economic growth. The process of creative destruction undermined established monopolies and toppled existing big businesses that made profits from older regulatory, organizational, technological, and ideological regimes. We see Schumpeter’s creative destruction thriving in Silicon Valley and among start-ups in general.

See also Knowledge mining kinds of knowledge and, 56–57 in knowledge mining, 44 Ziba Design’s work with Lenovo as, 52–56 Immigrants, embodiment and, 49–50 Impossibilities, what-if framing and, 109–10 Improv comedy troupe, 142–43 Incubators, start-up, 203, 244 India, 68–70, 73–76 Indie Capitalism, 223–50 aspects and potentials of, 247–50 creative destruction, creative education, and, 245–47 economics of creativity and, 37–38, 240–45 financial capitalism vs., 227–37 Hewlett-Packard’s failure to innovate and, 223–27 rise of, 237–40 Individual creativity, 20–24, 27–28 Industrial Technology Research Institute, 61–62 IN: Inside Innovation magazine, 11–12, 122 Inkjet printers, 190–97 Innovation. See also Creative Intelligence (CQ) author’s writing and research on (see also Research, creativity) creative destruction and, 242 disruptive, 28–29, 37, 122 evolving models and methodologies of, 27–33 failure of, in Hewlett-Packard, 223–27 financial capitalism and failure of, 234–37 measurement of, 11–14 rising value for, 263–66 Innovation & Design online channel, 11–12, 96 Innovation Awards, 89–90, 105 Innovation gyms, 122, 123–24, 144 Instability.

People belong to a large and growing number of real and digital communities and play a vast number of roles: consumers, investors, designers, cocreators, makers, thinkers, and collaborators. Significant economic value is generated as a result of the engagements people have within these social networks. Market transactions continue to play an important role, but the social network is paramount in the model. 6. Creative destruction is key to innovation-led economic growth. An economy based on creativity accelerates the rise and fall of companies. The number and kind of start-ups increase dramatically as they become the dominant actors in the economy. In this model, older, bigger companies fail faster if they cannot change their cultures and innovate. IF WE USE THESE POLICIES as building blocks for creating a new economics of creativity model, what policies might flow from it?


pages: 354 words: 105,322

The Road to Ruin: The Global Elites' Secret Plan for the Next Financial Crisis by James Rickards

"Robert Solow", Affordable Care Act / Obamacare, Albert Einstein, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, Bayesian statistics, Ben Bernanke: helicopter money, Benoit Mandelbrot, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Black Swan, blockchain, Bonfire of the Vanities, Bretton Woods, British Empire, business cycle, butterfly effect, buy and hold, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, cellular automata, cognitive bias, cognitive dissonance, complexity theory, Corn Laws, corporate governance, creative destruction, Credit Default Swap, cuban missile crisis, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, disintermediation, distributed ledger, diversification, diversified portfolio, Edward Lorenz: Chaos theory, Eugene Fama: efficient market hypothesis, failed state, Fall of the Berlin Wall, fiat currency, financial repression, fixed income, Flash crash, floating exchange rates, forward guidance, Fractional reserve banking, G4S, George Akerlof, global reserve currency, high net worth, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Isaac Newton, jitney, John Meriwether, John von Neumann, Joseph Schumpeter, Kenneth Rogoff, labor-force participation, large denomination, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, mutually assured destruction, Myron Scholes, Naomi Klein, nuclear winter, obamacare, offshore financial centre, Paul Samuelson, Peace of Westphalia, Pierre-Simon Laplace, plutocrats, Plutocrats, prediction markets, price anchoring, price stability, quantitative easing, RAND corporation, random walk, reserve currency, RFID, risk-adjusted returns, Ronald Reagan, Silicon Valley, sovereign wealth fund, special drawing rights, stocks for the long run, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transfer pricing, value at risk, Washington Consensus, Westphalian system

. … 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. The opening up of new markets … 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. As with many original observations, what seems obvious in hindsight was revolutionary when it was offered. The fact that capitalism is a dynamic, wealth-creating force was long recognized, starting with Adam Smith in 1776, and by the nineteenth-century classical economists. What was new in Schumpeter’s creative destruction was not the creative force, but the destructive force, the idea that capital must be destroyed to unlock resources for new capitalist endeavors. Schumpeter wrote at a critical juncture between the end of the Great Depression and the start of the Second World War.

It is not difficult to reconcile this seeming contradiction between Schumpeter as champion of creative destruction and as supporter of monopoly big business. Schumpeter’s great intuition was that businesses do not compete against one another, they compete against the future. It is the unforeseen, unexpected enterprise of the future that destroys monoliths, not today’s competition or antitrust enforcement. Schumpeter, writing in 1942, anticipated Uber’s disruption of taxi monopolies and Matt Drudge’s demolition of daily newspapers. No business, however large, is safe. What keeps a monopolist up at night is not the competition; it’s the future. Schumpeter’s legacy became captive to his devotees—a common fate of iconoclasts. The creative destruction meme is now commonplace (although it may be more urgent than those who recite the cliché realize).

Schumpeter, in his 1942 classic, Capitalism, Socialism and Democracy, wrote, “Traditional theory … has since the time of Marshall and Edgeworth been discovering an increasing number of exceptions to the old propositions about perfect competition and … free trade, that have shaken that unqualified belief in its virtues cherished by the generation which flourished between Ricardo and Marshall. …” Schumpeter wrote this in an analysis of how large-scale enterprises produce positive externalities that offset the perceived problems of bigness. Schumpeter’s point was that the entrepreneur is not as concerned about static competition as the dynamic forces he called “creative destruction.” The latter drives innovation. Modern analysts make the same point about the benefits of smart protectionist policy. American business is not really competing with foreigners, it’s competing with the future, and losing. The issue is not that Ricardian theory is wrong; it’s that the theory relies on assumptions that don’t conform to the real world, and is therefore useless as a guide to policy.


pages: 588 words: 131,025

The Patient Will See You Now: The Future of Medicine Is in Your Hands by Eric Topol

23andMe, 3D printing, Affordable Care Act / Obamacare, Anne Wojcicki, Atul Gawande, augmented reality, bioinformatics, call centre, Clayton Christensen, clean water, cloud computing, commoditize, computer vision, conceptual framework, connected car, correlation does not imply causation, creative destruction, crowdsourcing, dark matter, data acquisition, disintermediation, disruptive innovation, don't be evil, Edward Snowden, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Firefox, global village, Google Glasses, Google X / Alphabet X, Ignaz Semmelweis: hand washing, information asymmetry, interchangeable parts, Internet of things, Isaac Newton, job automation, Julian Assange, Kevin Kelly, license plate recognition, lifelogging, Lyft, Mark Zuckerberg, Marshall McLuhan, meta analysis, meta-analysis, microbiome, Nate Silver, natural language processing, Network effects, Nicholas Carr, obamacare, pattern recognition, personalized medicine, phenotype, placebo effect, RAND corporation, randomized controlled trial, Second Machine Age, self-driving car, Silicon Valley, Skype, smart cities, Smart Cities: Big Data, Civic Hackers, and the Quest for a New Utopia, Snapchat, social graph, speech recognition, stealth mode startup, Steve Jobs, the scientific method, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, Turing test, Uber for X, uber lyft, Watson beat the top human players on Jeopardy!, WikiLeaks, X Prize

—MITT ROMNEY, FORMER GOVERNOR OF MASSACHUSETTS “Dr. Eric Topol is a pioneer of the medicine of the future and the future is now! Read this book and empower yourself for total well-being.” —DEEPAK CHOPRA “I have experienced Dr. Topol’s healing touch as my personal physician after a 99% heart blockage, in his capacity as cardiology advisor to Men’s Health magazine’s 12 million readers, and as the visionary author of The Creative Destruction of Medicine. With The Patient Will See You Now, he’s extending his healing powers where they’ll do the most good: to the patients themselves. Book an appointment to read it now, and you’ll save yourself a lot of copays later.” —PETER MOORE, EDITOR OF Men’s Health MAGAZINE “Eric Topol’s book focuses us on the most important development in health care today: putting the patient at the center of everything.

Topol writes about the future more effectively than any physician or scientist that I know. If you want to know about what medicine looks like today, you should read this book. But if you want to know what medicine will look like tomorrow, then you must absolutely read this book.” —SIDDHARTA MUHKERJEE, M.D., AUTHOR OF The Emperor of All Maladies: A Biography of Cancer The Patient Will See You Now ALSO BY ERIC TOPOL The Creative Destruction of Medicine Copyright © 2015 by Eric Topol Published by Basic Books, A Member of the Perseus Books Group All rights reserved. Printed in the United States of America. No part of this book may be reproduced in any manner whatsoever without written permission except in the case of brief quotations embodied in critical articles and reviews. For information, address Basic Books, 250 West 57th Street, New York, NY 10107.

But when that occurs, the CEO is ready to plug in and offer guidance and all her experience, knowledge, and wisdom to deal with a problem. Beyond that, the CEO is a kind and compassionate manager, exceptionally good at both communication and multitasking. The CEO is really into IT, too, realizing that both her performance and the company’s are greatly enhanced when everyone can make full use of computer resources. How We Get There In the The Creative Destruction of Medicine,29 I delved into how medicine would become digitized, how we had a new capability of digitizing human beings. But that is a far cry from medicine becoming democratized. As Wael Ghonim wrote in Revolution 2.0, “the power of the people is greater than the people in power.”30 While his book was about the Egypt part of the Arab Spring, enabled by smartphones and social media, the assertion now clearly pertains to medicine, too.


pages: 483 words: 134,377

The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor by William Easterly

"Robert Solow", air freight, Andrei Shleifer, battle of ideas, Bretton Woods, British Empire, business process, business process outsourcing, Carmen Reinhart, clean water, colonial rule, correlation does not imply causation, creative destruction, Daniel Kahneman / Amos Tversky, Deng Xiaoping, desegregation, discovery of the americas, Edward Glaeser, en.wikipedia.org, European colonialism, Francisco Pizarro, fundamental attribution error, germ theory of disease, greed is good, Gunnar Myrdal, income per capita, invisible hand, James Watt: steam engine, Jane Jacobs, John Snow's cholera map, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, M-Pesa, microcredit, Monroe Doctrine, oil shock, place-making, Ponzi scheme, risk/return, road to serfdom, Silicon Valley, Steve Jobs, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, Thomas L Friedman, urban planning, urban renewal, Washington Consensus, WikiLeaks, World Values Survey, young professional

Not even shooting and jailing the opposition, manipulating aid to starve the opposition, seizing the lands of villagers and relocating them against their will, and perpetrating violence against villagers who protested has been enough to shake the technocratic faith that autocrats can be trusted to be benevolent implementers of technical solutions. THE COST OF OPPRESSION Oppression has broad consequences that hold back development. It promotes a lack of trust that inhibits trade and facilitates more oppression. It entrenches a hereditary political and economic elite that blocks the creative destruction necessary for development. Oppressive rulers under-invest in public goods for the majority. This last point will bear on the question raised by the contemporary Ethiopia story on whether autocrats are usually good for reducing child mortality. Of course, the abuses of the Meles regime constitute a very small body of evidence, just as its good performance on child mortality over a few years did in the previous chapter.

Nobody has ever reproached my parents for being traitors to West Virginia, nor has anyone asked them to repay West Virginia for their schooling costs. GHOST COUNTRIES The hostility toward migration as poverty relief in development continues even when migration does benefit those left behind. A big reason for West Virginia’s out-migration was the long-term decline of its coal industry. Among other things, the replacement of trains by automobiles shifted energy demand from coal to petroleum—West Virginia was a victim of creative destruction. Employment in West Virginia coal declined even faster than production did, as mines were mechanized. Other industries suffered badly in West Virginia as its leading industry tanked. Let’s leave behind now the focus only on movement of brains and consider population migration of both skilled and unskilled workers. The huge out-migration in West Virginia suggests that both skilled and unskilled workers were leaving; let’s now lump them together using economists’ jargon as “labor.”

Watt’s spending twelve years improving an invention and a factory owner’s financing him only happened because Watt had gotten a patent on his steam engine. Conventional wisdom is that patents are the main or only way the West solved the inadequate incentives for invention problem. But there is also an even more bottom-up solution that was first sketched out by Joseph Schumpeter early in the twentieth century in his famous theory of “creative destruction.” Schumpeter postulated that an innovator has a jump on everyone else on commercializing his or her own idea. The innovator can develop new products that use his ideas, keeping the idea itself secret from other would-be users. What this means is that he has a monopoly on a product, the new product that resulted from his idea, and as with all monopolies he can realize high profits. The monopoly profits are what give the innovator a generous return for the new idea.


pages: 772 words: 203,182

What Went Wrong: How the 1% Hijacked the American Middle Class . . . And What Other Countries Got Right by George R. Tyler

8-hour work day, active measures, activist fund / activist shareholder / activist investor, affirmative action, Affordable Care Act / Obamacare, bank run, banking crisis, Basel III, Black Swan, blood diamonds, blue-collar work, Bolshevik threat, bonus culture, British Empire, business cycle, business process, buy and hold, capital controls, Carmen Reinhart, carried interest, cognitive dissonance, collateralized debt obligation, collective bargaining, commoditize, corporate governance, corporate personhood, corporate raider, corporate social responsibility, creative destruction, credit crunch, crony capitalism, crowdsourcing, currency manipulation / currency intervention, David Brooks, David Graeber, David Ricardo: comparative advantage, declining real wages, deindustrialization, Diane Coyle, disruptive innovation, Double Irish / Dutch Sandwich, eurozone crisis, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, full employment, George Akerlof, George Gilder, Gini coefficient, Gordon Gekko, hiring and firing, income inequality, invisible hand, job satisfaction, John Markoff, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, lake wobegon effect, light touch regulation, Long Term Capital Management, manufacturing employment, market clearing, market fundamentalism, Martin Wolf, minimum wage unemployment, mittelstand, moral hazard, Myron Scholes, Naomi Klein, Northern Rock, obamacare, offshore financial centre, Paul Samuelson, pension reform, performance metric, pirate software, plutocrats, Plutocrats, Ponzi scheme, precariat, price stability, profit maximization, profit motive, purchasing power parity, race to the bottom, Ralph Nader, rent-seeking, reshoring, Richard Thaler, rising living standards, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, Sand Hill Road, shareholder value, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, Steve Ballmer, Steve Jobs, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transcontinental railway, transfer pricing, trickle-down economics, tulip mania, Tyler Cowen: Great Stagnation, union organizing, Upton Sinclair, upwardly mobile, women in the workforce, working poor, zero-sum game

That era provided the evidence that Smith utilized in arguing that the business community readily colludes against consumers, employees, and the public interest, resulting in higher prices, less innovation, and a reduced variety of goods. That sentiment also informed the works of political scientist Joseph Schumpeter. He fathered the concept of “creative destruction,” which describes the capitalist process: new, innovative competitors—Apple or Google, for example—arise to challenge established giants such as Microsoft or IBM. The level of such enterprise destruction runs about 10 percent annually in the United States; between 1989 and 1997 an average of 611,000 US firms disappeared each year, out of about 5.7 million.62 Antitrust policy is designed explicitly to promote and nurture this creative destruction process by limiting the ability of aging dinosaur firms to metamorphose into conglomerates that restrict competition; without it, capitalism stagnates as dinosaurs stagger on, dominating weaker innovators.

Their success is marked by female labor force participation rates and wages in northern Europe that are the highest in the world. “Flexicurity” to Ensure Northern Europe Labor Market Flexibility The family capitalism countries recognize the vital role played by flexible labor markets in enhancing productivity growth. They are keenly aware that the Schumpeterian creative destruction process means job churning is an inevitable byproduct of highly beneficial entrepreneurial activity and of economies integrated with international trade. And they have taken to heart economist Eichengreen’s admonition. “Trying to prevent this creative destruction from happening is a recipe for less economic growth and less productivity.”6 As economists at the OECD have explained, there is awareness now in countries such as the Netherlands that “strict employment protections reduce labor market fluidity and prolong unemployment.”7 That appreciation has inculcated a culture of labor market experimentation and continual reform in recent decades in northern Europe with names like “flexicurity.”

The consequence becomes what Mario Monti, sometime Prime Minister of Italy and former President of Milan’s Bocconi University, an antitrust expert, derisively terms, “destruction conservation.”63 Families are harmed by less innovation and also lower living standards, because cartels impose price penalties of 20–25 percent or even higher.64 The Reagan era deregulation of antitrust enforcement derailed Schumpeter’s creative destruction process, with investigations and prosecutions rolled back. For example, there are almost 8,000 banks in America, yet the largest 20 came during this period to control 90 percent of the market, and the top three control 44 percent.65 In the 1980s, the ten biggest banks held fewer than 30 percent of total deposits, but held 54 percent of them in 2012. This anticompetitive outcome was described editorially by the Financial Times in 2009: “Weak competition is obvious to customers: financial companies demand high fees that are often calculated according to illogical tariffs.


pages: 355 words: 92,571

Capitalism: Money, Morals and Markets by John Plender

activist fund / activist shareholder / activist investor, Andrei Shleifer, asset-backed security, bank run, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, bonus culture, Bretton Woods, business climate, business cycle, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collapse of Lehman Brothers, collective bargaining, computer age, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, discovery of the americas, diversification, Eugene Fama: efficient market hypothesis, eurozone crisis, failed state, Fall of the Berlin Wall, fiat currency, financial innovation, financial intermediation, Fractional reserve banking, full employment, God and Mammon, Gordon Gekko, greed is good, Hyman Minsky, income inequality, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, labour market flexibility, liberal capitalism, light touch regulation, London Interbank Offered Rate, London Whale, Long Term Capital Management, manufacturing employment, Mark Zuckerberg, market bubble, market fundamentalism, mass immigration, means of production, Menlo Park, money market fund, moral hazard, moveable type in China, Myron Scholes, Nick Leeson, Northern Rock, Occupy movement, offshore financial centre, paradox of thrift, Paul Samuelson, plutocrats, Plutocrats, price stability, principal–agent problem, profit motive, quantitative easing, railway mania, regulatory arbitrage, Richard Thaler, rising living standards, risk-adjusted returns, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, shareholder value, short selling, Silicon Valley, South Sea Bubble, spice trade, Steve Jobs, technology bubble, The Chicago School, The Great Moderation, the map is not the territory, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, too big to fail, tulip mania, Upton Sinclair, Veblen good, We are the 99%, Wolfgang Streeck, zero-sum game

A further consequence of this series of industrialisations is that global inequality has lessened. As Karl Marx rightly perceived, industrial capitalism has always been inherently unstable, which is the first and most palpable defect of the system. The cycle of profit, speculation, irrational exuberance, stock market panic and recession has been an endemic feature of capitalism since the industrial revolution began. Creative destruction, the process identified by the Austrian-American economist Joseph Schumpeter as the essential dynamic of capitalism, has long been troublesome for those thrown out of work as a result of increasing competition and technological innovation. It also subverts the sense of community. And today, not only is the business cycle made worse by ill-judged monetary policies and manic bankers – there have been more than 100 major banking crises worldwide in the past three decades – but globalisation and economic interdependence have caused basic manufacturing industries to evacuate wholesale from the developed to the developing world, at a high cost in lost jobs.

That said, the book undoubtedly satisfies the market test, since it remains one of the publishing world’s outstanding bestsellers.25 If there is now a more widespread acceptance that the money motive is not invariably reprehensible, there are caveats. For some, like Keynes, the motive could still be highly distasteful. In forecasting how the world might look to his generation’s grandchildren, he wrote that the love of money would ultimately be recognised as ‘a somewhat disgusting morbidity’. For others, such as Joseph Schumpeter, the economist best known for identifying creative destruction as the motor of capitalism, there remained a question as to how far the profit-maximising business person could be regarded as an admirable role model. He argued that something was lost in the transition from a society governed by aristocrats, whose values were essentially military, to an industrial age; and, unlike Thomas Carlyle, he saw the businessman as woefully unheroic: With the utmost ease and grace the lords and knights metamorphosed themselves into courtiers, administrators, diplomats, politicians and into military officers of a type that had nothing whatever to do with that of the medieval knight.

And that is why resilience in an entrepreneur is more important than brilliance – grit trumps almost every other trait.’29 Nowadays there is what I would call grudging assent to the proposition that entrepreneurship has a vital role in generating economic growth, an idea that was first given its proper due by the Austrian school of economists in the twentieth century. Joseph Schumpeter, in particular, lauded the role of entrepreneurs in the capitalist process of creative destruction, whereby inefficient businesses are wiped out in the downturn of the economic cycle, and new, more competitive businesses emerge. The Austrians were bested in argument by Keynes in the 1930s on the question of whether to rely on laissez-faire, or on the monetary and fiscal activism that Keynes preferred, as a remedy for unemployment in the Great Depression. They were consequently out of fashion for decades afterwards.


pages: 486 words: 150,849

Evil Geniuses: The Unmaking of America: A Recent History by Kurt Andersen

affirmative action, Affordable Care Act / Obamacare, airline deregulation, airport security, always be closing, American ideology, American Legislative Exchange Council, anti-communist, Apple's 1984 Super Bowl advert, artificial general intelligence, autonomous vehicles, basic income, Bernie Sanders, blue-collar work, Bonfire of the Vanities, bonus culture, Burning Man, call centre, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, centre right, computer age, coronavirus, corporate governance, corporate raider, COVID-19, Covid-19, creative destruction, Credit Default Swap, cryptocurrency, deindustrialization, Donald Trump, Elon Musk, ending welfare as we know it, Erik Brynjolfsson, feminist movement, financial deregulation, financial innovation, Francis Fukuyama: the end of history, future of work, game design, George Gilder, Gordon Gekko, greed is good, High speed trading, hive mind, income inequality, industrial robot, interchangeable parts, invisible hand, Isaac Newton, James Watt: steam engine, Jane Jacobs, Jaron Lanier, Jeff Bezos, jitney, Joan Didion, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, knowledge worker, low skilled workers, Lyft, Mark Zuckerberg, market bubble, mass immigration, mass incarceration, Menlo Park, Naomi Klein, new economy, Norbert Wiener, Norman Mailer, obamacare, Peter Thiel, Picturephone, plutocrats, Plutocrats, post-industrial society, Powell Memorandum, pre–internet, Ralph Nader, Right to Buy, road to serfdom, Robert Bork, Robert Gordon, Robert Mercer, Ronald Reagan, Saturday Night Live, Seaside, Florida, Second Machine Age, shareholder value, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, Stewart Brand, strikebreaker, The Death and Life of Great American Cities, The Future of Employment, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Tim Cook: Apple, too big to fail, trickle-down economics, Tyler Cowen: Great Stagnation, Uber and Lyft, uber lyft, union organizing, universal basic income, Unsafe at Any Speed, urban planning, urban renewal, very high income, wage slave, Wall-E, War on Poverty, Whole Earth Catalog, winner-take-all economy, women in the workforce, working poor, young professional, éminence grise

* * * — Joseph Schumpeter was a brilliant economist at Harvard in the first half of the twentieth century who approved of entrepreneurs but also thought capitalism would eventually be replaced by some kind of democratic socialism—not through workers’ uprisings but by means of a subtle, nonviolent process. The “perennial gale of creative destruction” would drive this evolution of advanced economic systems, he wrote (without italics) in 1942, right after the Depression, “the same process of industrial mutation—if I may use that biological term—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.” I feel sorry for Schumpeter, who died in 1950, because three decades after his death, with the rise of new-fangled old-fashioned free-market mania, he got famous when that phrase was revived and reduced to a meme, repeated endlessly to explain and justify the sudden obsolescence of blue-collar production workers (and then the lesser white-collar workers).

I feel sorry for Schumpeter, who died in 1950, because three decades after his death, with the rise of new-fangled old-fashioned free-market mania, he got famous when that phrase was revived and reduced to a meme, repeated endlessly to explain and justify the sudden obsolescence of blue-collar production workers (and then the lesser white-collar workers). “Creative destruction” was popularized in a way Schumpeter hadn’t meant it, as a celebratory sorry-suckers catchphrase for the way rootin’-tootin’ Wild West American capitalism permanently is, where the rich and tough and lucky win and losers lose hard. In the 1980s the term and its distorted meaning were enthusiastically embraced by the right and accepted with a shrug by college-educated liberals whose livelihoods didn’t look likely to be creatively destroyed anytime soon by competition from computers or foreigners. We liberals had heard of Schumpeter, and we knew a bit about the industrial revolutions at the turns of the previous two centuries.

It was exactly that web of countervailing forces that, at exactly that moment, was being systematically weakened. The fraction of all American workers employed in manufacturing peaked in the 1950s, but the actual number of those jobs had held steady through the 1960s and ’70s. In 1980 manufacturing workers’ salaries and benefits still provided the livings for a third of all Americans. But then came this latest wave of creative destruction, and that was that. The collapse of the steel industry came right around 1980—spectacularly, because most of us hadn’t seen it coming, and steel plants were so gigantic, and geographically concentrated, each one the economic foundation of a town or city or whole region. Those were well-paid union jobs that had seemed secure. In and around Pittsburgh during the 1980s, unemployment rates at their lingering height—15 percent, 20 percent, 27 percent—were the same as the rates all over America during the Depression of the 1930s (and once again in 2020).


pages: 265 words: 74,941

The Great Reset: How the Post-Crash Economy Will Change the Way We Live and Work by Richard Florida

banking crisis, big-box store, blue-collar work, business cycle, car-free, carbon footprint, collapse of Lehman Brothers, congestion charging, creative destruction, deskilling, edge city, Edward Glaeser, falling living standards, financial innovation, Ford paid five dollars a day, high net worth, Home mortgage interest deduction, housing crisis, if you build it, they will come, income inequality, indoor plumbing, interchangeable parts, invention of the telephone, Jane Jacobs, Joseph Schumpeter, knowledge economy, low skilled workers, manufacturing employment, McMansion, Menlo Park, Nate Silver, New Economic Geography, new economy, New Urbanism, oil shock, Own Your Own Home, pattern recognition, peak oil, Ponzi scheme, post-industrial society, postindustrial economy, reserve currency, Richard Florida, Robert Shiller, Robert Shiller, secular stagnation, Silicon Valley, Silicon Valley startup, social intelligence, sovereign wealth fund, starchitect, the built environment, The Wealth of Nations by Adam Smith, Thomas L Friedman, total factor productivity, urban decay, urban planning, urban renewal, white flight, young professional, Zipcar

Despite the massive deprivation and human suffering they caused, these crises played a fundamental role in propelling the economy forward. They were critical moments when existing economic and social arrangements were remade, enabling new periods of economic growth. Born in the same year that Marx died, the great theorist of innovation and entrepreneurship, Joseph Schumpeter, used the phrase “creative destruction” to describe how economic crises sweep away old firms and outmoded economic systems and practices, clearing the way for entrepreneurs to introduce new technologies and even entirely new industries and setting into motion a new era of growth. John Maynard Keynes saw in these crises the need for government spending to essentially protect capitalism from itself. With the private sector flat on its back, government spending was the only way to keep capitalism going and get the economy back on its feet.

Locks, mechanical reapers, typewriters, sewing machines, and eventually bicycles and engines,” notes the economic historian Joel Mokyr.5 Adding to this were major strides forward in continuous-flow technology, initially pioneered in the huge meat-processing factories of Chicago, where it was initially used to speed up the disassembly of livestock, which paved the way for modern mass production à la Henry Ford. These innovations, and many others that were developed during the First Reset, actually helped shape Schumpeter’s theory of creative destruction. Innovation does not slow down during crises, but because the economy is depressed, they tend to accumulate and bunch up. They then come bursting forward as the economy recovers.6 “Well, one reason why upturns follow downturns is that downturns tend to overshoot,” explains the Nobel Prize–winning economist Edmund Phelps regarding the way that crises spur invention and lead to the formation of new businesses.

The Great Depression set the stage for the Second Great Reset. Just as Hansen and others were advancing this theory and capturing the attention of policy makers and the public, his Harvard colleague Joseph Schumpeter was developing his own, more accurate assessment of the role of innovation in overcoming economic crises. Schumpeter, notes Field, had a much “better fix on what was going on. He developed his homage to the power of creative destruction against the backdrop of what has turned out to be the most technologically dynamic epoch of the twentieth century.”4 Field’s contention about the innovativeness of the Second Reset is based on detailed and meticulous research. Delving deeply into the statistical record, he tracks trends in innovation and in total factor productivity over the entire twentieth century, and examines in detail the rise of specific new technologies.


pages: 481 words: 120,693

Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else by Chrystia Freeland

activist fund / activist shareholder / activist investor, Albert Einstein, algorithmic trading, assortative mating, banking crisis, barriers to entry, Basel III, battle of ideas, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Boris Johnson, Branko Milanovic, Bretton Woods, BRICs, business climate, call centre, carried interest, Cass Sunstein, Clayton Christensen, collapse of Lehman Brothers, commoditize, conceptual framework, corporate governance, creative destruction, credit crunch, Credit Default Swap, crony capitalism, Deng Xiaoping, disruptive innovation, don't be evil, double helix, energy security, estate planning, experimental subject, financial deregulation, financial innovation, Flash crash, Frank Gehry, Gini coefficient, global village, Goldman Sachs: Vampire Squid, Gordon Gekko, Guggenheim Bilbao, haute couture, high net worth, income inequality, invention of the steam engine, job automation, John Markoff, joint-stock company, Joseph Schumpeter, knowledge economy, knowledge worker, liberation theology, light touch regulation, linear programming, London Whale, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, Mikhail Gorbachev, Moneyball by Michael Lewis explains big data, NetJets, new economy, Occupy movement, open economy, Peter Thiel, place-making, plutocrats, Plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, postindustrial economy, Potemkin village, profit motive, purchasing power parity, race to the bottom, rent-seeking, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, self-driving car, short selling, Silicon Valley, Silicon Valley startup, Simon Kuznets, Solar eclipse in 1919, sovereign wealth fund, starchitect, stem cell, Steve Jobs, the new new thing, The Spirit Level, The Wealth of Nations by Adam Smith, Tony Hsieh, too big to fail, trade route, trickle-down economics, Tyler Cowen: Great Stagnation, wage slave, Washington Consensus, winner-take-all economy, zero-sum game

Consider, by way of example, how Warren Buffett, the most hallowed figure in America’s pantheon of officially virtuous billionaires, described his investing philosophy in his 2008 letter to shareholders. “A truly great business must have an enduring ‘moat’ that protects excellent returns on invested capital,” Buffett explained. “Though capitalism’s ‘creative destruction’ is highly beneficial for society, it precludes investment certainty. A moat that must be continuously rebuilt will eventually be no moat at all.” Like the Venetians who put themselves in the Book of Gold, Buffett understands that the creative destruction of an open economy is good for the country as a whole; but smart capitalists like him prefer to be defended by uncrossable moats. Buffett goes on to explain that his preferred moats are being a low-cost producer or possessing a well-known worldwide brand. But favorable government regulation can create a powerful moat, too.

In egalitarian America, and even in aristocratic Europe, the industrial revolution eventually lifted all boats, but it also widened the social divide. One reason that process was traumatic was that it was pretty dreadful to be a loser—from their personal perspective, the Luddites, skilled weavers who wrecked the machines that made their trade unnecessary, had a point. But, as in all meritocratic 1 percent societies, the creative destruction of the industrial revolution was also traumatic for the many who made a good-faith effort to join the party but failed. Indeed, it was the pathos of these would-be winners that inspired Mark Twain to write the novel that gave the era its name. As Twain and coauthor Charles Dudley Warner explained in a preface to the London edition of their novel, The Gilded Age: “In America nearly every man has his dream, his pet scheme, whereby he is to advance himself socially or pecuniarily.

Rather than be worried by such developments, we should be both encouraged and hopeful. Vast swaths of mankind are having their chance to enjoy some of the fruits of wealth creation. This is the big story. Mr. O’Neill’s empathy for the prospering people of China and India isn’t the only reason to be optimistic about the twin gilded ages. Another is that the experience of the past two centuries has taught us that, with time, the creative destruction of capitalism inevitably brings an overall improvement in everyone’s standard of living. That was what John Baranowski, the general manager of accounting and operations at Greyhound Lines, the bus company based in Dallas, Texas, argued in reply to an essay by W. Brian Arthur, a professor at the Santa Fe Institute, about the computer revolution and the rise of a second economy in which most of the work is done by machines talking to other machines, with little intervention by humans.


pages: 590 words: 153,208

Wealth and Poverty: A New Edition for the Twenty-First Century by George Gilder

"Robert Solow", affirmative action, Albert Einstein, Bernie Madoff, British Empire, business cycle, capital controls, cleantech, cloud computing, collateralized debt obligation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, deindustrialization, diversified portfolio, Donald Trump, equal pay for equal work, floating exchange rates, full employment, George Gilder, Gunnar Myrdal, Home mortgage interest deduction, Howard Zinn, income inequality, invisible hand, Jane Jacobs, Jeff Bezos, job automation, job-hopping, Joseph Schumpeter, knowledge economy, labor-force participation, longitudinal study, margin call, Mark Zuckerberg, means of production, medical malpractice, minimum wage unemployment, money market fund, money: store of value / unit of account / medium of exchange, Mont Pelerin Society, moral hazard, mortgage debt, non-fiction novel, North Sea oil, paradox of thrift, Paul Samuelson, plutocrats, Plutocrats, Ponzi scheme, post-industrial society, price stability, Ralph Nader, rent control, Robert Gordon, Ronald Reagan, Silicon Valley, Simon Kuznets, skunkworks, Steve Jobs, The Wealth of Nations by Adam Smith, Thomas L Friedman, upwardly mobile, urban renewal, volatility arbitrage, War on Poverty, women in the workforce, working poor, working-age population, yield curve, zero-sum game

By 1910 the open hearth process, with its radically different capital plant, had usurped Bessemer and had taken over some two-thirds of the steel market in the United States. As Schumpeter so memorably wrote, “Creative destruction is the essential fact about capitalism... it 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 consumer goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.”3 In the struggles of creative destruction neither large nor small companies have a decisive advantage. In general large companies are most valuable in making incremental (though cumulatively very large) productivity improvements and in extending their markets into the world economy, where political and financial clout are often more important than innovation.

Although any particular small firm may be less creative than a large corporation, the millions of small businesses together are the prime source of creative destruction—the chief initiators of valuable change. The very virtues of size—the economies of scale they offer—are the corollary of their vices: their huge and settled investments in particular capital and management practices. Without expressing any hostility toward the large corporations, one can maintain that the struggle between past and future is in part a struggle between David and Goliath, and this struggle will never end. Although Schumpeter himself came to underestimate the changeless implications of the imperative of change—and many contemporary economists astonishingly imagine that we are now entering a stationary or stagnant technological age—creative destruction is always the essence of growth. From this fact arises the central question about any system of political economy, any platform of a political party, any inspiring scheme of leadership: will it allow the future to prevail?

The more comprehensive the regulatory systems, the more surely they will be dominated by mediocrities, and the more surely mediocre will be the growth of the U.S. economy. Excessive regulation to save us from risks will create the greatest danger of all: a stagnant society in a changing world. The choice is not between comfortable equilibrium and reckless progress. It is between random deterioration by time and change and creative destruction by human genius. Our current regulatory apparatus is in danger of becoming an enemy of creative destruction. Thus the EPA has relentlessly obstructed the use of new biological insecticides—pheromones, pesticidal bacteria, and other organic pest controllers of the sort celebrated by Rachel Carson as potential replacements for DDT. This stance led to continued use of chemicals such as parathion, which is far more poisonous and destructive than DDT, although most of the new biological substances pose no environmental threat at all.


pages: 460 words: 131,579

Masters of Management: How the Business Gurus and Their Ideas Have Changed the World—for Better and for Worse by Adrian Wooldridge

affirmative action, barriers to entry, Black Swan, blood diamonds, borderless world, business climate, business cycle, business intelligence, business process, carbon footprint, Cass Sunstein, Clayton Christensen, cloud computing, collaborative consumption, collapse of Lehman Brothers, collateralized debt obligation, commoditize, corporate governance, corporate social responsibility, creative destruction, credit crunch, crowdsourcing, David Brooks, David Ricardo: comparative advantage, disintermediation, disruptive innovation, don't be evil, Donald Trump, Edward Glaeser, Exxon Valdez, financial deregulation, Frederick Winslow Taylor, future of work, George Gilder, global supply chain, industrial cluster, intangible asset, job satisfaction, job-hopping, joint-stock company, Joseph Schumpeter, Just-in-time delivery, Kickstarter, knowledge economy, knowledge worker, lake wobegon effect, Long Term Capital Management, low skilled workers, Mark Zuckerberg, McMansion, means of production, Menlo Park, mobile money, Naomi Klein, Netflix Prize, Network effects, new economy, Nick Leeson, Norman Macrae, patent troll, Ponzi scheme, popular capitalism, post-industrial society, profit motive, purchasing power parity, Ralph Nader, recommendation engine, Richard Florida, Richard Thaler, risk tolerance, Ronald Reagan, science of happiness, shareholder value, Silicon Valley, Silicon Valley startup, Skype, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, Steven Levy, supply-chain management, technoutopianism, The Wealth of Nations by Adam Smith, Thomas Davenport, Tony Hsieh, too big to fail, wealth creators, women in the workforce, young professional, Zipcar

In today’s knowledge economy, educated émigrés are at the cutting edge of innovation. They create more firms than other people, as Silicon Valley demonstrates; circulate ideas, money, and skills; fill skills gaps; and mix and match knowledge from different parts of the world. A third thing that policymakers need to do is free their mind of one of Schumpeter’s most bewitching phrases: creative destruction. Creative destruction implies that the destructive part of entrepreneurship is just as weighty as the creative part. This is unnecessarily harsh. Amar Bhide points out that a great deal of creation is of the nondestructive variety. Rather than displacing existing products and services, many innovations promote and satisfy new demands. William Nordhaus, an economist at Yale University, points out that about 70 percent of the goods and services consumed in 1991 bore little relationship to the goods and services consumed in 1891.

I have little doubt that we are at the beginning of a new management revolution that will shift the global balance of power just as powerfully as the rise of Japan did thirty years ago. Part four takes a closer look at the great debates that this management revolution has unleashed. How do you combine knowledge, learning, and, perhaps the greatest management buzzword of the current era, innovation (chapter nine)? How do companies steer a straight course in an era when old-fashioned strategic planning has fallen out of favor and the gale of creative destruction is raging as never before (chapter ten)? What does globalization actually mean for today’s hassled business people (chapter eleven)? Chapter twelve ponders what all this means for the boardroom. Are all these management ideas putting too much pressure on boards and making leadership impossible? And what exactly are companies for? Are they responsible to their shareholders alone or to a wider group of stakeholders?

The former McKinseyite now preaches “the sublime pleasures of modestly organized anarchy.” Some of Peters’s writing can be read as a long hymn of praise to California’s Silicon Valley (“through luck I ended up in Santa Clara county,” he once wrote, “a big god-awful mess populated by failures”).9 California’s computer industry has generated an extraordinary entrepreneurial, freewheeling, convention-busting management style. Schumpeter’s phrase “creative destruction” might have been minted to describe the area, with more than three hundred companies founded every year and almost as many going out of business. If a company succeeds, it is relatively easy to attract people and capital; if it fails, bankruptcy is a badge of honor rather than, as it is in many countries, a permanent black mark; the result is that people and capital are recycled quickly and efficiently to take advantage of changes in fashion or breakthroughs in technology.


pages: 459 words: 138,689

Slowdown: The End of the Great Acceleration―and Why It’s Good for the Planet, the Economy, and Our Lives by Danny Dorling, Kirsten McClure

Affordable Care Act / Obamacare, Berlin Wall, Bernie Sanders, Boris Johnson, British Empire, business cycle, capital controls, clean water, creative destruction, credit crunch, Donald Trump, drone strike, Elon Musk, en.wikipedia.org, Flynn Effect, full employment, future of work, gender pay gap, global supply chain, Google Glasses, Henri Poincaré, illegal immigration, immigration reform, income inequality, Intergovernmental Panel on Climate Change (IPCC), Internet of things, Isaac Newton, James Dyson, jimmy wales, John Harrison: Longitude, Kickstarter, low earth orbit, Mark Zuckerberg, market clearing, Martin Wolf, mass immigration, means of production, megacity, meta analysis, meta-analysis, mortgage debt, nuclear winter, pattern recognition, Ponzi scheme, price stability, profit maximization, purchasing power parity, QWERTY keyboard, random walk, rent control, rising living standards, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, Scramble for Africa, sexual politics, Skype, Stephen Hawking, Steven Pinker, structural adjustment programs, the built environment, Tim Cook: Apple, transatlantic slave trade, trickle-down economics, very high income, wealth creators, wikimedia commons, working poor

As one group of economists recently explained: “The slowdown is real, and . . . while many factors matter, it can be largely explained by a slowdown of investment, an increasing gap between frontier and laggard firms, a slowdown in trade, and technological change. An apparent paradox, which contrasts the slowdown in productivity growth with accelerating technological change, may be explained by mismeasurement, implementation lags for technologies, and creative destruction processes.”16 What they did not say is that they don’t really know why things are slowing. As conventional economists, they still think there should be acceleration and that acceleration is good, so they try to explain away the slowdown as the result of recent “creative destruction,” the lull before yet another new capitalist dawn and a return to acceleration. Creative destruction, an idea that was devised very recently by an economist, is itself also now dying away. There is nothing creative about destruction, and nothing stable in pinning your hopes on slowdown being a mirage.

The past few generations have seen great progress as well as great suffering, including the worst of all wars in terms of fatalities, genocides, and the most despicable of all human behaviors—including the planning and construction required for the mass nuclear annihilation of our species. It may take us some time to accept that we now face a future of fewer discoveries, fewer new gizmos, and fewer “great men.” But is this such a bitter pill to swallow? We will also see fewer despots, less destruction, and less extreme poverty. And we will never again worship the “creative destruction” that twentieth-century economists so stupidly lauded at the height of the great acceleration. That was the bizarre idea that everything got better as firms went bust because only firms that deserved to go under did so. This nihilistic rhetoric was logical according to their weird (but at the time mainstream) survival-of-the-fittest theory of corporate evolution. Given that we are still being taught that scientists keep on discovering great things at an ever-accelerating rate, it will initially be very hard for many people to accept what they might at first see as the gloomy prospect of slowdown.

Since around the year 2000, there has been negligible growth in the development of new classes of invention in the United States, despite the tendency there to patent almost any new idea, despite that country’s still growing population, and despite the even more rapid growth of its universities and research and development establishments. Even patenting, after building up a head of steam, appears to have flatlined. A continual steady increase in innovation now requires ever-greater investment to produce any substantial results.17 Much of the current slowdown is still being described as creative destruction, and as the process of “market clearing,” wherein the obsolete is perpetually replaced by the new, as if the capitalist transition were some end-of-history process that we will always be stuck in. Financial analysts make arrogant claims based on the 1980s and 1990s economics they learned at school, failing to spot the new reality. They repeat a particular mantra in the hope that they will be taken seriously as great soothsayers.


pages: 470 words: 130,269

The Marginal Revolutionaries: How Austrian Economists Fought the War of Ideas by Janek Wasserman

Albert Einstein, American Legislative Exchange Council, anti-communist, battle of ideas, Berlin Wall, Bretton Woods, business cycle, collective bargaining, Corn Laws, correlation does not imply causation, creative destruction, David Ricardo: comparative advantage, different worldview, Donald Trump, experimental economics, Fall of the Berlin Wall, floating exchange rates, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, Gunnar Myrdal, housing crisis, Internet Archive, invisible hand, John von Neumann, Joseph Schumpeter, laissez-faire capitalism, liberal capitalism, market fundamentalism, mass immigration, means of production, Menlo Park, Mont Pelerin Society, New Journalism, New Urbanism, old-boy network, Paul Samuelson, Philip Mirowski, price mechanism, price stability, RAND corporation, random walk, rent control, road to serfdom, Robert Bork, rolodex, Ronald Coase, Ronald Reagan, Silicon Valley, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, trade liberalization, union organizing, urban planning, Vilfredo Pareto, Washington Consensus, zero-sum game, éminence grise

Socialism was technically feasible and seemed a logical consequence of industrial capitalism, yet the restrictions required to maintain it made repression a virtual certainty and democracy unattainable.29 At the heart of Schumpeter’s capitalist defense was creative destruction. “The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to the factory . . . incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new own. This process of Creative Destruction is the essential fact of capitalism.” Creative destruction has become Schumpeter’s most lasting contribution. For many people, it captures capitalism’s relentless energy and revolutionary power that boosters applaud and detractors deplore. In extolling this vitality, Schumpeter also leveled a hearty criticism against his economist colleagues, whose static models of perfect competition and complete information, of partial and general equilibria, possessed little explanatory power for a dynamic world.30 In making a normative argument for capitalism, Schumpeter went beyond the more staid tone of Business Cycles.

He developed this concept from Böhm’s entrepreneur and Wieser’s notion of speculative behavior. Like his predecessors, Schumpeter recognized that some individuals take greater risks to acquire more goods. In pressing their advantage, they transform values and disrupt economic stasis. This was how capitalism functioned best, ensuring constant change and future opportunity. Schumpeter called this process “creative destruction,” which served as the basis for his theory of innovation and development and for his most famous theoretical contribution.42 By the time Schumpeter was thirty, he had established himself as the most important young economist in the Habsburg Empire. His elders, Böhm and Wieser, recommended him for positions and saluted his intellect and ambition. However, each book also elicited vituperative criticisms from them—Wieser on Wesen and Böhm on Theory.

In the end, Schumpeter defended the capitalist process, even in the face of the Great Depression and the “end of laissez-faire”: “Capitalism and its civilization may be decaying, shading off into something else, or tottering toward a violent death. . . . But the world crisis does not prove it and has, in fact, nothing to do with it. It was not a symptom of a weakening or a failure of the system.” Schumpeter railed against efforts to dampen the creative destruction of capitalism, especially New Deal programs and Keynesian economics: “Without that change or, more precisely, that kind of change which we have called evolution, capitalist society cannot exist; . . . without innovations, no entrepreneurs; without entrepreneurial achievement, no capitalist returns and no capitalist propulsion. The atmosphere of industrial revolutions—of ‘progress’—is the only one in which capitalism can survive.”23 Despite the book’s sweeping scope, vast erudition, and hortatory rhetoric, Business Cycles misfired.


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The Digital Doctor: Hope, Hype, and Harm at the Dawn of Medicine’s Computer Age by Robert Wachter

"Robert Solow", activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, AI winter, Airbnb, Atul Gawande, Captain Sullenberger Hudson, Checklist Manifesto, Chuck Templeton: OpenTable:, Clayton Christensen, collapse of Lehman Brothers, computer age, creative destruction, crowdsourcing, deskilling, disruptive innovation, en.wikipedia.org, Erik Brynjolfsson, everywhere but in the productivity statistics, Firefox, Frank Levy and Richard Murnane: The New Division of Labor, Google Glasses, Ignaz Semmelweis: hand washing, Internet of things, job satisfaction, Joseph Schumpeter, Kickstarter, knowledge worker, lifelogging, medical malpractice, medical residency, Menlo Park, minimum viable product, natural language processing, Network effects, Nicholas Carr, obamacare, pattern recognition, peer-to-peer, personalized medicine, pets.com, Productivity paradox, Ralph Nader, RAND corporation, Second Machine Age, self-driving car, Silicon Valley, Silicon Valley startup, six sigma, Skype, Snapchat, software as a service, Steve Jobs, Steven Levy, the payments system, The Wisdom of Crowds, Thomas Bayes, Toyota Production System, Uber for X, US Airways Flight 1549, Watson beat the top human players on Jeopardy!, Yogi Berra

And that will turn on how closely healthcare hews to the normal laws of thermodynamics of the capitalist economy. The business model of “creative destruction” was first described by Austrian economist Joseph Schumpeter in 1942. It holds that a key driver of corporate innovation is the knowledge that the companies that produce the most value will win, and the rest will be destroyed. The theory—a fundamental component of Christensen’s notion of disruptive innovation—is, in essence, economic Darwinism. Were such forces fully unleashed in healthcare, they would clearly drive not only the adoption of technology, but a headlong effort to develop and implement all the changes in work flow, staffing, and culture that are associated with getting the best results from these expensive digital tools. In his 2012 book, The Creative Destruction of Medicine, Eric Topol of the Scripps Clinic argued that healthcare is on the cusp of being “Schumpetered,” with information technology playing a crucial role.

Drucker, “The Coming of the New Organization,” Harvard Business Review, January 1988. 250 “Organizational factors that unlock the value of IT” E. Brynjolfsson and L. M. Hitt, “Beyond the Productivity Paradox: Computers Are the Catalyst for Bigger Changes,” Communications of the ACM 41:49–55 (1998). 250 The business model of “creative destruction” J. Schumpeter, Capitalism, Socialism, and Democracy (New York: Harper & Row, 1942). 250 In his 2012 book … Eric Topol E. Topol, The Creative Destruction of Medicine: How the Digital Revolution Will Create Better Health Care (New York: Basic Books, 2012). 252 In my own division of 60 hospitalists http://hospitalmedicine.ucsf.edu/home/index.html. 253 Today at UCSF, many specialty questions are answered R. Vesely, “Expanding Access to Specialty Care,” University of California, July 30, 2014, available at http://www.university ofcalifornia.edu/news/expanding-access-specialty-care.

., 9–10, 11–12, 17 Bush, Jonathan, 89, 226–233 Carr, Nicholas, 275 case-mix adjustment, 40 Cedars-Sinai Medical Center, 67–68 CellScope, 240–241, 242 Cerner, 8, 86, 187, 222, 231 Chan, Benjamin, 139–141, 149–153, 155–157 Chang, Paul, 53, 62 the chart, 44–45 The Checklist Manifesto (Gawande), 121–122 Christensen, Clay, 12, 61, 217, 229 clinical research, 263–264 clinical trials, 33 clinicopathologic correlation, 31 Clinton, Hillary, 11 Clinton, William “Bill”, 9, 189 Code Blue, 2–4 Codman, Ernest, 36 cognitive computing, 146 cognitive load, 150–151 complementary innovations, 245 computer systems, replacing the physician’s brain, 93–104 computerized decision support for clinicians, 248, 251, 260 computerized provider order entry (CPOE), 130 “Connecting for Health” initiative, 10, 17 cookbook medicine, 120 Cramer, Jim, 233 creative destruction, 250–251 The Creative Destruction of Medicine (Topol), 250 CT scans, 50–51 quality of images, 52–53 stacking, 53 data. See big data data entry, 74 See also scribes data janitors, 117 data wrangling, 117 “death panel” canard, 15 deBronkart, Dave, 198 Delbanco, Tom, 172–178 DeSalvo, Karen, 115–116, 216–217 deskilling, 275 Dhaliwal, Gurpreet, 99, 110, 112 diagnosis, 94–104 See also Isabel DICOM, 51 differential diagnoses, 97 disruptive innovation, 61, 217 distractions, 83–84 doctor visits, 263 doctor-patient relationships, 29–30, 173–174 and technology, 27–28 Doctors and Their Patients (Shorter), 30 doctor’s notes, 30–34, 268 the faceless note, 78–80 See also medical records Donabedian, Avedis, 23 dosage errors, 127–130 See also Pablo Garcia medical error case dosage limits, 133–134 Dougherty, Michelle, 82 Doximity, 238 Doyle, Arthur Conan, 97 Dr.


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Rebel Cities: From the Right to the City to the Urban Revolution by David Harvey

Bretton Woods, business cycle, collateralized debt obligation, commoditize, creative destruction, David Graeber, deindustrialization, financial innovation, Guggenheim Bilbao, Hernando de Soto, housing crisis, illegal immigration, indoor plumbing, invisible hand, Jane Jacobs, late capitalism, Long Term Capital Management, market bubble, market fundamentalism, means of production, moral hazard, mortgage debt, mortgage tax deduction, New Urbanism, Ponzi scheme, precariat, profit maximization, race to the bottom, Robert Shiller, Robert Shiller, special economic zone, the built environment, the High Line, The Wealth of Nations by Adam Smith, transcontinental railway, urban planning, We are the 99%, William Langewiesche, Works Progress Administration

Even relatively conservative urban administrations are seeking ways to use their powers to experiment with new ways of both producing the urban and of democratizing governance. Is there an urban alternative and, if so, from where might it come? Surplus absorption through urban transformation has, however, an even darker aspect. It has entailed rep e ated bouts of urban restructuring through "creative destruction." Th is nearly always has a class dimension, since it is usually the poor, the underprivileged, and those m arginalized from political power that suffer first and foremost from this pro cess. Violence is required to achieve the new urban world on the wreckage of the old. H aussmann tore thro ugh the old Parisian impoverished quar­ ters, using powe rs of expropriation for supposedly public benefit, and did so in the name of civic improvement, environmental restoration , and urban renovation.

Most participants in the micro-finance system will be reduced to the status of debt peonage, lo cked into a b adly remunerated bridge position be tween the multinational corporations and the impoverished populations of the urban slums, with the advantage always going to the multinational corporation. Th is is the kind of structure that will block the exploration of more pro ductive alternatives. It certainly does not proffer any right to the city. 22 REBEL CITIES Urbanization, we may conclude, has played a crucial role in the absorp­ tion of capital surpluses and has done so at ever- increasing geographical scales, but at the price of burgeoning processes of creative destruction that entail the disp ossession of the urban masses of any right to the city whatsoever. Perio dically this ends in revolt, as in Paris in 1 87 1 , when the d ispossessed rose up seeking to reclaim the city they had lost. The urban so cial movements of 1 9 68, from Paris and B angkok to Mexico C ity and Ch icago, likewise sought to define a different way of urban living from that which was b e ing imposed upon them by capitalist developers and the state.

To b e sure, this would h ave extended the mission of the Federal Reserve b eyond its normal remit, and gone THE RIGHT TO THE CITY 25 against the ne oliberal ideological rule that, in the event of a conflict between the well-be ing of financial institutions and that of the people, then the people should be left to one side. It would also h ave gone against capitalist class preferences with respect to income d istribution and neo ­ liberal notions of personal responsibility. But just loo k at the price that was paid for observing such rules and the senseless creative destruction that resulted from it. Surely something can and should be done to reverse these political choices? But we h ave yet to see a coherent oppositional m ovement to all of this in the twenty- first century. Th ere is, of co urse, a multitude of diverse urban struggles and urban social movements (in the broadest sense of that term, including movements in the rural h interlands) already in existence.


pages: 209 words: 80,086

The Global Auction: The Broken Promises of Education, Jobs, and Incomes by Phillip Brown, Hugh Lauder, David Ashton

active measures, affirmative action, barriers to entry, Branko Milanovic, BRICs, business process, business process outsourcing, call centre, collective bargaining, corporate governance, creative destruction, credit crunch, David Ricardo: comparative advantage, deindustrialization, deskilling, disruptive innovation, Frederick Winslow Taylor, full employment, future of work, glass ceiling, global supply chain, immigration reform, income inequality, industrial cluster, industrial robot, intangible asset, job automation, Joseph Schumpeter, knowledge economy, knowledge worker, low skilled workers, manufacturing employment, market bubble, market design, neoliberal agenda, new economy, Paul Samuelson, pensions crisis, post-industrial society, profit maximization, purchasing power parity, QWERTY keyboard, race to the bottom, Richard Florida, Ronald Reagan, shared worldview, shareholder value, Silicon Valley, sovereign wealth fund, stem cell, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, Thomas L Friedman, trade liberalization, transaction costs, trickle-down economics, winner-take-all economy, working poor, zero-sum game

John Maynard Keynes’s classic work on The General Theory of Employment, Interest and Money, published in 1936, shaped economic thinking at the time by rejecting the neoliberal view that capitalist economies were self-correcting and required little government intervention. Hence, economies which had fallen into recession would automatically bounce back to a period of boom and full employment. Keynes rejected this idea and argued that governments could intervene effectively in market economies to solve the problem of recession, or what one of his contemporaries called the “gales of creative destruction.”3 Thus, when demand for goods slackened and workers were threatened with unemployment, governments could act to keep the wheels of industry turning. Keynes also endorsed the idea of a welfare state to protect people from the chronic insecurities that characterize the boom-and-bust nature of capitalist development. By the 1980s, neoliberal ideas had regained popularity. Under Ronald Reagan in America and Margaret Thatcher in Britain, there was a return to preaching the virtues of free trade, self-interest, and the power of the market to deliver prosperity and justice.

This book explains why much of this money, effort, and enterprise will be wasted, as the neoliberal opportunity bargain fails to deliver on the promise of education, jobs, and rewards. Schooled in the belief that “learning equals earning,” many Americans have unrealistic expectations of a world that does not owe them a living. It has left them ill-prepared to meet the challenges posed by the new era of knowledge capitalism because they are caught in a gale of creative destruction that makes it difficult to find individual solutions to changing economic realities. The demand for managerial and professional jobs in the United States is not only far less than commonly assumed, but the quality of working life and rewards associated with those jobs will not live up to expectations. The idea that learning equals earning fails to acknowledge that most of those with a university degree in America have not witnessed an increase in income since the early 1970s.

Consequently, many of the things we only thought could be done in the West can now be done anywhere in the world not only cheaper but sometimes better. But the move to low-cost brainwork is not the end of the story. Third, although much of the focus has been on the development of new products and services that highlight the demand for creative people exploiting clever ideas, few seemed to notice that the forces of creative destruction are followed by the destruction of the creative. The productive application of new ideas depends on standardization giving employers greater control over the workplace. Improvements in productivity for much of the twentieth century rested on the principles of scientific management outlined by Fredrick Winslow Taylor. To date, the productivity of new technologies in offices and professional services has been disappointing in much the same way that it took decades to realize the potential of factory production.


pages: 370 words: 102,823

Rethinking Capitalism: Economics and Policy for Sustainable and Inclusive Growth by Michael Jacobs, Mariana Mazzucato

balance sheet recession, banking crisis, basic income, Bernie Sanders, Bretton Woods, business climate, business cycle, Carmen Reinhart, central bank independence, collaborative economy, complexity theory, conceptual framework, corporate governance, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, decarbonisation, deindustrialization, dematerialisation, Detroit bankruptcy, double entry bookkeeping, Elon Musk, endogenous growth, energy security, eurozone crisis, factory automation, facts on the ground, fiat currency, Financial Instability Hypothesis, financial intermediation, forward guidance, full employment, G4S, Gini coefficient, Growth in a Time of Debt, Hyman Minsky, income inequality, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), Internet of things, investor state dispute settlement, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, labour market flexibility, low skilled workers, Martin Wolf, mass incarceration, Mont Pelerin Society, neoliberal agenda, Network effects, new economy, non-tariff barriers, paradox of thrift, Paul Samuelson, price stability, private sector deleveraging, quantitative easing, QWERTY keyboard, railway mania, rent-seeking, road to serfdom, savings glut, Second Machine Age, secular stagnation, shareholder value, sharing economy, Silicon Valley, Steve Jobs, the built environment, The Great Moderation, The Spirit Level, Thorstein Veblen, too big to fail, total factor productivity, transaction costs, trickle-down economics, universal basic income, very high income

It has been the primary source of improvements in productivity, and consequent rises in living standards, for the past 200 years.46 Thus a theory of how capitalist economies work must include at its centre the dynamics of innovation, understanding both the specific nature of the investments needed and the turbulent, non-equilibrium outcomes that result. But this requires a much more dynamic and accurate understanding of how innovation occurs than is provided by the orthodox economic theories of imperfect competition. Drawing on Schumpeter’s original analysis of the processes of ‘creative destruction’,47 modern evolutionary economics has done much to explain how firms operate with bounded rationality in circumstances of uncertainty, where markets tend towards disequilibrium and change is path-dependent. Growth results from the co-evolution of technologies, firms and industry structures and the social and public institutions which support them, connected by complex feedback processes.48 Promoting innovation therefore requires attention to be paid to each of these elements.

R&D: A Troubled Enterprise’, Metropolitan Policy Program, Brookings Institute, May 2015. 13 Arora et al., ‘Killing the Golden Goose?’. 14 W. Lazonick and M. O’Sullivan, ‘Maximizing Shareholder Value: A New Ideology for Corporate Governance’, Economy and Society, vol. 29, no. 10, 2000, pp. 13–35. 15 Ibid. 16 W. Lazonick, ‘Profits without Prosperity’, Harvard Business Review, vol. 92, no. 9, 2014, pp. 46–55. 17 M. Mazzucato, ‘Financing innovation: creative destruction vs. destructive creation’, in special issue of Industrial and Corporate Change, M. Mazzucato, ed., vol. 22, no. 4, 851–67, See repurchases/R&D in Figure 1, p. 857. 18 J. Kay, ‘The Kay review of UK Equity Markets and Long-term Decision Making’, Final Report (July 2012). 19 P. A. Hall and D. Soskice, Varieties of Capitalism and Institutional Complementarities (pp. 43–76), New York, Springer US, 2001. 20 Lazonick and O’Sullivan, ‘Maximizing Shareholder Value’. 21 The share of basic research funded by the private sector has fallen, causing the public sector to focus more on basic research, and in the process cut its applied research budget (Arora et al., ‘Killing the Golden Goose?’).

Jackson, Prosperity without Growth: Economics for a Finite Planet, London, Sterling, VA, Earthscan, 2001; H. Daly, Beyond Growth: The Economics of Sustainable Development, Sussex, UK, Beacon Press, 1996 Edward Elgar Publishing Limited. Cheltenham, UK. Northampton, MA, USA; H. Daly, ‘Georgescu-Roegen versus Solow/Stiglitz’, Ecological Economics, vol. 22, no. 3, 1997, pp. 261–66. 17 P. Aghion and P. W. Howitt, ‘A model of growth through creative destruction’, Econometrica, vol. 60, no. 2, 1992. pp. 323–51; G. Grossman and E. Helpman, Innovation and Growth in the Global Economy, London, MIT Press, 1991, p. 77; P. Romer, ‘Endogenous technological change’, Journal of Political Economy, vol. 98, no. 5, 1990, pp. S71–S102; R. M. Solow, ‘Technical change and the aggregate production function’, Review of Economics and Statistics, vol. 39, no. 3, 1957, pp. 312–20R; R.


pages: 360 words: 101,038

The Revenge of Analog: Real Things and Why They Matter by David Sax

Airbnb, barriers to entry, big-box store, call centre, cloud computing, creative destruction, death of newspapers, declining real wages, delayed gratification, dematerialisation, deskilling, Detroit bankruptcy, Elon Musk, Erik Brynjolfsson, game design, hypertext link, informal economy, Jaron Lanier, Jeff Bezos, job automation, John Markoff, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kevin Kelly, Khan Academy, Kickstarter, knowledge economy, low cost airline, low skilled workers, mandatory minimum, Marc Andreessen, Mark Zuckerberg, Marshall McLuhan, Minecraft, new economy, Nicholas Carr, Peter Thiel, Ponzi scheme, quantitative hedge fund, race to the bottom, Rosa Parks, Second Machine Age, self-driving car, short selling, Silicon Valley, Silicon Valley startup, Skype, Snapchat, Steve Jobs, technoutopianism, Travis Kalanick, upwardly mobile, Whole Earth Catalog

But it also contains an inherent assumption: that analog economic activity, and its associated work, will gradually be replaced or simply disappear. The commonly stated goal behind the digital economy is the maxim of creative destruction, coined by economist Joseph Schumpeter in the 1950s to describe revolutionary industrial change that consumes old processes and ways of doing business. As the hundreds of thousands of people who once worked for Kodak can tell you, this destruction is real. Wherever the digital economy has staked a claim, analog incumbents have struggled to adapt. The narrative of the digital economy’s creative destruction truly blossomed during the expansion of two forces in the 1990s: the first major commercialization of the Internet through web browsers, and the rapid globalization of a post–cold war world, where American neoliberalism became the dominant economic and political philosophy.

In the West, we could devise the best products and services, and have them made, with the aid of teleconferencing and broadband connections, by those in other countries who would happily do our dirty work for less, raising both our standards of living. Put down that shovel! Throw out your wrench! Pick up a mouse and make a website! If Netscape, Microsoft, and outsourcing defined the first round of the digital economy, then the current version is defined by Facebook, Apple, and automation. It is an advanced and accelerated version of the same creative destruction from twenty years ago, but on a larger scale, with much more computing power in the hands of billions. The digital economy has become even more attractive, especially in the wake of the Great Recession, which decimated traditionally dominant businesses such as manufacturing, real estate, and finance. While old industry giants such as General Motors and General Electric were pandering for bailouts, companies such as Twitter, which counted their staff in the dozens, were being valued at many billions of dollars.

They point to previous disruptions in labor during the technological leaps of the industrial and mechanized ages, and show how these eventually led to greater middle-class wealth and job creation, as productivity increased. The difference now is the speed and scale of digital disruption, which has accelerated exponentially, and the fact that all of that digital progress has not resulted in any real gains in productivity. The creative destruction so beloved by the technology industry is destroying jobs far more quickly than it can create them. One of the factors Brynjolfsson and McAfee credit for this is the so-called superstar nature of technology companies. The digital technology industry tends to be dominated by monopolies with few, if any, competitors. The nature of consumption of digital products favors standardization and builds itself around dominant platforms.


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Originals: How Non-Conformists Move the World by Adam Grant

Albert Einstein, Apple's 1984 Super Bowl advert, availability heuristic, barriers to entry, business process, business process outsourcing, Cass Sunstein, clean water, cognitive dissonance, creative destruction, cuban missile crisis, Daniel Kahneman / Amos Tversky, Dean Kamen, double helix, Elon Musk, fear of failure, Firefox, George Santayana, Ignaz Semmelweis: hand washing, Jeff Bezos, job satisfaction, job-hopping, Joseph Schumpeter, Kickstarter, Lean Startup, Louis Pasteur, Mahatma Gandhi, Mark Zuckerberg, meta analysis, meta-analysis, minimum viable product, Nelson Mandela, Network effects, pattern recognition, Paul Graham, Peter Thiel, Ralph Waldo Emerson, random walk, risk tolerance, Rosa Parks, Saturday Night Live, Silicon Valley, Skype, Steve Jobs, Steve Wozniak, Steven Pinker, The Wisdom of Crowds, women in the workforce

Thank you for buying an authorized edition of this book and for complying with copyright laws by not reproducing, scanning, or distributing any part of it in any form without permission. You are supporting writers and allowing Penguin to continue to publish books for every reader. ISBN 978-0-698-40577-6 Version_1 For Allison Contents Also by Adam Grant Title Page Copyright Dedication Foreword by Sheryl Sandberg 1 Creative Destruction The Risky Business of Going Against the Grain 2 Blind Inventors and One-Eyed Investors The Art and Science of Recognizing Original Ideas 3 Out on a Limb Speaking Truth to Power 4 Fools Rush In Timing, Strategic Procrastination, and the First-Mover Disadvantage 5 Goldilocks and the Trojan Horse Creating and Maintaining Coalitions 6 Rebel with a Cause How Siblings, Parents, and Mentors Nurture Originality 7 Rethinking Groupthink The Myths of Strong Cultures, Cults, and Devil’s Advocates 8 Rocking the Boat and Keeping It Steady Managing Anxiety, Apathy, Ambivalence, and Anger Actions for Impact Acknowledgments References Index Foreword BY SHERYL SANDBERG Chief operating officer of Facebook and founder of LeanIn.Org Adam Grant is the perfect person to write Originals because he is one.

He gives practical guidance on how to manage anxiety, channel anger, find the strength in our weaknesses, overcome obstacles, and give hope to others. — Originals is one of the most important and captivating books I have ever read, full of surprising and powerful ideas. It will not only change the way you see the world; it might just change the way you live your life. And it could very well inspire you to change your world. 1 Creative Destruction The Risky Business of Going Against the Grain “The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.” George Bernard Shaw On a cool fall evening in 2008, four students set out to revolutionize an industry. Buried in loans, they had lost and broken eyeglasses and were outraged at how much it cost to replace them.

We can only imagine how many Wozniaks, Michelangelos, and Kings never pursued, publicized, or promoted their original ideas because they were not dragged or catapulted into the spotlight. Although we may not all aspire to start our own companies, create a masterpiece, transform Western thought, or lead a civil rights movement, we do have ideas for improving our workplaces, schools, and communities. Sadly, many of us hesitate to take action to promote those ideas. As economist Joseph Schumpeter famously observed, originality is an act of creative destruction. Advocating for new systems often requires demolishing the old way of doing things, and we hold back for fear of rocking the boat. Among nearly a thousand scientists at the Food and Drug Administration, more than 40 percent were afraid that they would face retaliation if they spoke up publicly about safety concerns. Of more than forty thousand employees at a technology company, half felt it was not safe to voice dissenting opinions at work.


pages: 497 words: 150,205

European Spring: Why Our Economies and Politics Are in a Mess - and How to Put Them Right by Philippe Legrain

3D printing, Airbnb, Asian financial crisis, bank run, banking crisis, barriers to entry, Basel III, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, Boris Johnson, Bretton Woods, BRICs, British Empire, business cycle, business process, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, cleantech, collaborative consumption, collapse of Lehman Brothers, collective bargaining, corporate governance, creative destruction, credit crunch, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency peg, debt deflation, Diane Coyle, disruptive innovation, Downton Abbey, Edward Glaeser, Elon Musk, en.wikipedia.org, energy transition, eurozone crisis, fear of failure, financial deregulation, first-past-the-post, forward guidance, full employment, Gini coefficient, global supply chain, Growth in a Time of Debt, hiring and firing, hydraulic fracturing, Hyman Minsky, Hyperloop, immigration reform, income inequality, interest rate derivative, Intergovernmental Panel on Climate Change (IPCC), Irish property bubble, James Dyson, Jane Jacobs, job satisfaction, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, labour market flexibility, labour mobility, liquidity trap, margin call, Martin Wolf, mittelstand, moral hazard, mortgage debt, mortgage tax deduction, North Sea oil, Northern Rock, offshore financial centre, oil shale / tar sands, oil shock, open economy, peer-to-peer rental, price stability, private sector deleveraging, pushing on a string, quantitative easing, Richard Florida, rising living standards, risk-adjusted returns, Robert Gordon, savings glut, school vouchers, self-driving car, sharing economy, Silicon Valley, Silicon Valley startup, Skype, smart grid, smart meter, software patent, sovereign wealth fund, Steve Jobs, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, Tyler Cowen: Great Stagnation, working-age population, Zipcar

In a complex, ever-changing economy, policymakers need to do more than stand back and let markets rip – but the belief that they know best is a delusion. Throw in insights from political economy, namely how policymakers get caught up with the crowd or captured by it, and the dangers of micromanagement become clear. The task for policymakers is particularly tricky because while the inherent instability of capitalism is a source of progress – the “gales of creative destruction” produced by innovators and entrepreneurs, as Joseph Schumpeter put it – it can also be extremely damaging: when the financial system runs away with itself and then crashes. Economies need to try to capture the benefits of entrepreneurs’ efforts – or the animal spirits of investors, as Keynes put it – while limiting the financial sector’s excesses. Governments need to encourage the dynamism of technological and business progress, while stepping in to rekindle its spirits in a slump.

As Keynes pointed out: “If the animal spirits are dimmed and the spontaneous optimism falters, leaving us to depend on nothing but a mathematical expectation, enterprise will fade and die.”541 While Keynes and Schumpeter are often viewed as polar opposites, there is merit in synthesising their insights. Keynes is right that governments need to step in to support demand in a slump, while Schumpeter is correct that we need to enable economies to adjust so that the process of creative destruction can resume. “In the long term, it is absolutely necessary for insolvent banks, firms, and households to go bankrupt and emerge anew; keeping them alive indefinitely only prolongs the problem,” economist Nouriel Roubini rightly observes. What does that mean for economic policy? It should be bold and modest. Bold in trying to unleash and channel waves of innovation and enterprise. Modest in realising that policymakers’ ability to shape the future is limited.

More fundamentally, the tax system ought to distinguish between gains from hard work and investment and unearned gains that derive from the efforts of others. As Chapter 12 will explain, a good way to encourage greater dynamism and decency would be to slash taxes on labour and replace them with a tax on land values. Policy changes Capitalism is inherently unstable. Often this is a good thing. Economic growth rarely proceeds in a straight line; rather it involves waves of creative destruction: entrepreneurial innovation that ditches the old for the new, as Chapter 11 will discuss. Trying to curb this inherent dynamism tends to lead to stagnation. So policymakers ought to unleash it, while helping people to adapt and providing them with the security they need to embrace change. Unfortunately, the financial system has an inherent tendency to amplify this instability and indeed create its own through the “destructive creation” of bubbles that end in busts.


pages: 498 words: 145,708

Consumed: How Markets Corrupt Children, Infantilize Adults, and Swallow Citizens Whole by Benjamin R. Barber

addicted to oil, AltaVista, American ideology, Berlin Wall, Bertrand Russell: In Praise of Idleness, Bill Gates: Altair 8800, business cycle, Celebration, Florida, collective bargaining, creative destruction, David Brooks, delayed gratification, Donald Trump, double entry bookkeeping, G4S, game design, George Gilder, Gordon Gekko, greed is good, Hernando de Soto, illegal immigration, informal economy, invisible hand, Joseph Schumpeter, laissez-faire capitalism, late capitalism, liberal capitalism, Marc Andreessen, McJob, microcredit, Naomi Klein, new economy, New Journalism, Norbert Wiener, nuclear winter, Panopticon Jeremy Bentham, pattern recognition, presumed consent, profit motive, race to the bottom, Ralph Nader, road to serfdom, Robert Bork, Ronald Reagan, Saturday Night Live, Silicon Valley, spice trade, Steve Jobs, telemarketer, The Fortune at the Bottom of the Pyramid, the market place, The Wisdom of Crowds, Thomas L Friedman, Thorstein Veblen, trade route, X Prize

., Cross-Cultural Consumption, p. 182. Also see Ulf Hannerz, Cultural Complexity: Studies in the Social Organization of Meaning (New York: Columbia University Press, 1992). 10. Tyler Cowen, Creative Destruction: How Globalization Is Changing the World’s Cultures (Princeton, N.J.: Princeton University Press, 2002), p. 22. Cowen’s title is drawn from classical economist Joseph Schumpeter’s description of the dialectic in which capitalism “creatively” destroys the stages it traverses as it evolves. For a detailed critique of Cowen, see my review “Brave New McWorld,” Los Angeles Times Book Review, February 2, 2003. 11. Cowen, Creative Destruction, p. 44. 12. Constance Classen, “Sugar Cane, Coca-Cola and Hypermarkets: Consumption and Surrealism in the Argentine Northwest,” in Howes, ed., Cross-Cultural Consumption, p. 39.

This book, after it diagnoses liberty’s market pathologies, offers a qualified yes. What is clear is that either capitalism will replace the infantilist ethos with a democratic ethos, and regain its capacity to promote equality as well as profit, diversity as well as consumption, or infantilization will undo not only democracy but capitalism itself. Much will depend on our capacity to make sense out of infantilization and relate it to the not-so-creative destruction of consumerism’s survival logic. The idea of an “infantilist ethos” is as provocative and controversial as the idea of what Weber called the “Protestant ethic.” Infantilization is at once both an elusive and a confrontational term, a potent metaphor that points on the one hand to the dumbing down of goods and shoppers in a postmodern global economy that seems to produce more goods than people need; and that points, on the other hand, to the targeting of children as consumers in a market where there are never enough shoppers.

“Oh, yes,” exclaim the preening relatives of the hare, “it may seem that our cousin has been consumed, but regard the distended snake, its shape ever so much more like a hare’s than a python’s. Truth is, the hare has changed the snake as much as the snake has changed the hare!” But wait a week or two, as the python’s relatives will learn, and the hare will have vanished and the serpent, happily hissing about the virtues of hybridization as he goes, will slither on in search of new prey. Cultural exchange may be a form of Schumpeter’s “creative destruction,” but over time dialectic is trumped by power, and destruction merely destroys, leaving behind an ever more homogenized, monocultural marketplace. Creolization does not create very much: it may sometimes slow the pace of homogenization, but it cannot arrest it altogether. For every Christian rocker who thinks she can use pop music to displace pop culture’s secularism with religion conversions, there is a Christian skeptic who worries (with considerable reason) that being cool will always mean being “flippant, irreverent, quick with biting one-liners that exalt self and embarrass others” and that far from being designed by hip Christians hoping to strengthen spiritual resolve, “Christian rock was the invention of big, profit-motivated record companies who were looking for a way of selling more rock music.


pages: 403 words: 87,035

The New Geography of Jobs by Enrico Moretti

assortative mating, Bill Gates: Altair 8800, business climate, call centre, cleantech, cloud computing, corporate raider, creative destruction, desegregation, Edward Glaeser, financial innovation, global village, hiring and firing, income inequality, industrial cluster, Jane Jacobs, Jeff Bezos, Joseph Schumpeter, knowledge economy, labor-force participation, low skilled workers, manufacturing employment, Mark Zuckerberg, mass immigration, medical residency, Menlo Park, new economy, peer-to-peer lending, Peter Thiel, Productivity paradox, Richard Florida, Sand Hill Road, Silicon Valley, Skype, special economic zone, Startup school, Steve Jobs, Steve Wozniak, thinkpad, Tyler Cowen: Great Stagnation, Wall-E, Y Combinator, zero-sum game

What is a good job today will inevitably become a bad job in the future. This dynamic was first recognized by Karl Marx, who thought that it was evidence of the inherent instability of the capitalist system. Eighty years later, however, the Austrian economist Joseph Schumpeter pointed out that instead of being a flaw, this process of “creative destruction” is capitalism’s greatest strength and its engine of growth. By its very nature, the innovation sector is the part of a market economy where creative destruction matters the most. The Princeton economist Alan Blinder recently noted that in the 1950s, companies making television sets were at the heart of America’s high-tech sector and generating tens of thousands of high-paying jobs. After a while TV sets became just another easy-to-make commodity, and today no TV set is made in America.

Rather than clinging to one product or one way of doing things, the region reshapes itself every year. The forces of attraction anchor skilled labor and specialized services, but the exact kind of skills and services evolve over time, following the changing terrain of the technological frontier. This ensures that when good jobs turn into bad jobs, there is a wave of new jobs to replace them. In a sense, this creative destruction is the true hallmark of a successful cluster, one that leverages the forces of attraction in a dynamic way. “All politics is local,” as the former Speaker of the House Tip O’Neill said. For all its glamour, the world of innovation is even more local than politics. Different communities differ in their values and expertise, and this inevitably shapes the new ideas they generate, ultimately resulting in something unique and hard to reproduce elsewhere.

.), [>] geography of, [>]–[>] and charity, [>]–[>], [>] and divorce rate, [>]–[>], [>] and life expectancy, [>]–[>] and political participation, [>]–[>] of mobility, [>] and education level, [>]–[>], [>] relocation vouchers to remedy, [>]–[>] and skilled immigrants, [>] from under-investment in human capital, [>] worldwide decrease in, [>] Infant mortality, post-WWII drop in (U.S.), [>] Ingenuity, and iPhone, [>] Innovation, [>]–[>], [>], [>], [>] and Apple’s success, [>] benefits from, [>] and compensation for knowledge spillovers, [>] and creative destruction, [>]–[>] and need to adapt, [>] cross-fertilization in, [>] destruction and renovation from, [>] economic rent from, [>]–[>] ecosystem for, [>] and foreign competition, [>]–[>] global competition for, [>] Great Divergence heightened by, [>]–[>] by immigrants, [>] jobs creation by, [>]–[>] and outsourcing, [>]–[>] and locational freedom, [>]–[>] math and science as ingredients in, [>] and patents, [>] at Pixar, [>]–[>] and standard of living, [>] Innovation hubs, [>]–[>], [>], [>] and cluster building, [>]–[>] cost of living in, [>] location of, [>]–[>] (see also Forces of Agglomeration) and state educational programs, [>] in unlikely-seeming places, [>]–[>] unpredictable locations of, [>]–[>] and U.S. economic future, [>] in U.S. vs.


pages: 327 words: 84,627

The Green New Deal: Why the Fossil Fuel Civilization Will Collapse by 2028, and the Bold Economic Plan to Save Life on Earth by Jeremy Rifkin

1919 Motor Transport Corps convoy, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, American Society of Civil Engineers: Report Card, autonomous vehicles, Bernie Sanders, blockchain, borderless world, business cycle, business process, carbon footprint, collective bargaining, corporate governance, corporate social responsibility, creative destruction, decarbonisation, en.wikipedia.org, energy transition, failed state, ghettoisation, hydrogen economy, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invisible hand, Joseph Schumpeter, means of production, megacity, Network effects, new economy, off grid, oil shale / tar sands, peak oil, planetary scale, renewable energy credits, Ronald Reagan, shareholder value, sharing economy, Silicon Valley, Skype, smart cities, smart grid, sovereign wealth fund, Steven Levy, the built environment, The Wealth of Nations by Adam Smith, Tim Cook: Apple, trade route, union organizing, urban planning, women in the workforce, zero-sum game

Again, stranded assets are assets that have been prematurely written down before their expected life cycle runs its normal course. Stranded assets are part of the normal day-to-day operations of the market. But occasionally, an entire class of assets can suddenly and unexpectedly become stranded. This generally happens when a revolutionary new class of technologies and accompanying infrastructure platforms suddenly enter the marketplace, producing what Joseph Schumpeter termed “creative destruction,” quickly depreciating the value of existing assets, killing them off and moving them from the asset column to the liability column on the balance sheet. These types of disruptions most often characterize the great paradigm shifts in communication technology, sources of energy, modes of transport, and changes in habitats—for example, the shift from postal communication to the telephone, or from the horse and buggy to the automobile.

(Post-tax subsidies are, for the most part, the calculation of “environmental damages from energy consumption [which] are just as real as are supply costs … and any failure to fully internalize them means that some of the damages from fossil fuel use are not borne by fuel consumers and this constitutes a form of subsidy.”)5 The question being asked with growing urgency by some and with incredulity by others is how the fossil fuel civilization could be close to an endgame because of the upstart solar and wind energies when the latter made up only 3 percent of global energy capacity in 2017.6 There is a rule of thumb in economics that is little known and mostly ignored, even by the titans of the financial community and business sectors. Yet it is remarkably prescient in predicting Schumpeter’s “creative destruction.” Investors, on the whole, are not swayed as much by the size of an enterprise or sector as by its growth curve. They will continue to stay onboard as long as their investment shows increasing growth. If that growth loses momentum, they take notice and often lose interest. When new challengers emerge, even if they are seemingly inconsequential, if they begin to exhibit accelerating growth or even an exponential growth curve, investors begin to shift allegiance to the challenger.

The key is the threshold. That is, when a challenger captures just 3 percent of the market from an incumbent, the incumbent’s sales often peak and begin to decline, signaling its eventual demise.7 Kingsmill Bond, who is the lead energy strategist for the Carbon Tracker Initiative, the previously mentioned UK research organization of specialists tracking climate risks, observes that this rule of creative destruction holds across all areas of commerce but is particularly telling when analyzing the transitions in energy paradigms over history. For example, gas lighting demand peaked when electricity accounted for only 3 percent of the lighting.8 Once again, the correlation to consider is not the size of the market vis-à-vis an incumbent and a challenger but rather the sales growth of each player. Even when the challenger enjoys only a tiny 1 percent of the market but a 20 percent growth rate, the challenger is likely to gobble up all of the incremental growth by year ten.


pages: 217 words: 63,287

The Participation Revolution: How to Ride the Waves of Change in a Terrifyingly Turbulent World by Neil Gibb

Airbnb, Albert Einstein, blockchain, Buckminster Fuller, call centre, carbon footprint, Clayton Christensen, collapse of Lehman Brothers, corporate social responsibility, creative destruction, crowdsourcing, disruptive innovation, Donald Trump, gig economy, iterative process, job automation, Joseph Schumpeter, Khan Academy, Kibera, Kodak vs Instagram, Mark Zuckerberg, Menlo Park, Minecraft, Network effects, new economy, performance metric, ride hailing / ride sharing, shareholder value, side project, Silicon Valley, Silicon Valley startup, Skype, Snapchat, Steve Jobs, the scientific method, Thomas Kuhn: the structure of scientific revolutions, trade route, urban renewal

And, lastly, for anyone who might be interested, it shows how to be a billionaire…in three easy moves. Creative destruction “Every act of creation is first an act of destruction” Pablo Picasso In 1942 the Austrian-American economist Joseph Schumpeter popularised the concept of “creative destruction”, describing it as the “process of industrial mutation that incessantly revolutionises the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” Schumpeter’s point is that every act of creation, and every act of groundbreaking innovation, however good and useful they are, is also an act of destruction, in that it supplants something. Thus the automobile destroyed demand for the horse-drawn carriage, digital photography for film, Netflix for video stores, and the iPhone for a whole host of things. Creative destruction tends to a maximum in periods of societal transformation such as the present one.

Why was it that in the Nokia store, where there were great products, free coffee, loads of space, and plenty of attentive sales assistants, customers were running out of the shop without a new phone, while in the crowded Apple Store other shoppers were actually prepared to help one another out? In answering this question, we not only find what it takes to build successful businesses in the emerging new-world economic order, we actually have the answer to what it is going to take to successfully rebuild our societies in the networked age. Contents I. Introduction When things fall apart Disruption is the future calling The great transformation Creative destruction How to use this book The emergence of a new paradigm That thing we seek The rise of social economics The participation revolution Connected Strategic shifts The process of transformation Architecture II. Case stories 1. We are United! 2. The power of fans 3. How to be a billionaire in three easy moves: part 1 4. How to be a billionaire in three easy moves: part 2 5.


pages: 151 words: 38,153

With Liberty and Dividends for All: How to Save Our Middle Class When Jobs Don't Pay Enough by Peter Barnes

Alfred Russel Wallace, banks create money, basic income, Buckminster Fuller, collective bargaining, computerized trading, creative destruction, David Ricardo: comparative advantage, declining real wages, deindustrialization, diversified portfolio, en.wikipedia.org, Fractional reserve banking, full employment, hydraulic fracturing, income inequality, Jaron Lanier, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, land reform, Mark Zuckerberg, Network effects, oil shale / tar sands, Paul Samuelson, profit maximization, quantitative easing, rent-seeking, Ronald Coase, Ronald Reagan, Silicon Valley, sovereign wealth fund, the map is not the territory, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, Tyler Cowen: Great Stagnation, Upton Sinclair, Vilfredo Pareto, wealth creators, winner-take-all economy

That said, the current political environment makes such scaling all but impossible. It therefore behooves us to take a longer view. As Charles Darwin and Alfred Russel Wallace noted in the nineteenth century, living systems evolve through a process of variation and selection. Many nonliving systems, including economies, evolve in a similar way. Capitalism in particular has been characterized as a system of “creative destruction.”1 One aspect of evolution that remained unclear for decades after Darwin and Wallace was whether the vary-and-select process proceeds gradually or in sudden bursts. In theory, it could work either way, but in 1972, paleontologists Niles Eldredge and Stephen Jay Gould published a landmark paper that argued, based on fossil records, that “the history of evolution is not one of stately unfolding, but a story of homeostatic equilibria, disturbed only rarely by rapid and episodic events of spe-ciation.”2 They called this pattern punctuated equilibrium, and it seems to apply not only to biological systems but to others as well.

., 24, 39 C California, climate dividends in, 117–118 California Air Resources Board (CARB), 117–118 California Public Utilities Commission (CPUC), 117–118 Canada, 53–54, 114 Cantwell, Maria, 110, 115 Cantwell-Collins Act, 142 Cap-and-dividend system, 105–107 legislation on, 109–110 property income and, 116–117 Cap-and-giveaway system, 105–107 Cap-and-trade system. See also Carbon capping in California, 117–118 Clean Air Act creating, 99 climate change and, 99–100 labor unions and, 131–132 offsets in, 104–105 Capital gains, 47 Capitalism creative destruction and, 120 everyone-gets-a-share capitalism, 3–4, 42, 126 types of income and, 27–28 winner-take-all capitalism, 3, 33–34 Carbon capping, 97–118 European carbon trading system, 99, 104–105 Carbon dioxide carbon capping, 97–118 carbon taxing, 113–116 environmental movement and, 135–136 pollution permits, 93 Carbon Limits and Energy for America’s Renewal (CLEAR) Act, 142 Carbon taxing, 113–116 CheatNeutral.com, 104 China, 25–26, 105 Citizen’s income, 79–80 Civil War, debt-free money distribution and, 91–92 Clean Air Act, 99 Climate change, 99–100 Clinton, William J., 99, 114 Coal-burning power plants, 99 Coase, Ronald, 98–99 Collective bargaining, 19 Collins, Chuck, 33 Collins, Susan, 110 Commercial banks.

See also Dividends; Rent adjacent possible and, 121 audit of, 62 benefits, entitlement to, 62 components of, 60–61 defined, 11 at economy-wide level, 140–141 externalities and, 64 guidelines for creating, 89–92 management of, 62 mental ideas and, 122–127 one person, one share, 123–124 political environment and, 120 potential dividends and, 139–146 pre-distribution and, 125–127 quantity of assets needed for, 93–95 shared wealth dividends, 124–125 specific assets and, 141–146 user fees for, 85–86 Copyrights, rent from, 144 Cowen, Tyler, 135 Creative destruction, 120 Credo, 45 Crisis preparing for, 121–127 to-do lists and preparing for, 127–131 Currency trading, 92 D Dales, John, 98 Darwin, Charles, 120 Debt fractional reserve banking and, 90 leverage, 47 Debt-free money distribution, 90–91 Lincoln, Abraham and, 91 Defined-benefits pensions, 123 Deindustrialization, 17 Dell Computers, 25–26 Democratic Congressional Campaign Committee, 109 Democrats and direct spending, 22 The Depression and the Townsend Plan, 133–134 Deregulation, 21 Derivatives, potential revenue from transaction fees, 143 Deunionization, 18–19 Distribution of wealth, 14 Dividends, 9–10.


pages: 389 words: 87,758

No Ordinary Disruption: The Four Global Forces Breaking All the Trends by Richard Dobbs, James Manyika

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, access to a mobile phone, additive manufacturing, Airbnb, Amazon Mechanical Turk, American Society of Civil Engineers: Report Card, autonomous vehicles, Bakken shale, barriers to entry, business cycle, business intelligence, Carmen Reinhart, central bank independence, cloud computing, corporate governance, creative destruction, crowdsourcing, demographic dividend, deskilling, disintermediation, disruptive innovation, distributed generation, Erik Brynjolfsson, financial innovation, first square of the chessboard, first square of the chessboard / second half of the chessboard, Gini coefficient, global supply chain, global village, hydraulic fracturing, illegal immigration, income inequality, index fund, industrial robot, intangible asset, Intergovernmental Panel on Climate Change (IPCC), Internet of things, inventory management, job automation, Just-in-time delivery, Kenneth Rogoff, Kickstarter, knowledge worker, labor-force participation, low skilled workers, Lyft, M-Pesa, mass immigration, megacity, mobile money, Mohammed Bouazizi, Network effects, new economy, New Urbanism, oil shale / tar sands, oil shock, old age dependency ratio, openstreetmap, peer-to-peer lending, pension reform, private sector deleveraging, purchasing power parity, quantitative easing, recommendation engine, Report Card for America’s Infrastructure, RFID, ride hailing / ride sharing, Second Machine Age, self-driving car, sharing economy, Silicon Valley, Silicon Valley startup, Skype, smart cities, Snapchat, sovereign wealth fund, spinning jenny, stem cell, Steve Jobs, supply-chain management, TaskRabbit, The Great Moderation, trade route, transaction costs, Travis Kalanick, uber lyft, urban sprawl, Watson beat the top human players on Jeopardy!, working-age population, Zipcar

Matthieu Pélissié du Rausas, James Manyika, Eric Hazan, Jacques Bughin, Michael Chui, and Rémi Said, Internet matters: The Net’s sweeping impact on growth, jobs, and prosperity, McKinsey Global Institute, May 2011. 41. Jacques Bughin and James Manyika, “Measuring the full impact of digital capital,” McKinsey Quarterly, July 2013. 42. Richard D. Kahlenberg, Broken Contract: A Memoir of Harvard Law School (NY: Hill and Wang, 1992). 43. “Creative destruction whips through corporate America,” Innosight Executive Briefing, winter 2012, www.innosight.com/innovation-resources/strategy-innovation/upload/creative-destruction-whips-through-corporate-america_final2012.pdf. 44. Ibid. 45. Ibid. 46. Bill Gurley, “A deeper look at Uber’s dynamic pricing model,” Above the Crowd, March 11, 2014, http://abovethecrowd.com/20l4/03/11/a-deeper-look-at-ubers-dynamic-pricing-model/; Matthew Panzarino, “Leaked Uber numbers, which we’ve confirmed, point to over $1B gross, $213M revenue,” TechCrunch, December 4, 2013, http://techcrunch.com/2013/12/04/leaked-uber-numbers-which-weve-confirmed-point-to-over-1b-gross-revenue-213m-revenue. 47.

Ewing Marion Kauffman Foundation, June 2012, www.kauffman.org/~/media/kauffman_org/research%20reports%20and%20covers/2012/06/fortune_500_turnover.pdf. 11. Richard Dobbs, Jaana Remes, Sven Smit, James Manyika, Jonathan Woetzel, and Yaw Agyenm-Boateng, Urban world: The shifting global business landscape, McKinsey Global Institute, October 2013. 12. Ibid. 13. “Creative destruction whips through corporate America,” Innosight Executive Briefing, winter 2012, www.innosight.com/innovation-resources/strategy-innovation/upload/creative-destruction-whips-through-corporate-america_final2012.pdf. 14. Microsoft’s timeline from 1975–1990, The History of Computing Project, www.thocp.net/companies/microsoft/microsoft_company.htm. 15. Christopher Steiner, “Meet the fastest growing company ever,” Forbes.com, August 12, 2010, www.forbes.com/forbes/2010/0830/entrepreneurs-groupon-facebook-twitter-next-web-phenom.html. 16.

How can governments respond faster and develop the political maturity and leadership needed to help societies navigate changes and ensure their own survival in the process? Those who govern will need to reset their intuition, just as business leaders will. In this chapter, we discuss the political leadership challenge these trend breaks present, and we highlight ways that government is rising—or not—to meet this challenge. THE CASE FOR CHANGE Global competition and technological change have sped up creative destruction and outpaced the ability of labor markets to adapt. Job creation is a critical challenge for most policy makers even as businesses complain about critical skill gaps. Meanwhile, graying populations are starting to fray social safety nets—and for debt-ridden societies in advanced economies, the challenge can only get more pressing as the cost of capital starts to rise. Much-needed productivity growth continues to elude the public sector.


pages: 234 words: 63,149

Every Nation for Itself: Winners and Losers in a G-Zero World by Ian Bremmer

airport security, banking crisis, barriers to entry, Berlin Wall, blood diamonds, Bretton Woods, BRICs, capital controls, clean water, creative destruction, Deng Xiaoping, Doha Development Round, energy security, European colonialism, failed state, global rebalancing, global supply chain, income inequality, informal economy, Intergovernmental Panel on Climate Change (IPCC), Julian Assange, Kickstarter, Martin Wolf, mass immigration, Mikhail Gorbachev, mutually assured destruction, Nelson Mandela, Nixon shock, nuclear winter, Parag Khanna, purchasing power parity, reserve currency, Ronald Reagan, smart grid, South China Sea, sovereign wealth fund, special economic zone, Stuxnet, trade route, uranium enrichment, Washington Consensus, WikiLeaks, Yom Kippur War

But while Western mining companies and diamond-trading firms face an avalanche of bad press at home if they’re caught cheating on these rules, that’s not the case in many emerging-market states, where government and industry often exercise much greater direct influence over local media and where the demands of development often encourage governments to make and enforce their own rules.23 *** Finally, investors and companies can become G-Zero winners by recognizing these likely winners and losers—and placing their bets accordingly. Every stock picker looks great in a bull market, and that proved true in a world in which globalization lifted so many boats. The G-Zero will force investors to do a lot more homework. Those who do that work have much to gain. LOSERS The G-Zero is a process of creative destruction, as natural as it is inevitable. Institutions that no longer reflect the world they were created to promote and protect must give way to new ones. Those that struggle against this process of death and renewal are wasting time and resources that could be better spent on anticipating and shaping the post-G-Zero world. If leading established and emerging powers can’t agree on a fair way to address global warming, boost global trade, manage food and public health crises, or govern cyberspace, they’re unlikely to agree on how to divide decision-making power within new international institutions or on what to do with the old ones.

The architects of U.S. foreign policy will have to do more with less in a G-Zero world, America will have fewer opportunities to get what it wants from other countries, and it’s entirely likely that Americans will struggle to accept their diminished international role. That does not mean that the United States is destined to be a G-Zero loser. Resilience in the new era will depend on adaptability and the power to profit from the processes of creative destruction. This is a crucial American advantage. Throughout its history, the United States has valued innovation more than security, technological change more than traditional ways of doing things, and hope for the future more than veneration of the past. In a world of constant change, these qualities are likely to serve the country well. We will take a closer look at America’s G-Zero future in the final chapter.

China will also have to create sustainable balance in its economy, by shifting its reliance for growth from its current heavy dependence on exports toward greater consumption at home—but without “decoupling” from Western consumers to a degree that would isolate China from the world’s other largest economies. Further, over time many of the country’s largest state-owned enterprises will outlive their usefulness. As with other dying institutions, those who profit from them will fight to keep them alive, and state officials will be tempted to artificially extend their life spans. Creative destruction can be either a powerful source of prosperity or a frightening source of turmoil, but only by letting these enterprises die a natural death and enabling more dynamic companies to take their place can China continue to extend its economic gains. That is the lesson of adapters and dinosaurs, and it ultimately applies to China just as surely as to America and Europe. While China will extend its military power in years to come, particularly in East and South Asia, a G2 depends for the foreseeable future on Beijing’s willingness to rely on American military might to provide most global public goods outside of Asia.


pages: 279 words: 76,796

The Unbanking of America: How the New Middle Class Survives by Lisa Servon

Affordable Care Act / Obamacare, Airbnb, basic income, Build a better mousetrap, business cycle, Cass Sunstein, choice architecture, creative destruction, Credit Default Swap, employer provided health coverage, financial exclusion, financial independence, financial innovation, gender pay gap, George Akerlof, gig economy, income inequality, informal economy, Jane Jacobs, Joseph Schumpeter, late fees, Lyft, M-Pesa, medical bankruptcy, microcredit, Occupy movement, payday loans, peer-to-peer lending, precariat, Ralph Nader, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, sharing economy, too big to fail, transaction costs, unbanked and underbanked, underbanked, universal basic income, Unsafe at Any Speed, We are the 99%, white flight, working poor, Zipcar

This moment is notable for its rarity—this business sector “hasn’t changed materially in hundreds of years,” according to Brett King, an expert in retail banking. Creative destruction, a term coined by the Austrian economist Joseph Schumpeter, denotes the process by which capitalism destroys old economic orders and reinvents them through innovation. Here’s an example of this process at work: innovations in refrigeration and transportation technologies enabled the creation of supermarkets, which ultimately put many smaller food shops out of business. More recently, Amazon, in its use of the Internet, its innovative approaches to shipping, and the creation of the Kindle reader, profoundly changed book selling. Technology always plays a big role in times of creative destruction, and the present moment is no different. Never before has so much information about each and every one of us been more available to more people.

These informal practices are not: Sudhanshu Handa and Claremont Kirton, “The Economics of Rotating Savings and Credit Associations: Evidence from the Jamaican ‘Partner,’” Journal of Development Economics, vol. 60, no. 1 (1999): 173–94; Sowmya Varadharajan, “Explaining Participation in Rotating Savings and Credit Associations (ROSCAs): Evidence from Indonesia” (Ithaca, NY: Cornell University, 2004). 141 almost less than one in ten: PricewaterhouseCoopers, “The Sharing Economy,” Consumer Intelligence Series, pwc.com/CISsharing, April 2015. the sharing economy: Havas Worldwide, “The New Consumer and the Sharing Economy,” Prosumer Report (New York: Havas, 2014). 8. INSIDE THE INNOVATORS 143 This moment is notable: Brett King, Breaking Banks: The Innovators, Rogues, and Strategists Rebooting Banking (Singapore: John Wiley & Sons, 2014), p. xv. Creative destruction, a term: Joseph Alois Schumpeter, The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle (London: Transaction Publishers, 1934). 144 Dave Birch, a director at: King, Breaking Banks, p. 42. Mobile phones have already: “The Future of Money,” 60 Minutes, CBS News, November 22, 2015. http://www.cbsnews.com/news/future-of-money-kenya-m-pesa-60-minutes/ 146 Smartphone use grew: Personal correspondence with Mike Mondelli, April 8, 2016. 163 interest rate of 36 percent: There’s a broader movement supporting the 36 percent rate.

See also RiteCheck as alternative to banks, xii, 3, 6–7, 16–19, 30–31 business model of, 6–7, 22, 37 expansion of, xiii–xiv fees of, 7, 15, 18, 19, 21–22 financial health and, 171 history of, 12–14, 84–86 millennials and, 117–19 personal relationships and, 19–23 profits of, 6–7 regulation of, 13 research approach to, 183–84 services provided by, 21–22 transparency of, 19 Check Center, 77–79, 83–86, 91–92, 181–83, 216n100 ChexSystem, xv–xvi, 32 children care costs, xiv, 53–54, 60, 168, 206n60 as credit card targets, xiv–xv, 71–72 Citigroup, 37, 44, 72 civil rights, 41–44 Clarity Services, 49–50, 75, 184, 213–15n88 Clinton, Bill, 4 Clinton, Hillary, 40 Coleman, Joe, 6–8, 13–14, 22, 83, 183–84 commercial banking, 26–27 Commission on Civil Rights, 42 community development, 158 Community Development Financial Institutions Fund, 172 Community Reinvestment Act (CRA, 1977), 8, 43 compliance departments, 41, 147, 199n41 consulting firms, 29 consumer advocates, 81–82, 101–2, 224n163 consumer awareness, 93, 173–74 consumer behavior, 89–91, 145–46, 161 Consumer Financial Protection Bureau (CFPB) comparison shopping by, 174, 226n174 complaints filed with, 98–100 creation of, 39–40 deception fines by, 72 on overdraft services, 17, 194n17 payday lender opposition of, 89, 91 regulation and, 39–40, 147, 198–99n40, 215–16n91 well-being scale, 166 Continental Illinois, 36 cost of living, 59–60, 82, 88, 107 Countrywide Financial Corporation, 42 Cox, Chris, 39 CRA. See Community Reinvestment Act creative destruction, 143 Credit Card Accountability, Responsibility, and Disclosure Act (CARD, 2009), 72, 74–75, 157 credit cards charge cards vs., 208n67 credit limits for, 72–75, 211n73 credit reduction from, 73 credit scores and, 67–68 financial crisis (2008) and, 73–75, 212n75 history of, 67 income shortfalls and, 63–64 increase in use of, 70 innovations in, 155–57 interest rates of, 71–72, 210n70, 211n71 late fees of, 68, 72 merchant fees of, 32–33 payday loans vs., 87–88 regulation of, 72, 74–75, 157 retail, 209n68 subprime, 70–72, 75, 152, 157 Credit Karma, 115 credit monitoring services, 72 credit scores alternatives to, 131, 138, 141–42 character lending vs., 67–68 determining, 74–75, 150, 212n75 income and, 48–50 innovative models for, 145, 149–52 lack of, 68, 150 medical debt and, 59 payday loans and, 87–88, 93 rebuilding, 115 ROSCAs and, 161 credit unions, 82, 172 creditworthiness, 67–68, 73, 113 criminal prosecution, 95, 98, 99 CRL.


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10% Less Democracy: Why You Should Trust Elites a Little More and the Masses a Little Less by Garett Jones

"Robert Solow", Andrei Shleifer, Asian financial crisis, business cycle, central bank independence, clean water, corporate governance, correlation does not imply causation, creative destruction, Edward Glaeser, financial independence, game design, German hyperinflation, hive mind, invisible hand, Jean Tirole, Kenneth Rogoff, Mark Zuckerberg, mass incarceration, minimum wage unemployment, Mohammed Bouazizi, open economy, Pareto efficiency, Paul Samuelson, price stability, rent control, The Wealth of Nations by Adam Smith, trade liberalization

American Civil Liberties Union, “Out of Step with the World: An Analysis of Felony Disenfranchisement in the U.S. and Other Democracies,” ACLU (2006). 22. Caroline Wolf Harlow, “Education and Correctional Populations: Bureau of Justice Statistics Special Report” (2003). 23. Gordon Tullock, “The Transitional Gains Trap,” Bell Journal of Economics 6, no. 2 (1975): 671–678. 24. Mark J. Perry, “Chart of the Day: Creative Destruction, the Uber Effect, and the Slow Death of the NYC Taxi Cartel,” Carpe Diem, March 17, 2018, http://www.aei.org/publication/chart-of-the-day-creative-destruction-the-uber-effect-and-the-slow-death-of-the-nyc-yellow-taxi/. 25. American Medical Association. “AMA Code of Medical Ethics: Treating Self or Family,” accessed October 29, 2018, https://www.ama-assn.org/delivering-care/treating-self-or-family. 26. Robert Anson Heinlein, Expanded Universe: The New Worlds of Robert A.

Will Rogers, Ambassador of Good Will, Prince of Wit and Wisdom. Philadelphia: John C. Winston, 1935. Oneal, John R., and Bruce Russett. “Assessing the Liberal Peace with Alternative Specifications: Trade Still Reduces Conflict.” Journal of Peace Research 36, no. 4 (1999): 423–442. Perry, Mark J. “Chart of the Day: Creative Destruction, the Uber Effect, and the Slow Death of the NYC Taxi Cartel.” Carpe Diem, March 17, 2018. http://www.aei.org/publication/chart-of-the-day-creative-destruction-the-uber-effect-and-the-slow-death-of-the-nyc-yellow-taxi/. Polybius. The Histories, in The Portable Greek Historians: The Essence of Herodotus, Thucydides, Xenophon, Polybius, edited by Moses I. Finley, book VI, para. 3 . New York: Penguin, 1977. Posso, Alberto, and George B. Tawadros. “Does Greater Central Bank Independence Really Lead to Lower Inflation?


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99%: Mass Impoverishment and How We Can End It by Mark Thomas

"Robert Solow", 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, additive manufacturing, Albert Einstein, anti-communist, autonomous vehicles, bank run, banks create money, bitcoin, business cycle, call centre, central bank independence, complexity theory, conceptual framework, creative destruction, credit crunch, declining real wages, distributed ledger, Donald Trump, Erik Brynjolfsson, eurozone crisis, fiat currency, Filter Bubble, full employment, future of work, Gini coefficient, gravity well, income inequality, inflation targeting, Internet of things, invisible hand, Jeff Bezos, jimmy wales, job automation, Kickstarter, labour market flexibility, laissez-faire capitalism, light touch regulation, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, money: store of value / unit of account / medium of exchange, Nelson Mandela, North Sea oil, Occupy movement, offshore financial centre, Own Your Own Home, Peter Thiel, Piper Alpha, plutocrats, Plutocrats, profit maximization, quantitative easing, rent-seeking, Ronald Reagan, Second Machine Age, self-driving car, Silicon Valley, smart cities, Steve Jobs, The Great Moderation, The Wealth of Nations by Adam Smith, wealth creators, working-age population

According to market capitalism, government intervention, no matter how well-intentioned, consumes resources which would be better used in the private sector and therefore inevitably makes matters worse economically. Ronald Reagan summarized this view succinctly: ‘Government isn’t the solution; government is the problem.’3 Free markets, according to this doctrine, while they may occasionally experience painful periods of creative destruction, are the only way to guarantee the best use of resources, the highest levels of economic growth and the fairest distribution of the wealth that they create. It’s a persuasive story: clear, simple and underpinned by a compelling work ethic. For many years I believed it myself. Institutionally, the biggest change from the Golden Age of Capitalism to the Age of Market Capitalism was that government intervention was no longer perceived as a vital way of alleviating economic woes.

Real wage growth from 1830 to 1869 averaged around 1 per cent per annum; in that same period, real GDP grew at over 2 per cent per annum – more than twice as quickly. The Industrial Revolution, then, was a revolution for the economy as a whole but, especially for the first thirty years or so, all the benefits went to the rich. Although the new technology did create new jobs, these were often less skilled and less well-paid than the jobs they destroyed. It was not until the process of industrialization was essentially complete, and the ‘creative destruction’ was finished, that wages could resume their upward progress. This is not, of course, an argument that ordinary people never benefitted from the Industrial Revolution – of course, over the very long-term, we have all benefitted enormously and our standard of living today is vastly higher than any prior period in history – which it would not be had the world not industrialized. But it does demonstrate that technological progress, even if ultimately beneficial, can lead to a generation or more of mass impoverishment if its introduction is not managed well.

I think the global professional middle class is about to be blindsided.27 She cites a recent competition at Columbia University between human lawyers and their artificial counterparts, in which both read a series of non-disclosure agreements with loopholes in them. The AI found 95 per cent of them, and the humans 88 per cent. But the human took 90 minutes to read them. The AI took 22 seconds. The optimistic view would be that this represents capitalism at its best: new technology enabling a leap forward in productivity; creative destruction releasing resources currently tied up in inefficient old approaches to providing products and services, and freeing them up to provide newer, higher added-value products and services. It is certainly true that there will be new jobs created – at least in the short term – for people to design, program, commission and service all the new machines. It is also likely that these jobs will, by and large, be well-paid.


pages: 290 words: 76,216

What's Wrong with Economics? by Robert Skidelsky

"Robert Solow", additive manufacturing, agricultural Revolution, Black Swan, Bretton Woods, business cycle, Cass Sunstein, central bank independence, cognitive bias, conceptual framework, Corn Laws, corporate social responsibility, correlation does not imply causation, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, disruptive innovation, Donald Trump, full employment, George Akerlof, George Santayana, global supply chain, global village, Gunnar Myrdal, happiness index / gross national happiness, hindsight bias, Hyman Minsky, income inequality, index fund, inflation targeting, information asymmetry, Internet Archive, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, knowledge economy, labour market flexibility, loss aversion, Mark Zuckerberg, market clearing, market friction, market fundamentalism, Martin Wolf, means of production, moral hazard, paradox of thrift, Pareto efficiency, Paul Samuelson, Philip Mirowski, precariat, price anchoring, principal–agent problem, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, shareholder value, Silicon Valley, Simon Kuznets, survivorship bias, technoutopianism, The Chicago School, The Market for Lemons, The Nature of the Firm, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, Thorstein Veblen, transaction costs, transfer pricing, Vilfredo Pareto, Washington Consensus, Wolfgang Streeck, zero-sum game

Further, capitalism has showed itself superior to communism as a growth engine, because central planning couldn’t do the necessary social arithmetic – an argument we owe to Hayek (1937). Then there was Joseph Schumpeter, whose views could be summarised as ‘never let a recession go to waste’. He was the apostle of wealth-creation through ‘creative destruction’. Progress was not a smooth evolutionary process but a chaotic one, in which moribund giants are constantly being replaced by agile upstarts through a succession of crises. This is a concept that modern-day Silicon Valley has embraced under the softer label of ‘disruptive innovation’. For Schumpeter creative destruction is the way the capitalist system works. He would have said that it creates more ‘value’ than it destroys. The same reply is given by techno-enthusiasts. To be sure, they say, automation will destroy many existing jobs and ways of life, but in the long run all will benefit.

This translates into the idea of balanced growth, with population and capital increasing at roughly the same rate and preferences staying constant.8 Partial equilibrium traces the adjustment of supply to demand in a particular market in isolation from the rest of the economy. Joseph Schumpeter contrasted static and dynamic models. Statics refers to an economy of given, known, and constant external conditions, such as tastes and technology. This has no resemblance to modern market economies. In dynamic analysis, external conditions not only change but such change is fundamental to a capitalist economy. Entrepreneurs try out innovations which in a process of creative destruction replace tried methods: ‘increasing destruction of age-old relationships for the sake of profit’.9 Schumpeter, like Marx, understood that technological progress is endogenous: it is impelled by the logic of competitive, profit-maximising capitalism. Cyclical theories are a long-run type of equilibrium theory. The capitalist economy experiences waves of innovation, each one of which eventually exhausts itself like a receding tide.

INDEX absolute poverty rates (i) Acton, Peter (i) advertising (i), (ii), (iii) agency collective agency (i), (ii), (iii) of the individual (i) location of (i) moral agency (i) within social structures (i) Akerlof, George (i), (ii) Arrow, Kenneth (i) auction markets (i) Bayes’ theorem (i), (ii) Becker, Gary (i), (ii), (iii) behavioural economics on deviations from rationality (i), (ii) fallibility of testing procedures (i) fast and slow thinking (i) ‘nudge’ approach (i) overview of (i), (ii) systemic errors of human behaviour (i), (ii) use of heuristics (i) big push theories (i) Borjas, George J. (i) Bourdieu, Pierre (i) Buchanan, James M. (i), (ii) capital goods (i), (ii) capitalism and belief in predestination (i) capital as stored-up labour (i) creative destruction of (i) exploitation of labour (i) Frankenstein as a metaphor for (i) homo economicus’s evolution (i) moral cost of progress (i) peripheral economies (i) in sociological thought (i) Carlyle, Thomas (i) Chang, Ha-Joon (i), (ii) Chicago school (i), (ii) class analysis (i), (ii), (iii) classical economics definition of economics (i) economic growth (i), (ii) growth/stagnation problem (i) methodology (i) scarcity in (i) cliometrics (i) closed systems (i), (ii), (iii), (iv) Coase, Ronald (i) collectivism collective agency (i), (ii), (iii) liberal/collectivist cycles (i) comparative advantage theory (i), (ii) conspicuous consumption (i) consumer sovereignty (i), (ii), (iii) contracts in general equilibrium theory (i), (ii), (iii) within modern society (i) morality and (i), (ii) the power of the state as (i) regulation of (i) cost of production theory (i) Daly, Herman (i) Debreu, Gerard (i) decision-making processes agenda power and (i) in conditions of uncertainty (i) rationality and (i) systemic errors of human behaviour (i), (ii) dependency (dependencia) theory (i) Derrida, Jacques (i) development economics big push theories of structuralism (i) economic growth in (i), (ii) import-substitution policies (i), (ii) liberalisation policies in developing economies (i), (ii) of peripheral economies within capitalism (i) protectionist doctrines (i) role of the state (i) stadial theory (i) Washington Consensus (i), (ii) Devons, Ely (i) diamond-water paradox (i), (ii) doughnut economics (i) Durkheim, Emile (i) Easterlin Paradox (i) ecological economics (i) econometric testing (i), (ii) economic growth via accumulation (i), (ii) in classical economics (i), (ii) in development economics (i), (ii) division of labour (i) free trade doctrine (i), (ii), (iii), (iv), (v) Malthusian population problem (i) moral efficiency for (i) protectionism (i), (ii) role of institutions (i), (ii), (iii) role of the state (i), (ii) social purpose of (i) technological innovation for (i), (ii) Washington Consensus (i) for wealth creation (i) economic history for empirical evidence (i), (ii) liberal/collectivist cycles (i) productive division with economics (i) the study of (i), (ii) time-series analysis (i) use of econometrics (i) see also history; history of economic thought economics defined (i) a different approach to (i) within the political landscape (i) in relation to other social sciences (i) in relation to the laws of physics (i) as a science (i), (ii), (iii), (iv), (v) teaching of (i) see also scientific economics efficiency efficiency of choice (i) moral restraint for economic growth (i) morally efficient behaviour (i), (ii), (iii) trade-off with equity (i) emulation complex (i) the Enlightenment (i), (ii) environmental economics (i) epistemology within a broader understanding of economics (i) in economics (i) insufficient generality of premises (i) probability in (i) in relation to ontology (i), (ii) equilibrium theory contracts in (i), (ii), (iii) cyclical theories (i), (ii) dynamic equilibrium (i) in economic thought (i), (ii) frictions (i) in Keynesian economics (i) in the markets (i), (ii), (iii) Marxist thought on (i) optimum equilibrium (i) partial equilibrium (i) principle of (i), (ii), (iii) in the real world (i) role of self-interest (i) shocks, notion of (i), (ii) static equilibrium (i) supply and demand (competitive equilibrium) (i) Walrasian general equilibrium (GE) (i), (ii), (iii), (iv) ethics costs of progress (i) doughnut economics (i) in economics (i), (ii), (iii), (iv) ethical objections to homo economicus (i) the harm principle (i) justice of property rights (i) lack of in scientific economics (i), (ii) methodological individualism (i) procedural ethics (i) value theory (i) see also morality fallacy of composition (i) financial crisis (2008) complex system modelling (i) developments in economic thought since (i), (ii), (iii), (iv), (v) explanations for (i) failure to foresee (i), (ii), (iii), (iv), (v) firms as economic actors (i) functions of (i), (ii) impact of modern technology (i) moral responsibilities of (i) relationship with the consumer (i) within social networks (i) transaction cost theory (i) Fogel, Robert W.


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Against Intellectual Monopoly by Michele Boldrin, David K. Levine

"Robert Solow", accounting loophole / creative accounting, agricultural Revolution, barriers to entry, business cycle, cognitive bias, creative destruction, David Ricardo: comparative advantage, Dean Kamen, Donald Trump, double entry bookkeeping, en.wikipedia.org, endogenous growth, Ernest Rutherford, experimental economics, financial innovation, informal economy, interchangeable parts, invention of radio, invention of the printing press, invisible hand, James Watt: steam engine, Jean Tirole, John Harrison: Longitude, Joseph Schumpeter, Kenneth Arrow, linear programming, market bubble, market design, mutually assured destruction, Nash equilibrium, new economy, open economy, peer-to-peer, pirate software, placebo effect, price discrimination, profit maximization, rent-seeking, Richard Stallman, Silicon Valley, Skype, slashdot, software patent, the market place, total factor productivity, trade liberalization, transaction costs, Y2K

Being its “discoverers,” we will christen it “IP-inefficiency” and illustrate its working by means of a few significant examples. The theory of why IP-efficiency comes about is rather simple: like every profit maximizing entrepreneur, monopolists are willing and able to do anything legally and technically feasible to retain their monopoly profits. Later in the book, we talk about the Schumpeterian model of dynamic efficiency via creative destruction. This model dreams of a continuous flow of innovation due to new entrants overtaking incumbents and becoming monopolists until new innovators quickly take their place. In this theory, new entrants work like mad to innovate, drawn by the enormous monopoly profits they will make. Our simple observation is that, by the same token, monopolists will also work like mad to retain their enormous monopoly profits.

The authors call the cross-licensing between innovators and incumbents aimed at maintaining monopoly pricing for the cooper-ators “cooperative commercialization strategy,” and conclude the following: “While a cooperative commercialization strategy forestalls the costs of competition in the product market and avoids duplicative investments in sunk assets, imperfections in the “market for ideas” may lead innovators to instead pursue a competitive strategy in the product market. . . . [F]irms who control intellectual property or are associated with venture capital financing are more likely to pursue a cooperative strategy” (p. 30). Notice what this says: IP facilitates collusive behavior and the persistence of monopoly. Competition and “creative destruction” come along only when IP rights are weak or nonexistent. To which we say, “Exactly, Sherlock.” 14. Online at http://www.freepatentsonline.com/20050160457.html (accessed February 24, 2008). 15. The Federal Circuit Court Opinion in this case can be found at http://www.ll. georgetown.edu/federal/judicial/fed/opinions/00opinions/00-1464.html (accessed February 24, 2008). 16. For the views of the Justice Department on the relation between antitrust and intellectual property see Klein (1997).

Schumpeterian Good Monopoly Although originally not a mainstream view in economics, the Schumpeterian view is now close to becoming orthodoxy in most circles.30 Schumpeter celebrates monopoly as the ultimate accomplishment of capitalism. He argues that, in a world in which intellectual property holders are monopolists, competition is a dynamic process that is implemented via the method of creative destruction. This idea remains widespread today; for example, Aghion and Howitt in 1992 developed a formal model based on Schumpeterian ideas. The critical principle is that competition is not in the market P1: KNP head margin: 1/2 gutter margin: 7/8 CUUS245-07 cuus245 978 0 521 87928 6 May 21, 2008 16:55 170 Against Intellectual Monopoly but for the market; while competition may be good at a given point in time, as it induces static efficiency, monopoly is good in the long run, these theorists argue, because it brings about dynamic efficiency, that is, innovation.


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Start It Up: Why Running Your Own Business Is Easier Than You Think by Luke Johnson

Albert Einstein, barriers to entry, Bernie Madoff, business cycle, collapse of Lehman Brothers, corporate governance, corporate social responsibility, creative destruction, credit crunch, Grace Hopper, happiness index / gross national happiness, high net worth, James Dyson, Jarndyce and Jarndyce, Jarndyce and Jarndyce, Kickstarter, mass immigration, mittelstand, Network effects, North Sea oil, Northern Rock, patent troll, plutocrats, Plutocrats, Ponzi scheme, profit motive, Ralph Waldo Emerson, Silicon Valley, software patent, stealth mode startup, Steve Jobs, Steve Wozniak, The Wealth of Nations by Adam Smith, traveling salesman, tulip mania, Vilfredo Pareto, wealth creators

To the recent graduate Part 2 PEOPLE Age and the founder Time, energy and ideas Poor children of the rich and successful Joys and perils of a partnership Networking Cliques and clubs – the ties that bind Mentoring The founder’s passion Bottom-up management An end to pygmy bosses and grey leaders Coping with talent Trouble within Private-life drama The necessary evil of HR Part 3 POINTS OF STYLE Bring back the Renaissance men There always will be blood Fatherhood and the entrepreneur Some day my prince will come (home early) The delights of the portfolio career The mythical entrepreneur Ritualism in business Made not born The brogue element Part 4 THE CAPITAL PURSUIT Tales of the Money Riverbank Moonlighting: the best launch for a start-up Summoning an angel Venture capitalists: on another wavelength Banks Secondary sources of money A word about dumb money Part 5 FORMULAS The trouble with trying to spot a winner Five questions I ask myself before investing Business plans A list of don’ts A spell in service By the staff, for the staff Independents will always have their day Franchises – the worst of all worlds Part 6 THE CYCLE Turnaround and creative destruction The cycle as told by restaurants Managing in a downturn Faustian pact of a guarantee A sense of dread ails the opinion-makers The consumer’s new mantra is value X & Y in a downturn Dishonest dealings Watch out for an epidemic of petty fraud Time to go on the offensive Hard times reveal the true opportunists Losing your reputation Getting fired Part 7 THE ENTREPRENEUR AT LARGE Inventors are heroes Women inventors Innovation and reality All part of a good education The reputation of business What’s so terrible about making money?

Be highly suspicious if you are offered a relatively obscure, second-hand franchise for sale. The vendor has probably discovered that the system doesn’t work, and you are likely to have the same difficulties if you proceed. Better to start with a clean sheet, and either put your own name above the door or buy someone else’s good name outright. PART 6 The Cycle Turnaround and creative destruction All businesses and industries are cyclical, and that boom and bust comes to virtually every company. It is human nature to become exuberant at the top and depressed at the bottom – such a roller coaster is the essence of life. I would go so far as to say in general I prefer the company of those who have highs and lows, rather than someone whose mood is flat and unchanging. Those dull spirits remind me of entropy, and all life is engaged in a perpetual battle to resist that.

This is an irresistible sequence of events. Mere mortals cannot resist the tide of history. Markets and exchanges are merely mechanisms that reflect the temperament of man. Witnessing and participating in such upheaval can be traumatic. Take the collapse of Lehman Brothers and the forced sell-offs of Merrill Lynch and HBoS. For the staff, their families, and other stakeholders, this classic example of Schumpeter’s ‘creative destruction’ is hardly something to be celebrated. Here is a sudden and jolting reallocation of resources. Overnight, venerable institutions are destroyed, and new ones spring up, phoenix-like, to fill the gap. But this process of renewal is at the heart of capitalism. Inefficient and misguided organizations disappear and ultimately more productive ones arise. Nothing is permanent and all organizations must reinvent themselves periodically – or die.


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The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns by John C. Bogle

asset allocation, backtesting, buy and hold, creative destruction, diversification, diversified portfolio, financial intermediation, fixed income, index fund, invention of the wheel, Isaac Newton, new economy, passive investing, Paul Samuelson, random walk, risk tolerance, risk-adjusted returns, Sharpe ratio, stocks for the long run, survivorship bias, transaction costs, Upton Sinclair, Vanguard fund, William of Occam, yield management, zero-sum game

Contrarily, for those who invest and then drop out of the game and never pay a single unnecessary cost, the odds in favor of success are awesome. Why? Simply because they own shares of businesses, and businesses as a group earn substantial returns on their capital, pay out dividends to their owners, and reinvest what’s left for their future growth. Yes, many individual companies fail. Firms with flawed ideas and rigid strategies and weak managements ultimately fall victim to the creative destruction that is the hallmark of competitive capitalism, only to be succeeded by other firms.3 But in the aggregate, businesses have grown with the long-term growth of our vibrant economy. Since 1929, for example, our nation’s gross domestic product (GDP) has grown at a nominal annual rate of 6.2 percent; annual pretax profits of our nation’s corporations have grown at a rate of 6.3 percent. The correlation between the growth of GDP and the growth of corporate profits is 0.98. (1.0 is perfect.)

Such a huge $3 trillion swing in investor preferences surely represents no less than an investment revolution. In retrospect, it seems clear that my pioneering creation of the first index mutual fund in 1975 provided the spark that ignited the index revolution. And it also seems reasonable to conclude that my books, read by an estimated 1.5 million readers, played a major role in fueling the extraordinary power of the revolution that followed. The creative destruction reaped by index funds has, by and large, served investors well. As you read this 10th Anniversary Edition of The Little Book of Common Sense Investing, you’ll see that it stands firmly behind the sound principles of its predecessors, with new chapters on dividends, asset allocation, and retirement planning focused on the implementation of those principles.  Learn! Enjoy! Act! JOHN C. BOGLE Valley Forge, Pennsylvania September 1, 2017 Don’t Take My Word for It Charles T.

Today, if you wish, you could literally hold all your wealth in a diversified portfolio of low-cost traditional index funds representing every asset class and every market sector within the United States or around the globe. 2 Over the past century, the average nominal return on U.S. stocks was 10.1 percent per year. In real terms (after 3.4 percent inflation) the real annual return was 6.7 percent. During the next decade, both returns are likely to be significantly lower. (See Chapter 9.) 3 “Creative destruction” is the formulation of Joseph E. Schumpeter in his 1942 book Capitalism, Socialism, and Democracy. 4 “Economical,” “efficient,” and “honest” are the words I used in my 1951 Princeton University thesis, “The Economic Role of the Investment Company.” Some principles are eternal. Chapter One A Parable The Gotrocks Family EVEN BEFORE YOU THINK about “index funds”—in their most basic form, mutual funds that simply buy shares of substantially all of the stocks in the U.S. stock market and hold them forever—you must understand how the stock market actually works.


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Brave New Work: Are You Ready to Reinvent Your Organization? by Aaron Dignan

"side hustle", activist fund / activist shareholder / activist investor, Airbnb, Albert Einstein, autonomous vehicles, basic income, Bertrand Russell: In Praise of Idleness, bitcoin, Black Swan, blockchain, Buckminster Fuller, Burning Man, butterfly effect, cashless society, Clayton Christensen, clean water, cognitive bias, cognitive dissonance, corporate governance, corporate social responsibility, correlation does not imply causation, creative destruction, crony capitalism, crowdsourcing, cryptocurrency, David Heinemeier Hansson, deliberate practice, DevOps, disruptive innovation, don't be evil, Elon Musk, endowment effect, Ethereum, ethereum blockchain, Frederick Winslow Taylor, future of work, gender pay gap, Geoffrey West, Santa Fe Institute, gig economy, Google X / Alphabet X, hiring and firing, hive mind, income inequality, information asymmetry, Internet of things, Jeff Bezos, job satisfaction, Kevin Kelly, Kickstarter, Lean Startup, loose coupling, loss aversion, Lyft, Marc Andreessen, Mark Zuckerberg, minimum viable product, new economy, Paul Graham, race to the bottom, remote working, Richard Thaler, shareholder value, Silicon Valley, six sigma, smart contracts, Social Responsibility of Business Is to Increase Its Profits, software is eating the world, source of truth, Stanford marshmallow experiment, Steve Jobs, TaskRabbit, the High Line, too big to fail, Toyota Production System, uber lyft, universal basic income, Y Combinator, zero-sum game

sixfold increase in prosperity: Max Roser, “The Short History of Global Living Conditions and Why It Matters That We Know It,” Our World in Data, 2018, https://ourworldindata.org/a-history-of-global-living-conditions-in-5-charts. by 2027 the average tenure: Innosight, “Creative Destruction Whips Through Corporate America” (executive briefing), Winter 2012, www.innosight.com/wp-content/uploads/2016/08/creative-destruction-whips-through-corporate-america_final2015.pdf. will shrink to just twelve years: Scott D. Anthony, S. Patrick Viguerie, and Andrew Waldeck, “Corporate Longevity: Turbulence Ahead for Large Organizations,” Innosight, Spring 2016, www.innosight.com/wp-content/uploads/2016/08/Corporate-Longevity-2016-Final.pdf; Scott D. Anthony et al., “2018 Corporate Longevity Forecast: Creative Destruction Is Accelerating” (executive briefing), Innosight, February 2018, www.innosight.com/wp-content/uploads/2017/11/Innosight-Corporate-Longevity-2018.pdf.

Others claim that it can be done but that it requires a fractal approach—a federation of smaller groups working more like a marketplace than a traditional company. One thing is for sure: the unprecedented scale of human activity makes things harder than they need to be. While it is undeniably easier to encode the principles and practices of self-management before an organization achieves scale, it can be done long after. What’s more, we must learn how to change at scale or we risk an unnecessary amount of creative destruction in the years ahead. Refreshing large dysfunctional systems without total system failure is actually one of the great challenges of our time. Because while you can found another startup in a weekend, creating another school system or healthcare system or government is another matter entirely. The most confusing aspect of searching for self-management at scale may simply be definitional.


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Big Business: A Love Letter to an American Anti-Hero by Tyler Cowen

23andMe, Affordable Care Act / Obamacare, augmented reality, barriers to entry, Bernie Sanders, bitcoin, blockchain, Bretton Woods, cloud computing, cognitive dissonance, corporate governance, corporate social responsibility, correlation coefficient, creative destruction, crony capitalism, cryptocurrency, dark matter, David Brooks, David Graeber, don't be evil, Donald Trump, Elon Musk, employer provided health coverage, experimental economics, Filter Bubble, financial innovation, financial intermediation, global reserve currency, global supply chain, Google Glasses, income inequality, Internet of things, invisible hand, Jeff Bezos, late fees, Mark Zuckerberg, mobile money, money market fund, mortgage debt, Network effects, new economy, Nicholas Carr, obamacare, offshore financial centre, passive investing, payday loans, peer-to-peer lending, Peter Thiel, pre–internet, price discrimination, profit maximization, profit motive, RAND corporation, rent-seeking, reserve currency, ride hailing / ride sharing, risk tolerance, Ronald Coase, shareholder value, Silicon Valley, Silicon Valley startup, Skype, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, The Nature of the Firm, Tim Cook: Apple, too big to fail, transaction costs, Tyler Cowen: Great Stagnation, ultimatum game, WikiLeaks, women in the workforce, World Values Survey, Y Combinator

So often we see that business virtues correlate with social virtues.4 There is another reason American business has done well: the American economy is relatively effective, compared with other countries, in weeding out the worst firms through competitive pressures. The very worst firms in the United States just aren’t that bad compared with the best firms, whereas for other countries the gap is typically much larger. This is another way of saying that Americans do the “creative destruction” part of capitalism—that is, the process by which people vote with their wallets as to which is the best restaurant, car, or suitcase, and the losers go out of business—better than the rest of the world. The problem with protectionism, which at first glance looks appealing because it claims to protect our workers, is that it becomes much harder for more productive businesses to displace the less productive ones, a fundamental source of economic progress.

Both Japan and significant parts of Western Europe have propped up “zombie banks” or “zombie companies” for years or decades, hindering the flow of capital into new endeavors. The goal behind those policies was to limit economic disruption, but long-term dynamism has suffered. By keeping older, possibly insolvent banks and companies up and running, previous decisions and decision-makers are more likely to stay locked in place, which slows down the marketplace process of creative destruction and the replacement of old economic sectors with new ones, including tech. In sectoral terms, the American economy has adjusted better to a changing world, and part of the credit goes to its relatively dynamic institutions of corporate finance. AMERICAN STOCKS HAVE PERFORMED WELL, ENRICHING AMERICANS One way of boosting returns is to distribute the benefits of equity to a greater and more diverse set of individuals.

Bernstein, Elizabeth best sellers See also publishing Bezos, Jeff See also Amazon Big Brother See privacy Big Data Big Pharma Big Tech disappearance of competition impact on intelligence innovation and loss of privacy and overview Bing Bird, Larry Bitcoin Black, Leon BlackBerry Blackstone blockchain Bloxham, Eleanor Blue Cross/Blue Shield brand loyalty Brexit Brin, David Brooks, Nathan bubbles, financial sector Bullshit Jobs: A Theory (Graeber) Burger King cable TV cable companies cable news Capital One capitalism “creative destruction” and Friedman on logic of market churn and media and public’s view of short-termism venture capitalists workers and young people and See also crony capitalism Capitalism for the People, A (Zingales) Carr, Nicholas Carrier CEOs deaths of increases in salary overview pay for creating value short-termism and skill set China American manufacturing and Apple and facial recognition technology financial innovations financial institutions multinational corporations and productivity retail and tech companies and See also Alibaba Cialdini, Robert Cisco Citibank Citizens United decision See also Supreme Court Civil War Clark, Andrew E.


pages: 252 words: 78,780

Lab Rats: How Silicon Valley Made Work Miserable for the Rest of Us by Dan Lyons

Airbnb, Amazon Web Services, Apple II, augmented reality, autonomous vehicles, basic income, bitcoin, blockchain, business process, call centre, Clayton Christensen, clean water, collective bargaining, corporate governance, corporate social responsibility, creative destruction, cryptocurrency, David Heinemeier Hansson, Donald Trump, Elon Musk, Ethereum, ethereum blockchain, full employment, future of work, gig economy, Gordon Gekko, greed is good, hiring and firing, housing crisis, income inequality, informal economy, Jeff Bezos, job automation, job satisfaction, job-hopping, John Gruber, Joseph Schumpeter, Kevin Kelly, knowledge worker, Lean Startup, loose coupling, Lyft, Marc Andreessen, Mark Zuckerberg, McMansion, Menlo Park, Milgram experiment, minimum viable product, Mitch Kapor, move fast and break things, move fast and break things, new economy, Panopticon Jeremy Bentham, Paul Graham, paypal mafia, Peter Thiel, plutocrats, Plutocrats, precariat, RAND corporation, remote working, RFID, ride hailing / ride sharing, Ronald Reagan, Rubik’s Cube, Ruby on Rails, Sam Altman, Sand Hill Road, self-driving car, shareholder value, Silicon Valley, Silicon Valley startup, six sigma, Skype, Social Responsibility of Business Is to Increase Its Profits, software is eating the world, Stanford prison experiment, stem cell, Steve Jobs, Steve Wozniak, Stewart Brand, TaskRabbit, telemarketer, Tesla Model S, Thomas Davenport, Tony Hsieh, Toyota Production System, traveling salesman, Travis Kalanick, tulip mania, Uber and Lyft, Uber for X, uber lyft, universal basic income, web application, Whole Earth Catalog, Y Combinator, young professional

CNN Money, January 4, 2017. http://money.cnn.com/2017/01/04/news/companies/macys-job-cuts-stock/index.html. Welch, David. “Hertz’s 101-Year-Old Business Nearing Twilight in Uber Age.” Bloomberg, August 9, 2017. https://www.bloomberg.com/news/articles/2017-08-09/in-age-of-uber-a-101-year-old-business-approaches-its-twilight. Werber, Cassie. “Machines Are Destroying Some Jobs, but Also Creating Better Ones Through ‘Creative Destruction.’” Quartz, August 19, 2015. https://qz.com/483006/machines-are-destroying-some-jobs-but-also-creating-better-ones-through-creative-destruction. Chapter 7: Insecurity: “We’re a Team, Not a Family” All Things Considered. “How the Architect of Netflix’s Innovative Culture Lost Her Job to the System.” National Public Radio, Planet Money Special Series, September 3, 2015. https://www.npr.org/2015/09/03/437291792/how-the-architect-of-netflixs-innovative-culture-lost-her-job-to-the-system.

Silicon Valley promotes the gig economy as an innovative new industry that is creating jobs for millions of people. But the jobs being created are mostly bad ones. Meanwhile, gig-economy companies threaten established industries. Airbnb steals business from hotels. Uber and Lyft have hurt business at car-rental companies like Hertz and Avis, and have utterly decimated the taxi and livery business. Pundits like to talk about “creative destruction” as if it were an abstract concept, but the sight of a driver parked in front of City Hall with his head blown off served as a reminder that all this change and so-called progress is coming at a very high cost to actual human beings. As the New York Times reported, Schifter “was not a participant in the gig economy; he was a casualty of it.” There are many others. In New York, cabbies and limo drivers are going bankrupt, losing their homes or being evicted from apartments.

As bad as that is, things soon might get even worse. “If today is considered a retail apocalypse, then what’s coming next could truly be scary,” Bloomberg reported in November 2017, predicting that by the time the storm ends as many as eight million people, most of them low-income workers, could be put out of work. Where are those eight million laid-off retail workers going to go? People in Silicon Valley like to talk about “creative destruction,” a term popularized by economist Joseph Schumpeter. In the happy-face version of how this works, technology kills old jobs, but it also creates new and better ones. Factory workers lose their jobs to robots, but then go to work at the company that makes the robots. But eight million displaced retail workers are not going to get absorbed into Amazon. The online retailer employs five hundred thousand people, which sounds like a lot but is actually remarkably lean.


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A Little History of Economics by Niall Kishtainy

"Robert Solow", Alvin Roth, British Empire, Capital in the Twenty-First Century by Thomas Piketty, car-free, central bank independence, clean water, Corn Laws, creative destruction, credit crunch, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Eugene Fama: efficient market hypothesis, first-price auction, floating exchange rates, follow your passion, full employment, George Akerlof, greed is good, Hyman Minsky, inflation targeting, invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, loss aversion, market clearing, market design, means of production, moral hazard, Nash equilibrium, new economy, Occupy movement, Pareto efficiency, Paul Samuelson, prisoner's dilemma, RAND corporation, rent-seeking, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, sealed-bid auction, second-price auction, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade route, Vickrey auction, Vilfredo Pareto, washing machines reduced drudgery, wealth creators, Winter of Discontent

The leaky bathtub shows his diagnosis of the problem; in Chapter 27 we’ll come to the cure. The gist of it was that because the economy couldn’t right itself, the government had to. It had to take on a larger role in the economy than ever before, in the hope that a disaster like the Great Depression would never happen again. Capitalism survived the storm, but it was changed forever. CHAPTER 19 Creative Destruction The Austrian economist Joseph Schumpeter (1883–1950) loved to show off his brilliant intellect and keen wit. He once said that he had three ambitions: to be the greatest economist in the world, the finest horseman in Austria and the best lover in Vienna. He regretted, he said, that he’d only succeeded in two of them, adding that, unfortunately, things hadn’t been going so well with the horses lately.

Boom and bust, the up-and-down cycles of the capitalist economy, come from successive waves of innovation, the ebb and flow of entrepreneurship and imitation. New technologies kill off old ones – the horse-drawn cart gives way to the car, the candle to the light bulb. Companies like the camera film manufacturer Kodak rise, then decline, and new leaders appear, like Samsung, who put digital cameras into mobile phones. Schumpeter called it ‘creative destruction’. In Schumpeter’s view, capitalism is nothing but the constant change caused by restless entrepreneurs. Unlike most economists, Schumpeter thought that monopolies helped the economy to advance. Economists usually view monopolies as inefficient because they charge too much and produce too little. They recognise a few exceptions, though. In some industries huge investments need to be made to begin producing a good.

Schumpeter shows us that equilibrium is really just an economy caught in a freeze-frame. ‘What a pathetic figure is the economic actor who is always searching anxiously for an equilibrium,’ says Schumpeter. ‘He has no ambition and no entrepreneurial spirit. He is, in short, without force and life.’ To Schumpeter the most important thing about capitalism was that entrepreneurs are constantly throwing rocks into the pond. The waves of creative destruction never die down. In Marshall’s economy, firms compete on the price of oil lamps. In Schumpeter’s, successful entrepreneurs blow away their competitors by inventing light bulbs. In fact, capitalism is a bit like Schumpeter himself: bold and vital, fizzing with new ideas, never at rest. Underneath Schumpeter’s surface of sparkle and wit, however, was a troubled mind, and in the capitalism that he tried to understand he perceived a dark side.


pages: 397 words: 112,034

What's Next?: Unconventional Wisdom on the Future of the World Economy by David Hale, Lyric Hughes Hale

affirmative action, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Berlin Wall, Black Swan, Bretton Woods, business cycle, capital controls, Cass Sunstein, central bank independence, cognitive bias, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, debt deflation, declining real wages, deindustrialization, diversification, energy security, Erik Brynjolfsson, Fall of the Berlin Wall, financial innovation, floating exchange rates, full employment, Gini coefficient, global reserve currency, global village, high net worth, Home mortgage interest deduction, housing crisis, index fund, inflation targeting, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Just-in-time delivery, Kenneth Rogoff, Long Term Capital Management, Mahatma Gandhi, Martin Wolf, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, money market fund, money: store of value / unit of account / medium of exchange, mortgage tax deduction, Network effects, new economy, Nicholas Carr, oil shale / tar sands, oil shock, open economy, passive investing, payday loans, peak oil, Ponzi scheme, post-oil, price stability, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, sovereign wealth fund, special drawing rights, technology bubble, The Great Moderation, Thomas Kuhn: the structure of scientific revolutions, Tobin tax, too big to fail, total factor productivity, trade liberalization, Washington Consensus, Westphalian system, WikiLeaks, women in the workforce, yield curve

In the early 1990s, the Scandinavians went through the same sort of structural crisis as Japan, but they have come out the other side in much better shape.1 Growth requires creative destruction. But if the destruction is too destructive, it will be politically intolerable. The Scandinavian use of a well-designed, pro-growth social safety net has made those countries politically safe for creative destruction. Rather than suffering a trade-off between its social safety net and growth, the Scandinavians enjoy a synergy: good growth finances the social safety net, while the safety net makes workers tolerate the creative destruction that generates good growth. Some reformers in Japan want the creative destruction without a proper social safety net. Others want to preserve Japan’s traditional, antigrowth social safety net and avoid creative destruction. That is why Japan has so far failed to come up with the needed solution.


pages: 479 words: 113,510

Fed Up: An Insider's Take on Why the Federal Reserve Is Bad for America by Danielle Dimartino Booth

Affordable Care Act / Obamacare, asset-backed security, bank run, barriers to entry, Basel III, Bernie Sanders, break the buck, Bretton Woods, business cycle, central bank independence, collateralized debt obligation, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, financial deregulation, financial innovation, fixed income, Flash crash, forward guidance, full employment, George Akerlof, greed is good, high net worth, housing crisis, income inequality, index fund, inflation targeting, interest rate swap, invisible hand, John Meriwether, Joseph Schumpeter, liquidity trap, London Whale, Long Term Capital Management, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, moral hazard, Myron Scholes, natural language processing, negative equity, new economy, Northern Rock, obamacare, price stability, pushing on a string, quantitative easing, regulatory arbitrage, Robert Shiller, Robert Shiller, Ronald Reagan, selection bias, short selling, side project, Silicon Valley, The Great Moderation, The Wealth of Nations by Adam Smith, too big to fail, trickle-down economics, yield curve

When Rosenblum arrived in the mid-1980s, the Dallas Fed’s reputation probably would have been ranked eleventh out of twelve regional banks, or the “Sleepy Fed,” in the view of economist Michael Cox, who spent over thirty years at the bank. (He’s now a professor at Southern Methodist University.) Under the leadership of Rosenblum, the Dallas bank improved dramatically and became known as the Free-Market Fed. Rosenblum encouraged Cox and his new hires to think outside the box. As a champion of “creative destruction,” a seemingly paradoxical concept developed by renowned economist Joseph Schumpeter, Cox published frequently and about issues the public cared about, an anomaly in the Fed system. But the field of economics was undergoing a sea change, literally. The “saltwater” economists (East and West coasts, Harvard, Keynes, pro-government regulation and intervention) were challenging the “freshwater” economists (Midwest, University of Chicago, Friedman, free-market philosophy).

The Treasury first issues the debt and the Federal Reserve buys that same debt, which increases the money supply. Effectively, it gives Congress an open checkbook and allows policymakers to put off making hard choices that budgetary constraints would otherwise force. The idea always made Fisher’s blood boil. And with good reason. Unconstrained politicians? Need I say more? His fellow hawk Lacker fretted that the Fed’s interventions would interfere with the creative destruction needed to clear out deadwood, uncompetitive industry players who would gain access to the bond market and, by doing so, keep the lights on. Did someone mention zombie banks in Japan? “People make choices on their way to making adjustments,” Lacker said. “Would these leveraged borrowers like there to be a greater demand for their liabilities? Yes. This all looks as though demand is low.

Rates that mattered for the recovery of the economy—those paid by businesses and households through mortgages, auto loans, credit cards—had risen rather than fallen. The banks with the most toxic balance sheets restricted their lending activity to shore up their own margins. “Japan paid dearly for propping up its troubled banks in the 1990s,” wrote Fisher and Rosenblum. “We need to develop supervision and resolution mechanisms that make it possible for even the biggest boys to fail—in an orderly way, of course. We want creative destruction to work its wonders in the financial sector, just as it does elsewhere in the economy, so we never again have a system held hostage to poor risk management.” The conflict on the FOMC was being played out in public. In October 2009 alone, FOMC members fanned out and gave thirty speeches. Governor Warsh, who had experience on Wall Street, argued that the Fed shouldn’t delay a rate hike.


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Deep Medicine: How Artificial Intelligence Can Make Healthcare Human Again by Eric Topol

23andMe, Affordable Care Act / Obamacare, AI winter, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, artificial general intelligence, augmented reality, autonomous vehicles, bioinformatics, blockchain, cloud computing, cognitive bias, Colonization of Mars, computer age, computer vision, conceptual framework, creative destruction, crowdsourcing, Daniel Kahneman / Amos Tversky, dark matter, David Brooks, digital twin, Elon Musk, en.wikipedia.org, epigenetics, Erik Brynjolfsson, fault tolerance, George Santayana, Google Glasses, ImageNet competition, Jeff Bezos, job automation, job satisfaction, Joi Ito, Mark Zuckerberg, medical residency, meta analysis, meta-analysis, microbiome, natural language processing, new economy, Nicholas Carr, nudge unit, pattern recognition, performance metric, personalized medicine, phenotype, placebo effect, randomized controlled trial, recommendation engine, Rubik’s Cube, Sam Altman, self-driving car, Silicon Valley, speech recognition, Stephen Hawking, text mining, the scientific method, Tim Cook: Apple, War on Poverty, Watson beat the top human players on Jeopardy!, working-age population

They especially make me think a lot about the future, one in which their health will hopefully be far better assured than ours. ERIC TOPOL is a world-renowned cardiologist, executive vice president of Scripps Research, founder of a new medical school, and one of the top ten most-cited medical researchers. The author of The Patient Will See You Now and The Creative Destruction of Medicine, he lives in La Jolla, California. ALSO BY ERIC TOPOL The Patient Will See You Now The Creative Destruction of Medicine NOTES FOREWORD 1. Broyard, A., Intoxicated by My Illness. 2010. New York: Ballantine Books, emphasis mine. 2. Califf, R. M., and R. A. Rosati, “The Doctor and the Computer.” West J Med, 1981 October. 135(4): pp. 321–323. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1273186/. CHAPTER 1: INTRODUCTION TO DEEP MEDICINE 1.

That MP3 files are compatible with every brand of music player, for example, while medicine has yet to see widely compatible and user-friendly electronic medical records exemplifies the field’s struggle to change. FIGURE 1.5: The three principal components of the deep medicine model. Source (left panel): Adapted from E. Topol, “Individualized Medicine from Prewomb to Tomb,” Cell (2014): 157(1), 241–253. This isn’t the first time I’ve noted medicine’s reluctance to adopt new technologies. This is the third book that I’ve written on the future of medicine. In the Creative Destruction of Medicine, I mapped out how sensors, sequencing, imaging, telemedicine, and many other technological opportunities enabled us to digitize human beings and achieve the digital transformation of medicine. In The Patient Will See You Now, I made the case for how medicine could be democratized—that medical paternalism would fade as consumers didn’t simply generate their information but owned it, had far greater access to their medical data, and ultimately could (if they chose to) take considerably more charge of their care.

Lewis understood this bias, too: “The entire profession had arranged itself as if to confirm the wisdom of its decisions.”16 Tversky and Kahneman discussed a bias toward certainty in a classic 1974 paper in Science that enumerated the many types of heuristics that humans rely on when dealing with uncertainty.17 Unfortunately, there has never been a lack of uncertainty in medicine, given the relative dearth of evidence in almost every case. Unfortunately, dealing with that uncertainty often leads to a dependence on expert opinions, what I call eminence-based medicine (reviewed in depth in The Creative Destruction of Medicine).18 FIGURE 3.1: Heuristic thinking leads to misdiagnosis of heart attack in the emergency room. Source: Adapted from S. Coussens, “Behaving Discretely: Heuristic Thinking in the Emergency Department,” Harvard Scholar (2017): http://scholar.harvard.edu/files/coussens/files/stephen_coussens_JMP.pdf. FIGURE 3.2: The attributable causes of medical diagnostic errors in a sample of more than five hundred doctors.


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The Evolution of Everything: How New Ideas Emerge by Matt Ridley

"Robert Solow", affirmative action, Affordable Care Act / Obamacare, Albert Einstein, Alfred Russel Wallace, AltaVista, altcoin, anthropic principle, anti-communist, bank run, banking crisis, barriers to entry, bitcoin, blockchain, Boris Johnson, British Empire, Broken windows theory, Columbian Exchange, computer age, Corn Laws, cosmological constant, creative destruction, Credit Default Swap, crony capitalism, crowdsourcing, cryptocurrency, David Ricardo: comparative advantage, demographic transition, Deng Xiaoping, discovery of DNA, Donald Davies, double helix, Downton Abbey, Edward Glaeser, Edward Lorenz: Chaos theory, Edward Snowden, endogenous growth, epigenetics, Ethereum, ethereum blockchain, facts on the ground, falling living standards, Ferguson, Missouri, financial deregulation, financial innovation, Frederick Winslow Taylor, Geoffrey West, Santa Fe Institute, George Gilder, George Santayana, Gunnar Myrdal, Henri Poincaré, hydraulic fracturing, imperial preference, income per capita, indoor plumbing, interchangeable parts, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Jane Jacobs, Jeff Bezos, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kevin Kelly, Khan Academy, knowledge economy, land reform, Lao Tzu, long peace, Lyft, M-Pesa, Mahatma Gandhi, Mark Zuckerberg, means of production, meta analysis, meta-analysis, mobile money, money: store of value / unit of account / medium of exchange, Mont Pelerin Society, moral hazard, Necker cube, obamacare, out of africa, packet switching, peer-to-peer, phenotype, Pierre-Simon Laplace, price mechanism, profit motive, RAND corporation, random walk, Ray Kurzweil, rent-seeking, reserve currency, Richard Feynman, rising living standards, road to serfdom, Ronald Coase, Ronald Reagan, Satoshi Nakamoto, Second Machine Age, sharing economy, smart contracts, South Sea Bubble, Steve Jobs, Steven Pinker, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, twin studies, uber lyft, women in the workforce

Most of the so-called robber barons got rich by cutting the price of goods, not raising them. Innovation was the key consequence of free enterprise, dwarfing gains from trade, efficiencies of specialisation and improvements by practice. In a famous phrase introduced in his book Capitalism, Socialism and Democracy in 1942, Schumpeter saw ‘creative destruction’ as the key to economic progress, and the ‘essential fact about capitalism’. For new firms and technologies to emerge, old ones had to die. There is a ‘perennial gale of creative destruction’. Or, as Nassim Taleb puts it, for the economy to be antifragile (strengthened by running risks), individual firms must be fragile. The restaurant business is robust and successful precisely because individual restaurants are vulnerable and short-lived. Taleb wishes that society honoured ruined entrepreneurs as richly as it honours fallen soldiers.

Jefferson, the gent, had imbibed the philosophy of the Enlightenment and worshipped at the shrine of Lucretius. But in the end he wanted an agrarian, protected, hierarchical, stable Virginian society. He hated the way people lived ‘piled upon one another in large cities’, and he suggested that America ‘let our workshops remain in Europe’. It was Hamilton, the immigrant, living in chaotic Manhattan, who embraced the future – the creative destruction that commerce and abundant capital would bring, the dissolving of social strata, the upending of power (although he did argue for a small tariff to protect infant industries). In Britain, the founders of the anti-slavery society were free traders. Read, for example, the writings of Harriet Martineau, who shot to fame in the 1830s because of her series of short fictional books called Illustrations of Political Economy.

Remember how technology evolves, whether we want it to or not. Re-evolving politics Take politics. Even today the internet revolution is undermining Leviathan at every turn. The internet turns everybody into a journalist and a politician; puts the customer in ultimate charge; and lowers the cost for ordinary people to do extraordinary things, whether in charity, business or politics. Big companies are tumbling before its creative-destructive onslaught; big state bureaucracies cannot long resist. As the maverick MP Douglas Carswell puts it, ‘Everything that the internet touches it transforms. The barriers to entry come crashing down. Established operators face competition from nimble upstarts. So, too, in politics.’ Carswell argues that i-democracy is rapidly and inexorably transforming the old ways of doing politics, replacing party-controlled, bureaucracy-enabled traditions with radical emergent possibilities, from open primaries to instant plebiscites, from participatory budgeting in local government to online recall.


The Corporation: The Pathological Pursuit of Profit and Power by Joel Bakan

Berlin Wall, Cass Sunstein, corporate governance, corporate personhood, corporate social responsibility, creative destruction, energy security, Exxon Valdez, IBM and the Holocaust, joint-stock company, laissez-faire capitalism, market fundamentalism, Naomi Klein, new economy, race to the bottom, Ralph Nader, Ronald Reagan, shareholder value, South Sea Bubble, The Wealth of Nations by Adam Smith, Triangle Shirtwaist Factory, urban sprawl

"I'm sucking Satan's pecker" is how Chris Hooper, a highly successful television ad director and voice-over artist, describes his work for the likes of McDonald's, Coca-Cola, and other major corpo- Page 126 construct their own little world and negotiate it amongst themselves."" What children really need, says Kline, are toys that encourage "creative destruction," the process of imagining, creating, destroying, and re-creating something, and that "give them a sense of mastery [and] help them explore the physical laws of the world." Corporations are unlikely to make such toys, however, when the profits from synergistic Page 127 marketing are so high. The toy companies are "clearly selling more toys" now, says Kline. "Toy sales boomed after the initial launch of those tie-in programs." Even LEGO, the quintessential "creative destruction" toy company, adopted the tie-in strategy, driven to it by bottom-line concerns (and despite Kline's protests when he worked as a consultant for the company), and began to and working and playing with other people.""

., 35-39, 41, 46,57 see also regulatory laws corporate mascots, 26 corporations: amorality of, 53-59, 69, 79, 88-89, 110,134 backlash against, 25-27, 140-43 benevolent, 18-19, 151 church replaced by, 134 definition of, 3 democracy corrupted by, 101-2 devastation as opportunity for, 111, 124-25 dominance of, 5, 21-27, 134, 139-40,153,159 elimination of, 159-60 English banning of, 6-8, 9 exploitation by, 74, 112, 118, 122, 123, 138, 139, 140, 148, 149, 163 as "Frankenstein monsters," 19, 149 as government creations, 153-58, 164 grant theory of, 16 historical development of, 5-21, 153,156 as institutions, 1-3, 28, 50, 56-57, 59,64 as instruments of destruction, 71-73,110 natural entity theory of, 16, 154-55 Nazis assisted by, 87-89 no accountability of, 152 nonprofit, 166 philanthropy of, 30, 31, 45, 47-49 political systems as viewed by, 88-89 profits and, 31, 34, 36, 41, 45, 48, 49, 50,51,52,53,55,57,58,62,69, 88-89 profits and, 31, 34, 36, 41, 45, 48, 49, 50,51,52,53,55,57,58,62,69, 73,82,88-89,101,103,105, 113,117,122,126-27,138,154, 165 psychopathy of, 28, 56-59, 60, 69, 79, 85, 110, 122, 134, 158, 161 public good and, 156, 158 public-purpose, 160-61 "rising tide lifts all boats" principle of, 142-43 and self-interest as human nature, 116-17,134-35,138 self-interest of, 1-2, 28, 37-39, 44-50,58-59,60,61,80,101-2, 105,109-10,117-18,134,142, 149, 156, 160, 161, 167 cost-benefit analysis, 62-65, 79-80, 149-50,152 in oil industry, 82-83 costs: externalized, 61, 62-65, 71-73, 149-50 of social responsibility, 45, 47-48, 49 'creative destruction" toys, 126-27 Croix de Feu, 91 Back Matter Page 1 70 2 NOTES 6. Carswell, The South Sea Bubble, 210. 7. Especially in high-technology companies, where stock options are widely used to compensate employees, failure to account for them unduly inflates reported earnings, sometimes by hundreds of millions of dollars. Yet, despite criticism of the practice by investor groups, accounting bodies, and the likes of Alan Greenspan and Warren Buffett, the federal government seems reluctant to stop it.


pages: 543 words: 147,357

Them And Us: Politics, Greed And Inequality - Why We Need A Fair Society by Will Hutton

Andrei Shleifer, asset-backed security, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Blythe Masters, Boris Johnson, Bretton Woods, business cycle, capital controls, carbon footprint, Carmen Reinhart, Cass Sunstein, centre right, choice architecture, cloud computing, collective bargaining, conceptual framework, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, debt deflation, decarbonisation, Deng Xiaoping, discovery of DNA, discovery of the americas, discrete time, diversification, double helix, Edward Glaeser, financial deregulation, financial innovation, financial intermediation, first-past-the-post, floating exchange rates, Francis Fukuyama: the end of history, Frank Levy and Richard Murnane: The New Division of Labor, full employment, George Akerlof, Gini coefficient, global supply chain, Growth in a Time of Debt, Hyman Minsky, I think there is a world market for maybe five computers, income inequality, inflation targeting, interest rate swap, invisible hand, Isaac Newton, James Dyson, James Watt: steam engine, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, knowledge worker, labour market flexibility, liberal capitalism, light touch regulation, Long Term Capital Management, Louis Pasteur, low cost airline, low-wage service sector, mandelbrot fractal, margin call, market fundamentalism, Martin Wolf, mass immigration, means of production, Mikhail Gorbachev, millennium bug, money market fund, moral hazard, moral panic, mortgage debt, Myron Scholes, Neil Kinnock, new economy, Northern Rock, offshore financial centre, open economy, plutocrats, Plutocrats, price discrimination, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, railway mania, random walk, rent-seeking, reserve currency, Richard Thaler, Right to Buy, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, Rory Sutherland, Satyajit Das, shareholder value, short selling, Silicon Valley, Skype, South Sea Bubble, Steve Jobs, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, the scientific method, The Wealth of Nations by Adam Smith, too big to fail, unpaid internship, value at risk, Vilfredo Pareto, Washington Consensus, wealth creators, working poor, zero-sum game, éminence grise

Innovation may create new wealth, but it challenges old and redundant sources of wealth – a process that Schumpeter famously called ‘creative destruction’. Existing elites – the incumbents whose power, privilege and cash result from the prevailing technology – stand to lose a lot, possibly everything, from creative destruction. So they will resist change to the last. Schumpeter did not make Baumol’s distinction between productive and unproductive enterprise. To his mind, all innovations were productive, whether they entailed opening up a new market, developing a new product or discovering a new process or form of corporate organisation. For Schumpeter, creative destruction had an inherent bias to productive entrepreneurship. Nor did he believe that entrepreneurship could be organised in large companies: it was essentially an individualistic activity and would become ever harder as technology and capitalism became more complex.

But he was right to stress that successful innovation requires that existing elites and power-holders are at least unable to obstruct new sources of wealth generation, and at best actively welcome it. Put another way, if those who have manoeuvred themselves into owning economic rent are sufficiently powerful to obstruct new technologies and innovation that threaten their position, they will surely do so and thus wreck the growth process. The capacity to unleash creative destruction therefore relies on society’s capacity to allow due desert to triumph over undue desert. The open society as the handmaiden for innovation This is why an increasing number of economic historians are interested in the relationship between the Industrial Revolution and the European Enlightenment, after which the pace of GPT introduction accelerated. As we have seen, Enlightenment thinkers challenged classical and medieval thought about desert: Kant, Rousseau and Smith all agreed that human beings were of equal worth and should not be condemned by birth or circumstance into poverty.

Despite initial success, both systems ultimately buckled, having been out-fought, out-produced, out-thought and out-legitimised by open-access capitalist societies. In Russia the communist revolution smothered any chance of progress towards an open-access society and bureaucratised the economy around the Communist Party’s priorities. The reward system that underpins productive entrepreneurship – due desert for discretionary effort – was simply abolished. The chaotic process of ‘creative destruction’ (discussed in more detail in Chapter 10), through which capitalism destroys outmoded production processes to replace them with new ones, ceased. Instead, all effort was devoted to mobilising production around existing technologies to alleviate poverty, to match the capitalist powers and to win the war against Hitler. Innovative ideas were screened to ensure that they would not challenge the party’s ongoing control of the economy and the state.


pages: 733 words: 184,118

Tesla: Inventor of the Electrical Age by W. Bernard Carlson

1960s counterculture, Albert Einstein, Clayton Christensen, creative destruction, disruptive innovation, en.wikipedia.org, Henri Poincaré, invention of radio, Isaac Newton, James Watt: steam engine, Joseph Schumpeter, Menlo Park, packet switching, popular electronics, Robert Gordon, Ronald Reagan, Steve Jobs, Steve Wozniak, undersea cable, yellow journalism

The inventor, I thought, gives to the world creations which are palpable, which live and work.”49 CREATIVE DESTRUCTION AND SUBJECTIVE RATIONALITY Before we leave Tesla and Szigeti in the park, we should take a moment to reflect on the nature of Tesla’s insight that afternoon, not just from a technical viewpoint but from a cognitive perspective as well. To do so we need to connect Tesla with the economist Joseph Schumpeter’s ideas about innovation and the creative destruction of capitalism. Schumpeter was fascinated by the role that innovation played in the modern economy, and he emphasized in his writings that there were two kinds of innovative activity. On the one hand, there are the creative responses of entrepreneurs and inventors who introduce radically new products, processes, and services and in so doing wreak the creative destruction that Schumpeter regarded as a central characteristic of capitalism.

Maybe Schumpeter’s term—rationality—isn’t the best word for it, but Tesla was doing some kind of cognitive processing. But even more important, as we go forward with the story, we will see that what counts with subjective rationality is that inventors like Tesla come to believe in their ideas so strongly that they are willing to rearrange the external world in order to make their ideals into reality. In imposing their ideas on the world, inventors create the revolutionary technology that unleashes the creative destruction of capitalism. But before that can happen in Tesla’s case, he had to learn much more about the business of electrical technology. CHAPTER THREE LEARNING BY DOING (1882–1886) ALTERNATING CURRENT AT GANZ AND COMPANY Armed with his insight about using a rotating magnetic field in his motor, Tesla resumed his mental engineering. “For a while,” he recalled fondly, I gave myself up entirely to the intense enjoyment of picturing machines and devising new forms.

Indeed, as far as I can tell, the concept of alternating currents being in or out of phase with each other did not appear in the engineering literature until an 1883 paper by John Hopkinson in which he discussed the problem of using several ac generators on a single circuit; see “Some Points in Electric Lighting,” in Original Papers by the Late John Hopkinson, ed. Bertram Hopkinson (Cambridge: Cambridge University Press, 1901), 1:57–83, on 67–69. 49. 1915 Autobiographical Sketch, A198. 50. Clayton M. Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Boston: Harvard Business School Press, 1997). 51. Thomas K. McCraw, Prophet of Innovation: Joseph Schumpeter and Creative Destruction (Cambridge, MA: Belknap Press of Harvard University Press, 2007). 52. Schumpeter, “Rationality in the Social Sciences,” 329–30. CHAPTER THREE LEARNING BY DOING 1. NT, My Inventions, 65. 2. See Osana Mario, “Historische Betrachtungen uber Teslas Erfindungen des Mehrphasenmotors und der Radiotechnick um die Jahrhundertwende,” in Nikola Tesla-Kongress für Wechsel- und Drehstromtechnik, proceedings of a conference held at the Technical Museum in Vienna, 6–13 September 1953 (Vienna: Springer-Verlag, 1953), 6–9, on 7.


pages: 336 words: 90,749

How to Fix Copyright by William Patry

A Declaration of the Independence of Cyberspace, barriers to entry, big-box store, borderless world, business cycle, business intelligence, citizen journalism, cloud computing, commoditize, creative destruction, crowdsourcing, death of newspapers, en.wikipedia.org, facts on the ground, Frederick Winslow Taylor, George Akerlof, Gordon Gekko, haute cuisine, informal economy, invisible hand, Joseph Schumpeter, Kickstarter, knowledge economy, lone genius, means of production, moral panic, new economy, road to serfdom, Ronald Coase, Ronald Reagan, semantic web, shareholder value, Silicon Valley, The Chicago School, The Wealth of Nations by Adam Smith, trade route, transaction costs, trickle-down economics, winner-take-all economy, zero-sum game

In addition, Taylor’s methods of using stop watches and other forms of quantification led to laborers producing more in less time for less pay. Some opulence. See Tyler Cowen, Creative Destruction: How Globalization is Changing the World’s Cultures 14–16 (Princeton University Press, 2002), for a discussion of the different ways the term diversity is used. http://famouspoetsandpoems.com/poets/walt_whitman/quotes. “If I had gone directly to the people, read my poems, faced the crowds, got into immediate touch with Tom, Dick, and Harry instead of waiting to be interpreted, I’d have had my audience at once,” quoted in David Reynolds, Walt Whitman’s America: A Cultural Biography 339 (1995,Vintage Books). Tyler Cowen, Creative Destruction: How Globalization Is Changing the World’s Cultures 3 (Princeton University Press, 2002). Professor Cowen’s book is devoted to refuting de Tocqueville’s and similar theories.

It is not at all coincidental that vested rights holder interests favor closed lists while innovative companies favor fair use or other flexible, functional equivalents. As Dr. Francis Gurry, the Director General of the World Intellectual Property Organization cautioned, “Copyright should be about promoting cultural dynamism, not preserving or promoting vested business interests.”26 Innovation Requires a Dynamic Legal System Innovation is by its nature dynamic. Innovation’s power lies in what economist Joseph Schumpeter termed “creative destruction”: the introduction of innovative products and business models that displace old ones.27 If an innovative product or service does not provide competition to existing products or services, it is not innovative. Competition is inextricably linked to innovation. Laws are not. The Internet and information technologies are key drivers of the twenty-first-century economy and cultural development, but such development is possible only if copyright laws do not inhibit their growth.

Professor Cowen’s book is devoted to refuting de Tocqueville’s and similar theories. See also his In Praise of Commercial Culture (2000, Harvard University Press). Tyler Cowen, Creative Destruction: How Globalization Is Changing the World’s Culture 103 (2002, Princeton University). Id. at 129. Peter Manuel, Cassette Culture: Popular Music and Technology in North India 64 (1993, University of Chicago Press). See http://en.wikipedia.org/wiki/Jab_We_Met. Media Piracy in Emerging Economies, India Chapter. See Larry Rohter, Gilberto Gil and the politics of music. International Herald Tribune, March 12, 2007. NOTES TO PAGES 256–262 317 27. See Ian Hargeaves, Digital Opportunity: A Review of Intellectual Property and Growth, Chapter 8, paragraph 8.40 (May 2011). 28. Media Piracy in Emerging Economies, at 1. 29. Media Piracy in Emerging Economies at iii. 30.


pages: 318 words: 92,257

Floating City: A Rogue Sociologist Lost and Found in New York's Underground Economy by Sudhir Venkatesh

creative destruction, East Village, illegal immigration, side project, Silicon Valley, the scientific method, urban renewal, working poor

When I was a kid in college, the idea of entropy struck me hard: all that is solid melts into air, creative destruction, and so on. A factory is always one innovation away from becoming obsolete. Everything is always in the process of falling apart. The bourgeois succeeded because they didn’t cling to tradition. Instinctively, despite all their protestations to the contrary, they embraced entropy. Entropy rang true to me because I was going through so many personal changes. It rang true in New York’s underground too. Everyone was constantly on the precipice of change. You had to learn how to get out, change your focus, accept losses, fail quickly, and move on. Success required self-awareness. This was the theory. But in practice, I hated to see Analise going through this particular episode of creative destruction. Shine too. They both were failing, but their ambition and nerve wouldn’t let them quit.

Though their personal income levels and the socioeconomic status of their neighborhoods might not be shifting greatly, they were not the passive subjects so many sociologists used to fuel their paternalistic claim as all-knowing fathers for societal orphans. In fact, they were quite dynamic in both thought and action, and they also scrambled to keep up with a world that was transforming blindingly fast, even if the benefits of all that creative destruction did not accrue to them quite as rapidly as to wealthier strivers. As my tone may hint, this is a pet peeve. For the last decade, I’ve been fighting the stereotypes of the poor that began to pervade American society after the publication of the infamous Moynihan Report in 1965, which argued that the history of slavery and generations of single-parent matriarchal families had created a “tangle of pathology” that made it difficult for many inner-city blacks to enter the social mainstream.

That was another surprise. Street-savvy entrepreneurs like Shine never admit vulnerability. They can’t risk a chink in the armor. He knew he could trust me, but still—dealing in bars outside Harlem had clearly put him outside his comfort zone. A small shift in the cocaine market and all that was solid in Shine’s life was melting into air. Marx would have been fascinated, Milton Friedman amused. The creative destruction of capitalism—change or die—was sending this resourceful and determined man into bars where he didn’t know the manager, to hotels filled with security he’d never met, to white customers he didn’t trust. And “die” wasn’t a metaphor. The frustration I’d seen on his face at the bar that day spoke volumes. In sociological terms, Shine was coming to the painful realization that he was missing some aspect of cultural capital, that he wasn’t quite in line with the tribal codes of this new world.


pages: 261 words: 10,785

The Lights in the Tunnel by Martin Ford

"Robert Solow", Albert Einstein, Bill Joy: nanobots, Black-Scholes formula, business cycle, call centre, cloud computing, collateralized debt obligation, commoditize, creative destruction, credit crunch, double helix, en.wikipedia.org, factory automation, full employment, income inequality, index card, industrial robot, inventory management, invisible hand, Isaac Newton, job automation, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, knowledge worker, low skilled workers, mass immigration, Mitch Kapor, moral hazard, pattern recognition, prediction markets, Productivity paradox, Ray Kurzweil, Search for Extraterrestrial Intelligence, Silicon Valley, Stephen Hawking, strong AI, technological singularity, Thomas L Friedman, Turing test, Vernor Vinge, War on Poverty

We would notice that some of the panels on the walls gradually grow dimmer and attract fewer lights. In some cases, they may reverse their decline and become strong again. But in many other cases, they weaken and grow dark. Even as this happens, however, elsewhere on the tunnel walls, we see that new panels are appearing and growing stronger. A few seem to grow rapidly in size before our eyes. This is the process of creative destruction. In the mass market, the collective purchasing decisions of the lights determine which businesses succeed and thrive, and which ones ultimately decline and fail. This is a natural and cyclical process. When an inefficient business fails, its capital, resources and employees will eventually be transferred to a new, stronger business. As a panel on the tunnel wall goes dark, the lights that represent that company’s workers will also grow dim.

While the color rotation among the lights captures our interest for a time, the most striking realization is that nothing else has changed in the tunnel. As we watch, we see that the lights continue to softly impact the panels on the walls of the tunnel as consumers purchase products and services. The businesses in the tunnel make no distinctions based on the color of the lights. Over time, the process of creative destruction continues just as it always has. Inefficient businesses fail and new ones rise up to take their place. Among the multitude of lights in the tunnel, we can see that there are still a significant minority which shine with intense white light. The wealthiest people in the tunnel may be subject to somewhat higher tax rates, but the businesses and assets they own are retaining their value as the mass market continues to thrive.

Some of those industries are relatively labor intensive, so they have to hire more workers to meet this demand—and so overall employment remains stable or increases. This is the reason that, historically, technology has not led to sustained, widespread unemployment. My argument is that accelerating automation technology will ultimately invade many of the industries that have traditionally been labor intensive. Additionally, the process of creative destruction will destroy old industries and create new ones, and very few of these new industries are likely to be labor intensive. As a result, the overall economy will become less labor intensive and ultimately reach a “tipping point.” Beyond this point, the economy will no longer be able to absorb the workers who lose jobs due to automation: businesses will instead invest primarily in more machines.


pages: 379 words: 99,340

The Revolt of the Public and the Crisis of Authority in the New Millennium by Martin Gurri

Affordable Care Act / Obamacare, Albert Einstein, anti-communist, Arthur Eddington, Ayatollah Khomeini, bitcoin, Black Swan, Burning Man, business cycle, citizen journalism, Climategate, Climatic Research Unit, collective bargaining, creative destruction, crowdsourcing, currency manipulation / currency intervention, dark matter, David Graeber, death of newspapers, en.wikipedia.org, Erik Brynjolfsson, facts on the ground, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, housing crisis, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of writing, job-hopping, Mohammed Bouazizi, Nate Silver, Occupy movement, Port of Oakland, Republic of Letters, Ronald Reagan, Skype, Steve Jobs, the scientific method, The Signal and the Noise by Nate Silver, too big to fail, traveling salesman, University of East Anglia, urban renewal, War on Poverty, We are the 99%, WikiLeaks, young professional

“Colleague defends ‘ClimateGate’ professor.” BBC, December 4, 2009. http://news.bbc.co.uk/2/hi /8396035.stm. Cottingham, Rob. “The Obama online campaign, by the numbers: quantifying the impact of social media in 2008.” Social Signal, November 22, 2008. http://www.socialsignal.com/blog/rob-cottingham/the-obama-online-campaign-by-the-numbers. “Creative Destruction Whips Through Corporate America.” Innosight Executive Briefing, Winter 2012. http://www.innosight.com/innovation-resources/strategy-innovation/upload/creative-destruction-whips-through-corporate-america_final2012.pdf. “Declaration of the Occupation of New York City.” r/Politics, no date. http://www.reddit.com/r/politics/comments/kv84b/this_is_the_declaration_of_the_occupation_of_new/. Delingpole, James. “Climategate: The final nail in the coffin of ‘Antropogenic Global Warming’?”

[147] Erik Brynjolfsson and Andrew McAfee, Race Against the Machine: How the Digital Revolution Is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy, (Digital Frontier Press, 2011), 9, 40. [148] Tony Elwin, “The Cost of Culture, a 50% turnover of the Fortune 500,” http://www.tobyelwin.com/ the-cost-of-culture-a-50-turnover-of-the-fortune-500/. [149] “Creative Destruction Whips Through Corporate America,” Innosight, Winter 2012, http://www.innosight.com/innovation-resources/strategy-innovation/upload/creative-destruction-whips-through-corporate-america_final2012.pdf. [150] Courtesy of Richard Foster. [151] My combined chart. [152] Paul Ormerod, Why Most Things Fail: Evolution, Extinction and Economics (Pantheon Books, 2005), Kindle location 66. [153] Duncan Watts, Everything Is Obvious, Once You Know the Answer: How Common Sense Fails Us (Crown Business, 2011), Kindle location 3312


pages: 417 words: 97,577

The Myth of Capitalism: Monopolies and the Death of Competition by Jonathan Tepper

Affordable Care Act / Obamacare, air freight, Airbnb, airline deregulation, bank run, barriers to entry, Berlin Wall, Bernie Sanders, big-box store, Bob Noyce, business cycle, Capital in the Twenty-First Century by Thomas Piketty, citizen journalism, Clayton Christensen, collapse of Lehman Brothers, collective bargaining, computer age, corporate raider, creative destruction, Credit Default Swap, crony capitalism, diversification, don't be evil, Donald Trump, Double Irish / Dutch Sandwich, Edward Snowden, Elon Musk, en.wikipedia.org, eurozone crisis, Fall of the Berlin Wall, family office, financial innovation, full employment, German hyperinflation, gig economy, Gini coefficient, Goldman Sachs: Vampire Squid, Google bus, Google Chrome, Gordon Gekko, income inequality, index fund, Innovator's Dilemma, intangible asset, invisible hand, Jeff Bezos, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Rogoff, late capitalism, London Interbank Offered Rate, low skilled workers, Mark Zuckerberg, Martin Wolf, means of production, merger arbitrage, Metcalfe's law, multi-sided market, mutually assured destruction, Nash equilibrium, Network effects, new economy, Northern Rock, offshore financial centre, passive investing, patent troll, Peter Thiel, plutocrats, Plutocrats, prediction markets, prisoner's dilemma, race to the bottom, rent-seeking, road to serfdom, Robert Bork, Ronald Reagan, Sam Peltzman, secular stagnation, shareholder value, Silicon Valley, Skype, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, undersea cable, Vanguard fund, very high income, wikimedia commons, William Shockley: the traitorous eight, zero-sum game

In a growing, healthy economy new businesses are starting every day, and older businesses fail and die. New restaurants like Chipotle open, while older ones like Chevys Fresh Mex go bankrupt. Startups like Netflix launch new media offerings, and older businesses like Blockbuster go bust. This process of creative destruction is how the economy moves forward as consumer wants and needs change. Much like children are born every day and grandparents die, this is a natural, vital part of economic life. Over time, as the economy grows, the overall population of businesses should grow too, creating more new jobs. Unfortunately, this process of creative destruction has been steadily slowing over the past 30 years, and has worsened in the past few years. If America were a movie, it would be Children of Men, a dark, futuristic movie where children are not born and only the old remain.

He wrote an entire book, titled Zero to One, praising creating businesses that are monopolies and defiantly declared that competition “is a relic of history.”9 Competition is a dirty word, whether you're in Omaha or Silicon Valley. Praising monopolies has a long tradition in the United States. Joseph Schumpeter, an Austrian-born economics professor at Harvard, is generally remembered for coining the phrase “gale of creative destruction,” in praise of competition. It is ironic that economists and consultants see him today as the champion of disruptive startups, when in Schumpeter's view, if you wanted to search for progress, it would lead you to the doors of monopolies. Much like Peter Thiel, Schumpeter thought that perfectly competitive firms were inferior in technological efficiency and were a waste. Monopolies were more robust because, “a perfectly competitive industry is much more apt to be routed—and to scatter the bacilli of depression—under the impact of progress or of external disturbance than is big business.”10 Buffett and Thiel love monopolies, because when you're a monopolist, you become what economists call a “price maker.”

., 83 Cartels Chicago School perspective, 23 promotion, central bank rates (impact), 26f study, 25 Cartels: A Challenge to a Free World (Berge), 150 Castellammarese War, 21 CBS Corporation, market dominance, 133 CelebrityNetWorth, Google data theft, 89–90 Central Selling Organization, 24 CEO-to-worker compensation ratio, increase, 221f Chamberlin, Edward, 7 Chambers, Dustin, 179 Chemotherapy regulation, 167 usage, 178 Chicago School, 155–156 China, Big Data/Big Brother (relationship), 112 Chipotle, McDonald's release, 56 Christensen, Clayton, 55 Citigroup, market dominance, 127 Civil government, instituting, 191 Clayton Act of 1914, 7 Clayton Antitrust Act (1914), 144, 160, 209 Clemenceau, George, 233 Clifton, Daniel, 187 Clinton, Bill (reverse revolvers), 191 Clinton, Hillary, 189, 212 Coal Question, The, ( Jevons), 18 Cohn, Gary, 189 Collusion, impact, 32 Community Standards (Facebook), 92 Commuting zones, labor concentration (increase), 73f Companies growth phases, 52f lobbying, returns (comparison), 187f long-term returns, 204 platform companies, 97–98 self-disruption, failure, 55 synergies, 41 technology purchases, 106 Competition absence, 241 encouragement, patents (expiration), 246 Google, impact, 95 patents, impact, 175 promotion, patents/copyrights (impact), 246 reduction, mergers and acquisitions (impact), 12 restoration, Representative/Senator encouragement, 248 Competitors conflict, 31 reduction, mergers (prevention), 242 Composition, fallacy, 18 Computer operating systems, monopolies/local monopolies, 117 Concentrated industries, ranking, 33t Concrete, mergers (impact), 43 Confessions of the Pricing Man (Simon), 29 Conglomerates, purchase, 154 Connor, John, 23 Conrad, Jeremy, 54 Consumers, desires, 115 Consumer welfare, 158–159 Contract workers, hiring (fervor), 75–76 Copyrights, 246 Copyright Term Extension Act, 174 Corbyn, Jeremy (selection), 212 Corporate profits employee compensation, contrast, 223f increase, 65 Corporate trusts, control, 234 Costco workers, needs (understanding), 77 Counterfeits, impact, 102–103 Cox, Archibald, 157 CR4, 33 Creating and Restoring Equal Access to Equivalent Samples Act (CREATES), 176 Creative destruction, process, 45 Credit reporting bureaus, oligopolies, 125 Credit Suisse, Global Wealth Report issuance, 218 study, 10 Crisis of Capitalism, A, (Posner), 156 Curry, Steph, 3 Curse of Bigness, The, (Brandeis), 237 Customer lock-in (reduction), rules (creation), 246 CVS Caremark, market dominance, 130 D Dairy Farmers of America, price fixing, 119 Dalio, Ray, 229 David, Larry, 89 DaVita, Fresenius (merger), 124 Dayen, David, 96 Dean Foods, price fixing, 118–119 De Beers Consolidated Mines (cartel), 24 Decartelization Branch, 151–152 Decartelization/deconcentration policy, 150–151 Decker, Ryan, 47 Decline of Competition, The, (Burns), 145 de Loecker, Jan, 41, 226 Dent, Robert, 52 Diapers.com, Amazon predation, 106 Dickens, Charles, 18 Digital Millennium Copyright Act, 103 Digital platforms, scale, 91 Dimon, Jamie, 182 Dirlam, Jeff, 167 Disraeli, Benjamin, 240 Diversity, impact, 58–61 DNA damage, 178 Dodd-Frank Act 2010 Full Employment Act for Lawyers, Accountants, and Consultants, 182 impact, 181 passage, 184 Döttling, Robin, 56 Doubleclick, Google acquisition, 91, 118 “Double Irish” arrangement, 92–93 Dow Chemicals, DuPont (merger), 121 Dreyfus, market dominance, 133 Drugs prices, high level, 174 reformulation, 175 wholesalers, oligopolies, 131–132 Duisberg, Carl, 146–147 Duke, James Buchanan, 142 Duke, Mike, 16 Dunbar's Number, creation, 51 Duopolies, 15, 115–116, 122–125 Durant, Will, 231 Düsseldorf Agreement, 148 “Dutch Sandwich” arrangement, 92–93 E Echo Show (Amazon), 107 Economic dynamism, reduction, 37 Economic freedom, 143–144, 233, 238–239 Economic inequality, increase, 227–228 Economic model, adjustment, 41–42 Economies of scale, increase, 51 Economy advanced economies, markups (increase), 228f firms, role (decrease), 48f problems, Trump perspective, 213 Edison, Thomas, 67, 195 Eeckhout, Jan, 41, 226 Eisenhower, Dwight, 146, 148, 151 Ellenberg, Jordan, 214 Employees compensation, corporate profits (contrast), 223f perks, 75 Employers and Workmen Act, 240 Employment clauses, usage, 69 Ennis, Sean, 226 Entrepreneurship, decline, 46 Equifax, security breach, 81–82 Erhard, Ludwig, 153 Europe rebuilding, 153–154 ordoliberlism, 153 Evans, Benedict, 108 Evans, David, 106 Exchange-traded funds (ETFs), inexpensiveness, 203 Express Scripts, market dominance, 130 F Facebook church, Zuckerberg comparison, 113 Community Standards project, 92 creation, 117 Instant Articles, 102 lobbying efforts/expenses, 95–96 market dominance, 123–124 News Feed, impact, 99–100 news/information source, problems, 112–113 profitability/power, 99 Factory Act, 240 Fair Isaac's Corporations (FICO), credit-scoring formula, 125 Fast-food chains, employment clauses, 69 Federal Arbitration Act, 80, 82 Federal Express, duopoly, 3 Federal government Goldman Sachs, revolving door, 190f Monsanto, revolving door, 193f Federal Register, pages (number, increase), 181f Federal Reserve Act (1913), 209 Federal Trade Commission, 159, 163 creation, 144 Federation of British Industry, Düsseldorf Agreement, 148 Fidelity, market dominance, 135 Financial crisis (2007-2008), 25 Firms entry, reduction, 53f predatory pricing, punishment (laws), 244 role, decrease, 48f First American, market dominance, 135 Five Families, 22 Five Forces (Porter), 14–15 Fleming, Lee, 70–71 Forced arbitration, 79–81 Ford, Henry, 16 Foreign exchange traders, currency price fixing, 24 Foundem, 97 search problems, 87–88 Frankel, Jonathan, 107 Freight railroad, concentration, 119 Freireich, Emil, 176–177, 181 Friedman, Milton, 155, 179, 204, 233, 238 Funeral homes, monopolies/local monopolies, 121–122 Furman, Jason, 39 G Game theory, 26 Gates, Bill, 78 Geithner, Timothy, 190, 211 General Theory, The, (Keynes), 17 Germany German Decartelizing law (1947), 152 nationalist party, impact, 213 reconstruction, 151, 238 surrender, 151 Gerstner, Jr., Louis V., 50 Gibbons, Thomas, 137–138 Gibbons v.


pages: 289

Hustle and Gig: Struggling and Surviving in the Sharing Economy by Alexandrea J. Ravenelle

"side hustle", active transport: walking or cycling, Affordable Care Act / Obamacare, Airbnb, Amazon Mechanical Turk, barriers to entry, basic income, Broken windows theory, call centre, Capital in the Twenty-First Century by Thomas Piketty, cashless society, Clayton Christensen, clean water, collaborative consumption, collective bargaining, creative destruction, crowdsourcing, disruptive innovation, Downton Abbey, East Village, Erik Brynjolfsson, full employment, future of work, gig economy, Howard Zinn, income inequality, informal economy, job automation, low skilled workers, Lyft, minimum wage unemployment, Mitch Kapor, Network effects, new economy, New Urbanism, obamacare, Panopticon Jeremy Bentham, passive income, peer-to-peer, peer-to-peer model, performance metric, precariat, rent control, ride hailing / ride sharing, Ronald Reagan, sharing economy, Silicon Valley, strikebreaker, TaskRabbit, telemarketer, the payments system, Tim Cook: Apple, transaction costs, Travis Kalanick, Triangle Shirtwaist Factory, Uber and Lyft, Uber for X, uber lyft, ubercab, universal basic income, Upton Sinclair, urban planning, very high income, white flight, working poor, Zipcar

In Silicon Valley, to hack is based on the arrogant view that perceived value is “only in that which you contribute, fundamentally eviscerating the person or process that preceded your intervention. In this view—and it is not insignificant—the idea of hacking comes from a position of arrogance.”99 Likewise, Silicon Valley’s favorite phrase, “let’s break shit,” is part of Schumpeter’s “creative destruction,” a theory of economic progress in which new business rises like a phoenix from the ashes of old business.100 Creative destruction has also been described as an early version of Clayton Christensen’s hypothesis of “disruptive innovation,” in which economies flourish when start-ups replace established firms.101 And of course, to disrupt the status quo of established industries is part of the goal of the sharing economy. When the term sharing economy first entered the public lexicon, the sharing economy itself looked like a step forward.

If broken-windows theory suggests that small-scale disorder can lead to wide-scale deviance, then perhaps this is best described as the theory of “dead fish rotting”: large-scale illegal efforts, carried out in full public view—such as starting an illegal hotel business by calling it an “accommodations marketplace” or opening an unregulated taxi company by calling it a “technology company”—lead to small-scale deviance by individuals. And when “disruption” and “creative destruction” are sold as ideals to strive for, we see the “breakdown of community controls” so that casual criminality is widely tolerated, hailed, and even laughed about by “primarily respectable whites.”22 In addition, a major theme of the gig economy is the focus on outsourcing. The companies outsource risk to the workers, letting them assume the costs of insurance and the financial risk of slow periods.

See also criminal activity; sexual harassment clothing swaps, 9 Cohen, Patricia, 205–6 collaborative consumption, 9, 26, 27, 194, 208 collective bargaining, 64–65, 70, 71 collective consciousness, 32 Colorado Fuel and Iron Corporation, 68–69 Commission on Industrial Relations, 93 commission structure model: independent contractor status and, 199–201box 1; Juno/Gett, 190–91; Lyft, 75; TaskRabbit, 6, 80, 185; Uber, 75–76, 184; worker control and, 182 Committee on Public Safety, 93 communication issues: Airbnb, 63; anonymity and, 141; client/worker communication, 63, 100, 141, 148–49; drivers and, 191; human resources, 63–64; off-platform communication, 148–49; TaskRabbit, 63–64, 80; Uber, 63, 78, 108–9, 191 community: debate on, 23; human interactions and, 32–33; marketing as, 21; Peers as, 72; promise of, 5; urban culture and, 31, 32, 33 competition, 38, 78, 185, 207 connected consumption, 26. See also collaborative consumption consignment shop fees, 27 consumer-to-consumer (C2C) sales, 27, 42. See also on-demand services contactless payment systems, 6 Contexts (journal), 27 contributory negligence, 92, 93 Corporation for Economic Development, 195 cottage industry. See piecemeal system Couchsurfing, 9, 26, 27 Craigslist, 9, 26, 175, 194 creative destruction theory, 207–8 credit card debt, 4, 9, 35, 220n16, 226n36 criminal activity: overview, 2, 23, 134–39; enabling, 140–42; illegal rentals, 149–54; online scamming, 147–49; race/class issues and, 193; safer to participate, 143–47; vulnerability and, 195; workplace protections from, 154–57 criminal-offense screenings, 30 CrowdFlowers, Inc., 38, 73, 226n35. See also Figure Eight Crowd Rent, 26 Crunchbase, 76 cultural capital, 165, 166–67 deactivations: Airbnb, 81–82; bathroom use and, 88–89; Bryan, 78; non-working periods and, 86–87; off duty status and, 85–86; response rates and, 81–82; TaskRabbit, 82–83 de Blasio, Bill, 52fig. 8 Del Valle, Fidel F., 143–44 depression of 1819–1822, 65 deregulation, 178 Design: The Invention of Desire (Helfand), 207 DiFazio, William, 37 disability accommodations: access to, 188; avoidance of, 36; independent contractor status and, 94, 96 discretion, 153–54 discrimination: overview, 6; age-based, 62; guest screening and, 168–72; independent contractor status and, 94; instability and, 38; in sharing economy, 35–36 disruption: overview, 6, 8; Arieff on, 231n4; disruptive innovation, 207–8; term usage, 30 Dollars and Sex (Adshade), 127 double income families, 37 dream jobs: overview, 158–59; entrepreneurship made easy, 161–63; host choice/guest screening, 168–72; as marketing opportunity, 163–66; skills, capital, and choice, 166–68; skills and capital, 160; stigma and, 160–61 Driver Injury Protection insurance, 102 drivers: age of, 53, 223n85; assault and harassment of, 103–4; Baran, 167; bathroom use, 88; cost of miles driven, 184–85; dangers of driving for hire, 101–4; Driver Injury Protection insurance, 102; driver requirements, 167; educational level of, 53, 223n85; employee classification of, 198fig. 14; gender issues, 227–28n30; Gerald, 107–9; health issues of, 104–6; Hector, 106–7, 144–47; high capital-barrier, 167; identity checks, 113–14; immigrant status of, 53; income level, 54, 184–85, 223n85, 233n54; insurance requirements, 222–23n64; Juno/Gett, 190–91, 233n72; Larry, 88, 104; licensing requirements, 222–23n64; Muhammad, 132–33; Oybek, 103–4, 106; race of, 53; registration requirements, 222–23n64; safety issues, 227n16; as successful workers, 185; Uber auto loan/lease programs, 73–74; Uber website on, 53, 54fig. 10; vulnerability categories, 193–94; worker-client sexual interactions, 132–33; work stigma and, 160–61; Young, Maggie, 103 drugs: overview, 23; drug package policies, 155; drug testing, 222n64; liability of carrying, 138–39, 157 Dunlap, Al, 178 durable-assets-sharing sites, 26, 27.


The Techno-Human Condition by Braden R. Allenby, Daniel R. Sarewitz

airport security, augmented reality, carbon footprint, clean water, cognitive dissonance, coherent worldview, conceptual framework, creative destruction, Credit Default Swap, decarbonisation, different worldview, facts on the ground, friendly fire, industrial cluster, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Jane Jacobs, land tenure, life extension, Long Term Capital Management, market fundamentalism, mutually assured destruction, nuclear winter, Peter Singer: altruism, planetary scale, prediction markets, Ralph Waldo Emerson, Ray Kurzweil, Silicon Valley, smart grid, source of truth, stem cell, Stewart Brand, technoutopianism, the built environment, The Wealth of Nations by Adam Smith, transcontinental railway, Whole Earth Catalog

To talk about transhumanism without understanding the systemic transformative effect of technological change at this level is whistling in the dark. (Less metaphorically, it is to grossly overestimate how much we can know and understand about the world we live in, and how it is reconstructing us, when, frankly, most of us don't have a clue about what is going on.) Railroads simultaneously destroyed and made worlds, and they are but one example of the ongoing human project of "creative destruction.,,18 Technological change, as the example of the railroads suggests, is always potent; today, however, we have not just one or two enabling technologies undergoing rapid evolution, but five: nanotechnology, biotechnology, robotics, information and communication technology (leT), and applied cognitive science. Nanotechnology extends human will and design to the atomic level. Biotechnology, in the words of environmental historian J.

Additional useful writings in this fascinating area of cultural studies may be found in Nicolson 1959 and in Abrams 1971. 17. And often, as with war or other catastrophe, at huge human cost. See, for example, Polanyi's (1943) portrayal of the remaking of social fabric in industrialized England, or Dickens' portrayals of industrial London. 18. The reference is to the famous characterization of capitalism as "gales of creative destruction" in Schumpeter 1942. 19. McNeill 2000, pp. 193-194. 20. "Engineering and aging," IEEE Spectrum 41 (2004), no. 9: 10, 31-35. For much more on this controversial possibility, see de Grey 204 Notes to Chapters 4 and 5 2004. Aubrey D. N. J. de Grey is a well-known and controversial advocate of what might be called the "radical human life extension" school. Whether life extension is possible, and if so when it will be available, and how long lives will eventually be, remain highly contentious within the relevant research communities.

.,9 Climate change, 31, 40, 67, 109££,161,164,170, 193ff Cochlear implants, 54££ Cod fishing, 41, 42 Cognition in the Wild, 95, 96 Cognitive science, 8, 80, 179 Complexity Level III, 162££ "wicked," 109££, 168 Computer-brain interfaces (CBI), 35,88,89,146££ Confucian bureaucracy, 132 Congress of Vienna, 75 Conquest, R., 120 Consumption, mass, 40 Control, hierarchy of, 52 Copernicus, N., 101, 173 Counterinsurgency, 139 Counter Rocket Artillery Mortar (CRAM),150 Cowpox, 16 Creative destruction, 80 Credit, 39, 40 Cronon, W, 115 Darwin, c., 7, 172 Defense Advanced Research Projects Agency (DARPA), 152 Democracy, 93-105 Diamond, J., 121 Dickens, c., 97 Dignity,10 Division of labor, 73, 155 Doping, in sports, 4 Dreiser, T., 97 Dumbledore, A., 91, 110 Earth systems, 63££ Einstein, A., 173 Ellul, J., 44, 45 Emerson, R. W, 74 Ender's Game, 155 Enhancing Evolution, 19 Enlightenment, 10, 11,31,61, 64,99,102,104,111,117, 118, 121, 161 Environmentalism, 110 Ethics, 179££ Eugenics, 22 European Union, 132, 133, 139, 183 Facebook,81,148,149 "Factor X," 23 Factory capitalism, 73 Faust, 189 Fides et Ratio, 101 Food and Drug Administration (FDA), 2, 4, 54 Forrester, ]., 92 Fox News, 117 France, 133 Frankenstein myths, 119 Freud, S., 172, 173 From, L., 122 Fukuyama, E, 21, 23 Galileo, 173 Garreau, J., 9 General circulation models (GCMs),111 Index Genetically modified organisms (GMOs), 69, 99, 174 Genetic modifications, 18 Goethe, J.


pages: 249 words: 66,383

House of Debt: How They (And You) Caused the Great Recession, and How We Can Prevent It From Happening Again by Atif Mian, Amir Sufi

"Robert Solow", Andrei Shleifer, asset-backed security, balance sheet recession, bank run, banking crisis, Ben Bernanke: helicopter money, break the buck, business cycle, Carmen Reinhart, collapse of Lehman Brothers, creative destruction, debt deflation, Edward Glaeser, en.wikipedia.org, financial innovation, full employment, high net worth, Home mortgage interest deduction, housing crisis, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, liquidity trap, Long Term Capital Management, market bubble, Martin Wolf, money market fund, moral hazard, mortgage debt, negative equity, paradox of thrift, quantitative easing, Robert Shiller, Robert Shiller, school choice, shareholder value, the payments system, the scientific method, tulip mania, young professional, zero-sum game

When a city or country has a collapse in spending, a flexible economy should be able to adjust by lowering wages and making exporting industries more competitive. Another adjustment mechanism should have been migration. Perhaps it was time for workers to pack up and move to other parts of the country with a stronger job market. Economists going back to Joseph Schumpeter have argued that this “creative destruction” process is natural and even healthy. When the economy needs to reallocate its production to new activities, workers move in order to take advantage of new opportunities. But unfortunately, the U.S. economy during the Great Recession didn’t work that way, and unemployment persisted. John Maynard Keynes had it exactly when he wrote: “It may well be that the classical theory represents the way in which we should like our economy to behave.

States,” B.E. Journal of Macroeconomics 12, no. 2 (2012). 16. Nakamura and Steinsson, “Fiscal Stimulus in a Monetary Union.” 17. Frank Fabozzi and Franco Modigliani, Mortgage and Mortgage-Backed Securities Markets (Boston: Harvard Business School Press, 1992). 18. Miles, “Housing, Leverage, and Stability in the Wider Economy.” 19. See Gregor Matvos and Zhiguo He, “Debt and Creative Destruction: Why Could Subsidizing Corporate Debt Be Optimal?” (working paper, University of Chicago Booth School of Business, March 2013). 20. See Pierre-Olivier Gourinchas and Olivier Jeanne, “Global Safe Assets” (Bank for International Settlements working paper 399, December 2012). As they note, “Privately produced stores of value cannot provide sufficient insurance against global shocks. Only public safe assets may, if appropriately supported by monetary policy.” 21.

See also Federal Reserve Central Valley, CA: net-worth destruction in, 25–26; population growth in, 68; spending declines in, 38; unemployment in, 66–68 Chapter 13 bankruptcy, 146–48, 202n37, 203n44 Chomsisengphet, Souphala, 139 Cobb-Douglas preferences, 195n3 collapse in housing prices, 12–13, 17–30, 44–45, 132–33, 170; borrowers’ junior claims and, 18; debt and spending during, 39–44, 194n5; foreclosures and, 26–29, 39, 50–52, 170, 202n21; forgiveness practices and, 135–51, 205n19; government programs on, 135–42; lenders’ senior claims and, 18–19, 23–25, 50; leverage multipliers of, 22–23, 192n2; renegotiation of mortgages and, 137–42, 145–47, 202n37, 203n44; shared-responsibility mortgages and, 176; Troubled Asset Relief Program (TARP) and, 136; underwater mortgages and, 26, 51–52, 60, 150 Commercial Paper Funding Facility (CPFF), 125 consumer spending, 5–7, 31–45; borrowing constraints on, 89–90, 197n18; declines in, 6–7, 31–35, 128, 130; geographic distribution of, 35–38, 45; government stimulus of, 21; home equity loans and, 88, 159; household debt and, 3–7, 131–34; housing-wealth effect on, 38–42, 88–89; inflation and, 153, 160–62; in the levered-losses framework, 50–51, 71, 194n5; lowered prices and, 53, 55; marginal propensity to consume levels and, 38–45, 140–42, 176, 178, 194n5, 202nn20–21; multiplier effects of, 179; precautionary savings and, 194n5; on residential investment, 32–35; of savers vs. borrowers, 55, 140–42; shared-responsibility mortgages and, 176–79; unemployment and, 62, 178–79 Corker, Bob, 60–62 Coval, Josh, 98, 101 cram-down practices, 146–48 crash. See collapse in housing prices; Great Recession Crawford, William H., 144 creative destruction, 67 credit, 5, 143; in bank bailout arguments, 126–27; borrowing constraints on, 89–90, 197n18; myopic consumers of, 90–91, 197n18; tight availability of, 11, 31–35, 59. See also debt; lending boom; mortgage credit expansion creditors. See mortgage lenders; savers credit-rating agencies, 103–4 currency in circulation, 154–57 Daley, Suzanne, 119–21 Davidson, Adam, 131–32, 200n21 Davis, Steven, 70 debt, 12–13, 17–30, 39–45, 166; animal spirits view of, 80–81, 196n8; as anti-insurance, 29–30; bubbles and, 110–16, 149, 169–70; equity-like financing of, 168–70, 180–87, 206n13; forgiveness programs for, 60, 135–51, 205n19; government subsidy of, 181–82; in the levered-losses framework, 50–52, 70–71, 134, 170; marginal propensity to consume levels and, 39–44, 194n5; in neglected risks frameworks, 114–15; optimists’ use of, 111–13; risk-sharing principle of, 168–87; risks of home ownership and, 2, 12–13, 17–30, 39, 168–69; spending declines and, 38–41; for student loans, 167–69, 182–83, 206n9; wealth inequality and, 18–21, 23–25, 71.


pages: 247 words: 68,918

The End of the Free Market: Who Wins the War Between States and Corporations? by Ian Bremmer

affirmative action, Asian financial crisis, banking crisis, Berlin Wall, BRICs, British Empire, centre right, collective bargaining, corporate governance, creative destruction, credit crunch, Credit Default Swap, cuban missile crisis, Deng Xiaoping, diversified portfolio, Doha Development Round, Exxon Valdez, failed state, Fall of the Berlin Wall, Francis Fukuyama: the end of history, global reserve currency, global supply chain, invisible hand, joint-stock company, Joseph Schumpeter, Kickstarter, laissez-faire capitalism, low skilled workers, mass immigration, means of production, megacity, Mikhail Gorbachev, mutually assured destruction, Naomi Klein, Nelson Mandela, new economy, offshore financial centre, open economy, race to the bottom, reserve currency, risk tolerance, shareholder value, South Sea Bubble, sovereign wealth fund, special economic zone, spice trade, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, trade route, tulip mania, uranium enrichment, Washington Consensus, Yom Kippur War, zero-sum game

Second, there is the concept of “creative destruction.” Economist Joseph Schumpeter coined this phrase in his 1942 book, Capitalism, Socialism, and Democracy, to describe a process by which dying ideas and materials fertilize new ones, endowing capitalism with a self-regenerating dynamism. As industries become obsolete and die, the workers, assets, and ideas that once sustained them are freed to recombine in new forms to produce goods, services, and ideas that meet the evolving wants and needs of consumers. This process sustains an ever-expanding economic ecosystem. It’s not the product of political whim. It’s as organic as human evolution. Those who administer state capitalism fear creative destruction—for the same reason they fear all other forms of destruction: They can’t control it. Creative destruction ensures that industries that produce things that no one wants will eventually collapse.


pages: 421 words: 110,272

Deaths of Despair and the Future of Capitalism by Anne Case, Angus Deaton

Affordable Care Act / Obamacare, basic income, Bertrand Russell: In Praise of Idleness, business cycle, call centre, collapse of Lehman Brothers, collective bargaining, Corn Laws, corporate governance, correlation coefficient, crack epidemic, creative destruction, crony capitalism, declining real wages, deindustrialization, demographic transition, Dissolution of the Soviet Union, Donald Trump, Downton Abbey, Edward Glaeser, Elon Musk, falling living standards, Fellow of the Royal Society, germ theory of disease, income inequality, Jeff Bezos, Joseph Schumpeter, Kenneth Arrow, labor-force participation, low skilled workers, Martin Wolf, Mikhail Gorbachev, obamacare, pensions crisis, randomized controlled trial, refrigerator car, rent-seeking, risk tolerance, shareholder value, Silicon Valley, The Spirit Level, The Wealth of Nations by Adam Smith, Tim Cook: Apple, trade liberalization, universal basic income, working-age population, zero-sum game

All of which tells in favor of the superstar story of rising profits, and against an account that depends exclusively on American institutions like lobbying, its political system, or a peculiarly American unwillingness to apply antitrust law.21 European countries have also seen some recent increases in income inequality, though less than in the United States, which is consistent with trade and IT pushing up inequality, but with additional, specifically American forces ramping it up. Innovation often happens through a process of creative destruction, or Schumpeterian competition, named after the Austrian economist Joseph Schumpeter. (He is famous for having declared his wish to be the greatest economist in the world, the greatest horseman in Austria, and the best lover in Vienna. He later claimed that only the decline in the cavalry had thwarted his triple ambition, though not all economists would agree. There is no surviving evidence on his third ambition.)

But we do not believe that it has yet been established that there is any general case that American industry has become less competitive and is raising prices to the detriment of consumer welfare.24 Indeed, the spate of innovation has, for many goods and services, brought ever-lower prices, including much that comes for free. The problem with all the innovation is not that prices are too high; it is that Schumpeterian creative destruction is not only creative but destructive. It eliminates jobs that used to exist, accelerated by the cost of health insurance, throwing workers into an increasingly hostile labor market, and with an inadequate safety net; the lives and communities that were supported by those jobs are put at risk, at the worst leading to despair and death. Labor Markets and Monopsony: The Power to Underpay Just as monopoly exists when there is only one seller, monopsony exists when there is only one buyer; here we are particularly concerned with only one buyer of labor.

., 284n41, 284n43 Comcast, 242 Coming Apart (Murray), 70 Commonwealth Fund, 197 communication, 229 communications technology, 233 community, 173, 179; destruction of, 189; white working-class losing, 178 competition: capitalism and, 230; elimination of, 232; foreign, 68; free markets and, 212; globalization and, 225; labor markets and, 236, 237; permanent advantage in, 235; Robinson and, 236; stifling of, 227 Congress, 13, 100, 120, 124–26, 197, 210, 211, 225, 242, 261 Conner, Marcy, 37, 49 consumer price index (CPI), 158 consumers, 208, 221, 230; benefits to, 227; immiseration of, 188; market power used against, 187; technological change socially beneficial for, 233 contraceptive pills, 160, 169 Cook, Tim, 12 Cooper, Zack, 283n27, 283n28, 284n56 copayments, 192 copyright laws, 256 Corn Laws, 14, 15 corporate choices, 227 corporate lobbies, 228, 232, 239, 241–43, 256–57; healthcare and, 209–11, 250 Corwin, Steven, 201 Cotton, Tom, 285n5 Courtwright, David, 115, 118, 274n11, 274n12 Cowen, Tyler, 286n6 Cox, Daniel, 265n8, 279n28 crack cocaine epidemic, 5, 62, 64; opioid epidemic and, 68–69 Craig, Stuart V., 283n27 creative destruction, 235 Crestor, 197 crime, 68, 179 crime rates, 5, 69 crony capitalism, 245. See also rent-seeking Culyer, Anthony J., 284n45 Cunningham, Rebecca M., 273n6 Currie, Janet, 263 Cutler, David M., 263, 277n11 Damasio, Antonio R., 271n3 Danziger, Sheldon H., 280n5 Daoguang Emperor, 109 Davis, Karen, 282n14 death certificates, 3, 29, 101, 118, 119, 136, 269n19 Deaton, Angus, 271n5, 271n7, 272n12, 272n15, 273n26, 276n3, 277n16, 291n37 deductibles, 192, 204 De Loecker, Jan, 287n14, 287n18 Delta Airlines, 231 delusional parasitosis, 112 democracy, ix, 14, 241, 246, 262; white working-class and, 13 Democratic Party, x Democrats, 210 Denmark, 163 depression, 27, 37, 92, 95, 96, 98, 99, 212 Desmond, Matthew, 276n3 detox, 122 Devine, Tom, 111, 273n4, 276n42 diabetes, 43 Diamond, Peter, 289n4 disability, 27, 161; insurance, 81, 85, 92, 157, 162, 252, 279n19 discrimination, 5, 31, 62, 65, 166, 189; reverse, 6, 166, 190; women and, 160 dissatisfaction, 181 dividends, 52 divorce, 98, 149 Dobson, Frank, 199 Doctor, Jason, 263, 274n20 doctors, 26, 52, 72, 73, 75, 84, 116 186, 198, 204, 210, 249; germ theory of disease and, 56; opioids and, 10, 113, 114, 117–19, 121–26, 247, 259; rent-seeking and, 10, 11, 12, 193, 196–97, 200–202, 241–42, 256 Doonesbury (cartoon), 62, 63 Dorn, David, 238, 278n21, 285n9, 285n10, 285n15, 287n8, 288n33 Doty, Michelle M., 284n41, 284n43 Dow Jones Index, 240 Dreamland (Quinones), 146 drug dealers, 10, 66, 69, 109–11, 114, 115, 120, 121 Drug Enforcement Agency (DEA), 110, 120, 124–25 drug manufacturers, 10, 40, 85, 112, 120, 124, 126, 127, 192, 193, 201, 202, 242, 259 drug overdoses, 2, 37, 38, 65–66, 111, 137, 185; African Americans and, 119; alcoholism and, 246; bachelor’s degrees and, 114, 121; common features of, 97; mortality rates from, 40, 121; rapid increases in, 45; rise in, 118; suicides and, 246.


pages: 717 words: 150,288

Cities Under Siege: The New Military Urbanism by Stephen Graham

addicted to oil, airport security, anti-communist, autonomous vehicles, Berlin Wall, call centre, carbon footprint, clean water, congestion charging, creative destruction, credit crunch, DARPA: Urban Challenge, defense in depth, deindustrialization, digital map, edge city, energy security, European colonialism, failed state, Food sovereignty, Gini coefficient, global supply chain, Google Earth, illegal immigration, income inequality, knowledge economy, late capitalism, loose coupling, market fundamentalism, mass incarceration, McMansion, megacity, moral panic, mutually assured destruction, Naomi Klein, New Urbanism, offshore financial centre, one-state solution, pattern recognition, peak oil, planetary scale, private military company, Project for a New American Century, RAND corporation, RFID, Richard Florida, Scramble for Africa, Silicon Valley, smart transportation, surplus humans, The Bell Curve by Richard Herrnstein and Charles Murray, urban decay, urban planning, urban renewal, urban sprawl, Washington Consensus, white flight, white picket fence

Many of these, in turn, have stimulated not only vast migrations but also the construction of city-scale refugee camps to accommodate the displaced populations, who already numbered some fifty million by 2002.72 The permiation of organized, political violence within and through cities and systems of cities is complicated by the fact that much ‘planned’ urban change, even in times of relative peace, itself involves warlike levels of violence, destabilization, rupture, forced expulsion and place annihilation.73 Particularly within the dizzying peaks and troughs of capitalist and neoliberal urbanism or the implementation of programmes for large-scale urban ‘renewal’, ‘regeneration’ or ‘renaissance’, state-led planning often amounts to the legitimized clearance of vast tracts of cities in the name of the removal of decay, of modernization, improvement, or ordering, of economic competition, or of facilitating technological change and capital accumulation and speculation.74 While tracts of booming cities are often erased through state-engineered speculation, the many cities that are shrinking because of de-industrialization, global industrial relocation, and demographic emptying are also vulnerable to clean-sweep planning. ‘The economically, politically and socially driven processes of creative-destruction through abandonment and redevelopment’, suggests David Harvey, ‘are often every bit as destructive as arbitrary acts of war. Much of contemporary Baltimore, with its 40,000 abandoned houses, looks like a war zone to rival Sarajevo.’75 WAR UNBOUND In such a context, and given the increasingly extreme social inequalities, it is no surprise that Western military theorists and researchers are now particularly preoccupied with how the geographies of cities, especially the cities of the global South, are beginning to influence both the geopolitics and the technoscience of post–Cold War political violence.

This is especially so as both the War on Terror and radical Islamism tend to demonize the messy cosmopolitanism of cities, construing them as intrinsically amoral, sinful and unnatural places. It is no wonder that both barbarisms murderously target cities and their inhabitants. Or that both the neocon/ Christian and the Islamist fundamentalism share what Zillah Eisenstein terms a ‘masculinist-militarist’ mentality, in which violence is the path to the creative destruction of cities, nations or civilizations.19 The Manichaean mirrors of the two polarized fundamentalisms inevitably produce a duplication and reduplication of violence.20 What results is a convergence between state terror and non-state terror. The ‘ultimate catastrophe’ of the War on Terror, as Joseba Zulaika points out, ‘is that such a categorically ill-defined, perpetually deferred, simple-minded Good-versus-Evil war echoes and re-creates the very absolutist mentality and exceptionalist tactics of the insurgent terrorists.’

Militarization also involve the normalization of military paradigms of thought, action and policy; efforts at the aggressive disciplining of bodies, places and identities deemed not to befit masculinized (and interconnected) notions of nation, citizenship or body; and the deployment of a wide range of propaganda which romanticizes or sanitizes violence as a means of righteous revenge or the achievement of some God-given purpose. Above all, militarization and war organizes the ‘creative destruction’ of inherited geographies, political economies, technologies and cultures. So, what exactly is new about the ‘new military urbanism’? How is it different from the intense militarization experienced by the cities of, say, the Cold War or total war? I shall point to seven related trends which, I argue, introduce palpably new dimensions to the contemporary militarization of urban life. RURAL SOLDIERS, URBAN WAR First, new relationships are emerging between nations, soldiers and citizens, which have major implications for the contemporary urbanization of warfare.


pages: 470 words: 148,730

Good Economics for Hard Times: Better Answers to Our Biggest Problems by Abhijit V. Banerjee, Esther Duflo

"Robert Solow", 3D printing, affirmative action, Affordable Care Act / Obamacare, Airbnb, basic income, Bernie Sanders, business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, charter city, correlation does not imply causation, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, decarbonisation, Deng Xiaoping, Donald Trump, Edward Glaeser, en.wikipedia.org, endowment effect, energy transition, Erik Brynjolfsson, experimental economics, experimental subject, facts on the ground, fear of failure, financial innovation, George Akerlof, high net worth, immigration reform, income inequality, Indoor air pollution, industrial cluster, industrial robot, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, Jean Tirole, Jeff Bezos, job automation, Joseph Schumpeter, labor-force participation, land reform, loss aversion, low skilled workers, manufacturing employment, Mark Zuckerberg, mass immigration, Network effects, new economy, New Urbanism, non-tariff barriers, obamacare, offshore financial centre, open economy, Paul Samuelson, place-making, price stability, profit maximization, purchasing power parity, race to the bottom, RAND corporation, randomized controlled trial, Richard Thaler, ride hailing / ride sharing, Robert Gordon, Ronald Reagan, school choice, Second Machine Age, secular stagnation, self-driving car, shareholder value, short selling, Silicon Valley, smart meter, social graph, spinning jenny, Steve Jobs, technology bubble, The Chicago School, The Future of Employment, The Market for Lemons, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, total factor productivity, trade liberalization, transaction costs, trickle-down economics, universal basic income, urban sprawl, very high income, War on Poverty, women in the workforce, working-age population, Y2K

Romer, “Endogenous Technological Change,” Journal of Political Economy 98, no. 5, part 2 (1990): S71–S102, https://doi.org/10.1086/261725. 49 Philippe Aghion and Peter Howitt, “A Model of Growth Through Creative Destruction,” Econometrica 60, no. 2 (1992): 323–51. 50 The Wikipedia entry for Schumpeter reads thus: “Schumpeter claimed that he had set himself three goals in life: to be the greatest economist in the world, to be the best horseman in all of Austria and the greatest lover in all of Vienna. He said he had reached two of his goals, but he never said which two, although he is reported to have said that there were too many fine horsemen in Austria for him to succeed in all his aspirations.” See https://en.wikipedia.org/wiki/Joseph_Schumpeter. 51 Philippe Aghion and Peter Howitt, “A Model of Growth Through Creative Destruction,” Econometrica 60, no. 2 (1992): 323–51. 52 ‘Real GDP Growth,” US Budget and Economy, http://usbudget.blog spot.fr/2009/02/real-gdp-growth.html. 53 David Leonardt, “Do Tax Cuts Lead to Economic Growth?

For one, there was very little migration out of the districts affected by liberalization.28 Even within a region, resources were slow to move among industries. More strikingly still, this was true within firms. Many firms in India produce more than one product, so one would expect firms to close down product lines competing with cheaper imports and reorient production toward products facing less of a disadvantage. There is nothing to stop this even where labor laws make it hard to fire people, but Topalova’s research found very little “creative destruction.” Firms never seem to discontinue a product line that has become obsolete. Perhaps it is because the managers find the transition process costly: workers need to be retrained, new machines need to be purchased and installed.29 PROTECTION FOR WHOM? These internal barriers notwithstanding, resources did eventually move (at least in some countries) and exports are a big part of the remarkable success stories of East Asia in particular.

It eventually turned out that the Honduran government was more interested in Romer’s name and fame than his counsel, and when it signed a deal with an American entrepreneur with a strong taste for totally unregulated capitalism to develop the ZEDEs, Romer walked out. This story suggests charter cities are unlikely to hold the key to sustained growth in developing countries for the very good reason that the internal political compulsions the charter is intended to hold at bay often have a way of biting back. CREATIVE DESTRUCTION To summarize the previous sections, regional spillovers seem real, but based on the limited evidence we have, probably not powerful enough for the task of keeping growth going at the national level. Perhaps anticipating this, Romer had a second story up his sleeve; in that story, growth is driven by firms developing new ideas, which turn into more productive technologies.48 Romer was describing a force that ensured technologies would constantly keep improving, and more so in countries pursuing pro-innovation policies.


pages: 297 words: 77,362

The Nature of Technology by W. Brian Arthur

Andrew Wiles, business process, cognitive dissonance, computer age, creative destruction, double helix, endogenous growth, Geoffrey West, Santa Fe Institute, haute cuisine, James Watt: steam engine, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kevin Kelly, knowledge economy, locking in a profit, Mars Rover, means of production, Myron Scholes, railway mania, Silicon Valley, Simon Singh, sorting algorithm, speech recognition, technological singularity, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions

And as these inferior elements become replaced, their dependent opportunity niches also collapse (steps 2 and 4) and with them the technologies that had occupied these. The arrival of the automobile in the early 1900s caused the replacement of horse transportation. The death of horse transportation eliminated the needs for blacksmithing and carriage making. The collapse of blacksmithing in turn eliminated the need for anvil making. Collapses caused further collapses in a backward succession. This is not quite the same as Schumpeter’s “gales of creative destruction,” where novel technologies wipe out particular businesses and industries broadly across the economy. Rather, it is a chain of domino-like collapses—avalanches of destruction, if you prefer to call them that. The creative side to this is, as Schumpeter pointed out, that new technologies and industries take the place of those that collapse. We can add to this that new technologies can as easily set up new opportunity niches to be occupied by further new technologies, which set up further niches, to be occupied by yet further technologies.

They examine how development paths are influenced by the knowledge base available to a technology and the science that surrounds it, by incentives that firms face, by how the search process for improvements differs within different bodies of technology, by the patent system and legal environment that surround the technology, by learning effects, and by the structure of the industry the technology fits into. 132 the new technology… specialize: In biology language, we would say the technology radiates. 132 This is where… selection: For Darwinian approaches see Stanley Metcalfe, Evolutionary Economics and Creative Destruction, Routledge, London, 1998; Saviotti and Metcalfe; also Joel Mokyr, “Punctuated Equilibria and Technological Progress,” American Economic Assoc. Papers and Proceedings 80, 2, 350–54, May 1990; Basalla. 133 Such obstacles are exasperating: See Robert Ayres, “Barriers and Breakthroughs: an ‘Expanding Frontiers’ Model of the Technology-Industry Life Cycle,” Technovation 7, 87–115, 1988. 133 a bottleneck that… of: Constant talks of “log-jams and forced inventions” (p. 245), and of “anomaly-induced” technical change (pp. 5, 244). 134 Structural Deepening: For an earlier discussion of this, see Arthur, “On the Evolution of Complexity,” in Complexity, G.

So when I say that technologies are constructed from ones that previously exist, I mean this as shorthand for saying they are constructed from ones that previously exist or ones that can be constructed at one or two removes from those that previously exist. 171 In the beginning,… harnessed: See Ian McNeil, “Basic Tools, Devices, and Mechanisms,” in An Encyclopedia of the History of Technology, McNeil, ed., Routledge, London, 1990. 172 “The more there… curve: Ogburn, p. 104. 180 “gales of creative destruction”: Schumpeter, 1942, pp. 82–85. 181 An Experiment in Evolution: Arthur and Polak. 184 There is a parallel observation in biology: Richard Lenski, et al., “The evolutionary origin of complex features,” Nature, 423, 139–143, 2003. 185 This yielded avalanches: Polak and I found that these “sand-pile” avalanches of collapse followed a power law, which suggests, technically speaking, that our system of technologies exists at self-organized criticality. 187 More familiarly, larger… combinations: another important source of this is gene and genome duplication.


pages: 309 words: 78,361

Plenitude: The New Economics of True Wealth by Juliet B. Schor

Asian financial crisis, big-box store, business climate, business cycle, carbon footprint, cleantech, Community Supported Agriculture, creative destruction, credit crunch, Daniel Kahneman / Amos Tversky, decarbonisation, dematerialisation, demographic transition, deskilling, Edward Glaeser, en.wikipedia.org, Gini coefficient, global village, IKEA effect, income inequality, income per capita, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, Joseph Schumpeter, Kenneth Arrow, knowledge economy, life extension, McMansion, new economy, peak oil, pink-collar, post-industrial society, prediction markets, purchasing power parity, ride hailing / ride sharing, Robert Shiller, Robert Shiller, sharing economy, Simon Kuznets, single-payer health, smart grid, The Chicago School, Thomas L Friedman, Thomas Malthus, too big to fail, transaction costs, Zipcar

Even when growth picks up again, there will be large sectors in permanent decline—automobiles, industrial farming, and perhaps even fossil fuels will be smaller and less profitable industries, if they’re profitable at all. With a downturn this severe, there will be a protracted and difficult process of weeding out low-performing industries, companies, and products, or what the Austrian economist Joseph Schumpeter called creative destruction. It will take time to re-create the classic conditions for prosperity, such as confidence, financial regulation, monetary stability, consumer demand, and a steady policy hand. Due to the complexity of the global economy, the challenges are far greater than we’ve ever faced. As we move forward, the fatal flaw of the current growth regime—climate change and other ecological limits—will rear its ugly head.

Politics and Society 32 (December): 439-73. Business Alliance for Local Living Economies (BALLE). The Business Alliance for Local Living Economies: 20,000 entrepreneurs building the new economy. Available from http://www.livingeconomies.org (accessed September 7, 2009). Caballero, Ricardo J., and Adam B. Jaffe. 1993. How high are the giants’ shoulders: An empirical assessment of knowledge spillovers and creative destruction in a model of economic growth. NBER Macroeconomics Annual 8: 15-74. Cavanagh, John, and Jerry Mander. 2004. Alternatives to economic globalization: A better world is possible. San Francisco: Berrett-Koehler. Caviglia-Harris, Jill L., Dustin Chambers, and James R. Kahn. 2009. Taking the “U” out of Kuznets: A comprehensive analysis of the EKC and environmental degradation. Ecological Economics 68 (4): 1149-59.

.: BEA environmental studies and climate change and consumption, consumerism carbon and product scores and clothing and, see clothing end of life (EOL) and environmental impact of expansion of fashion and material flows and population and storage and disposal issues in symbolic value and well-being and Container Store cooperatives copyrights coral reefs Costa Rica cost-benefit analysis cotton Craigslist Creative Commons creative destruction credit credit unions currency Daily, Gretchen Daly, Herman dams Dasgupta, Partha debt deforestation de Graaf, John Denmark, ecological footprint in Depression, Great desertification DICE (Dynamic Integrated Climate-Economy) digital fabricators discount rate-5n diseases droughts Dudley Street Neighborhood Initiative durable goods: department store index for prices of weight of dynamic efficiency Earth Institute Earth Restoration Corps Easterlin, Richard eBay ecocide eco-efficiency ecological commons ecological footprint hours worked and ecological modernization ecological optimism economy: aggregate growth and business-as-usual form of, see business-as-usual (BAU) economy climate change and community and energy efficiency and extra-market diversification and financialization and flexible production and human behavior and information exchange and Keynes and materials use and extraction and need for alternative form of physical capital and rebound effect and scale of production and efficiency of self-provisioning and service sector of shifting the conversation on time wealth and “too big to fail” dilemma and U.S., historical profitability of value as measure in world, growth of see also environmental economics ecovillages education efficiency Egypt Ehrlich, Paul electric industry electric vehicles electronics, consumer imports of material flow and multifunctionality and storage and disposal of see also specific products Elpel, Renee Elpel, Tom Empire of Fashion (Lipovetsky) employee-owned companies employment, see labor; unemployment end of life (EOL) energy: housing and price of rebound effect from efficient use of systems dynamics and taxes and use of see also specific energy sources energy economics environment ecological footprint in, see ecological footprint ecological optimism and economic activity and feedback loops and full-cost pricing and integrated assessment models and mainstream economics and planetary boundaries and restoration of UN assessment of (2005) water footprint and see also climate change environmental economics cost-benefit analysis and customization and household production and production possibilities curve and reciprocity and resale and reuse and sharing and trade-off view of -4n working less and see also economy Environmental Kuznets Curve (EKC) -3n Europe: cohousing in ecological footprint in health care in historical carbon emissions of materials consumption in passive solar building in population decline in product life extension policies in European Society for Ecological Economics EV1 electric car extensive growth extinctions extra-market diversification ExxonMobil fabrication laboratories (fab labs) cost of Factor e Farm Farm, The (Tenn.)


pages: 233 words: 75,712

In Defense of Global Capitalism by Johan Norberg

anti-globalists, Asian financial crisis, capital controls, clean water, correlation does not imply causation, creative destruction, Deng Xiaoping, Edward Glaeser, Gini coefficient, half of the world's population has never made a phone call, Hernando de Soto, illegal immigration, income inequality, income per capita, informal economy, Joseph Schumpeter, Kenneth Rogoff, land reform, Lao Tzu, liberal capitalism, market fundamentalism, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, open economy, prediction markets, profit motive, race to the bottom, rising living standards, Silicon Valley, Simon Kuznets, structural adjustment programs, The Wealth of Nations by Adam Smith, Tobin tax, trade liberalization, trade route, transaction costs, trickle-down economics, union organizing, zero-sum game

If you and I and everyone else can think of things that we would like two people to do, we have a permanent manpower deficit, with 6 billion people wanting at least 12 billion employees. This is why we will never have too much manpower, no matter how prosperous we become or how efficient our production gets. Efficiency does, of course, have a flip side. Economist Joseph Schumpeter famously described a dynamic market as a process of ‘‘creative destruction,’’ because it is concerned with ‘‘destroying’’ old solutions and industries, but with a creative end in view, namely the transfer of manpower and capital to more productive occupations. This gives us a higher standard of living, but as the word ‘‘destruction’’ suggests, not everyone benefits from every market transformation in the short term. It is, of course, painful for those who have invested in the old solutions and for those who are laid off in less efficient industries.

But that risk still cannot be compared with the stress in ages past of perhaps not being able to earn one’s daily bread or of drought or flood completely obliterating one’s livelihood. It cannot be compared with the anxiety of the present-day Ethiopian farmer, whose life may depend on the coming of rain and on the health of his livestock. The most foolish possible way to counter the problems that such economic adjustments entail is to try to prevent the adjustments. Without ‘‘creative destruction,’’ we would all be stuck with a lower standard of living. The whole point of trade and development is to direct resources to the point where they can be used most efficiently. A Chinese proverb has it, ‘‘When the wind of change begins to blow, some people build windbreaks while others build windmills.’’ The idea that we should halt change now is as misguided as the idea that we should have obstructed agricultural advances two centuries ago to protect the 80 percent of the population employed on the land at that time.

Moore and Simon, p. 218f. 4. Jonah Goldberg, ‘‘The Specter of McDonald’s: An Object of Bottomless Hatred,’’National Review, June 5, 2000. 5. Thomas Hylland Eriksen, Kulturterrorismen: en uppgo¨relse med tanken om kulturell renhet (Nora, Sweden: Nya Doxa, 1999), p. 46. 6. For numerous examples of ‘‘indigenous’’ cultural products made possible by cultural contact and trade, see Tyler Cowen, Creative Destruction: How Globalization Is Changing the World’s Cultures (Princeton, N.J.: Princeton University Press, 2002). 7. Mario Vargas Llosa, ‘‘Can Culture Be Exempt from Free Trade Agreement?’’ Daily Yomiuri, April 25, 1994. 8. Giddens, p. 66. 9. Berg and Karlsson, p. 51. 10. Berg and Karlsson, pp. 162–171. About the Author Johan Norberg is a fellow at the Swedish think tank Timbro.


pages: 232 words: 71,965

Dead Companies Walking by Scott Fearon

bank run, Bernie Madoff, business cycle, corporate raider, creative destruction, crony capitalism, Donald Trump, Eugene Fama: efficient market hypothesis, fear of failure, Golden Gate Park, hiring and firing, housing crisis, index fund, Jeff Bezos, Joseph Schumpeter, late fees, McMansion, moral hazard, new economy, pets.com, Ponzi scheme, Ronald Reagan, short selling, Silicon Valley, Snapchat, South of Market, San Francisco, Steve Jobs, survivorship bias, Upton Sinclair, Vanguard fund, young professional

New ideas and companies are put to the test rapidly and ruthlessly. The good ones survive. The bad ones don’t. Sure, they might get some buzz and even some big initial funding. But if they don’t have what it takes, they die a quick death. Even when the region is doing well, dozens of unheralded companies come on the scene every year, only to fade away. The Austrian economist Joseph Schumpeter called this process “creative destruction.” It’s a harsh but vital process. It weeds out subpar ideas and gives good ones like Google the nourishment they need to grow. Short-sellers help make this happen. We identify the duds, which is good not only for the larger economy but also for the people involved in those ventures. Even the smartest people can get caught up in bad ideas or bad ways of doing business. The sooner they are disabused of these flawed practices, the better for everyone.

Several executives there warned me, with Lorenzo-like frankness, that if I ever spoke to the press again, I would be riding the elevator to the ground floor one last time. Even though it was stupid of me to talk to a reporter about my concerns, what I said was from the heart. Lorenzo did worry me. I knew he was a brilliant businessman, and his use of bankruptcy as a tool to remake Continental was unprecedented. It was creative destruction in its rawest, most potent form. But in the end, everything just seemed like a game of numbers to him. In fact, the second time I came to see him a few months after our first meeting, he offered me a job analyzing potential takeover targets for Jet Capital and Texas Air. That was plainly where his focus was—making deals and growing his assets, not managing the companies he already owned.

For your reference, the terms that appear in the print index are listed below. 50-Off Stores, 154–55 401(k) accounts, 203 Ackman, Bill, 107, 149 Advanced Marketing Services (ADMS), 47–49, 51–53, 59, 73 airline industry, 20, 36, 46, 57, 64, 128, 132, 134–35, 138–40, 163 Alex Brown & Sons, 165 alienating customers, 5, 67–68, 174, 182 Amazon, 78–79, 83, 102, 122, 212 America’s Cup, 90–94 American Electronics Association (AEA) Conference, 50–51, 156, 225 Android, 164 Apple, 24, 33, 67, 84, 98, 147, 179–80 area developers, 46 Arthur Anderson, 84 averaging down, 100, 157, 195, 206, 208 Babson, 58 Bally Technologies (BYI), 192–93 Bank of America, 165 Bank of Lichtenstein, 54 bankruptcy alienating customers and, 149, 182 attempting to avoid, 185, 188–89 BMHC and, 141, 146 Cal Coastal and, 19–20, 23–24 credit and, 178 debt and, 158, 163 energy companies and, 2 excuses and, 152, 154–55 fads and, 72 failure and, 5, 46–47, 91, 112, 114 flexibility and, 170–71 formula and, 128–33 fraud and 151–52 Global Marine and, 11–12 investing and, 3, 19–20, 42, 53, 97, 118–21, 134–37, 202 mergers and, 59 reorganization and, 57 Shaman and, 102–3 shock therapy and, 138–40 short-selling and, 158–59 trends and, 126, 128 TXU and, 17 Bennigan’s, 17 Bensinger, Greg, 123 Bezos, Jeff, 83 Big Short, The (Lewis), 25 Bing, 129 biotech industry, 97 Black Monday, 55, 114, 204 Blair, William, 43 Blockbuster (BBI), 115–24, 131–32, 166, 180, 193, 228 Bogle, John, 206–8, 212 Boise Cascade lumber company, 141, 144 Bolsa Chica Mesa, 20–22, 25, 56 Borders Books, 84 Brightwater community, 20–23, 56, 143 Buffett, Warren, 14, 16–17, 111, 131, 139 Building Materials Holding Corporation (BMHC), 141–49, 151, 157, 162–63 cable television, 118 Cadillac, 68–69 California Coastal Communities, 19–21, 23–24, 32 capitalism, 4, 57, 78, 92, 128, 130, 138–39, 197, 229, 234 Carano, Bandel, 87–89 Carnegie, Andrew, 165 casinos, 188–92 cellular technology, 124–25, 180 Chapman, Robert, 145 Chase Manhattan Bank, 27 Chemical Bank, 27 Chemtrak, 74–77, 81, 100, 228 Circuit City, 120–21 Cisco, 154 Citibank, 7, 187, 232 CML Group, 72 Consilium (CSIM), 152–57, 159, 176 Continental Airlines, 20, 132, 134–38, 140 Cost Plus World Market (CPWM), 172–80, 182–83, 188, 193–94 Costco, 33, 36, 38–42, 47–48, 88, 126–28, 173, 179 coupons, 66–68 creative destruction, 4, 138 Credit Suisse First Boston, 88 Cuban, Mark, 61 CVS, 76 cycles, 10, 13–14, 25, 145, 170, 182, 221 Cygnus Therapeutics (CYGN), 97–101, 104, 119, 172 Daily Beast, 121 Dell, 180 Dendreon (DNDN), 157–58 Dex Media (DXM), 59 Diller, Barry, 121 DiMaggio, Joe, 26–28 dotcoms, 78–80, 84–89, 91–92, 104, 155, 173, 205, 217, 228 Dubai, 12 EBITDA (earnings before interest, taxes, depreciation, and amortization), 56–58, 131 elite infallibility, 29–33 elitism, 31, 148 Ellison, Larry, 93 emotion, 6, 69, 74, 77, 100 energy industry, 2, 8, 12–13, 15–17, 26–27, 94, 132, 199, 201, 213, 223 Energy Future Holdings Company, 16–17 Enron, 5, 15, 29–30, 32, 51, 160 Enron: The Smartest Guys in the Room, 160 Everything’s a Dollar stores, 43, 45 Extraordinary Popular Delusions and the Madness of Crowds (MacKay), 85 Facebook, 94 fads, 5, 18, 58, 69–74 faith, 27–29, 31, 35, 45, 48, 57, 74, 92, 101, 104, 131, 203, 230, 236 falling stocks, 110 Fama, Eugene, 208–9 FDA (Food and Drug Administration), 74, 99, 102–3, 157 Fidelity, 50, 58 First Data Management Company (FDMC), 198, 200–2 First National Bank and Trust Company of Oklahoma City, 198–200 First Team Sports Inc.


pages: 555 words: 80,635

Open: The Progressive Case for Free Trade, Immigration, and Global Capital by Kimberly Clausing

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, active measures, Affordable Care Act / Obamacare, agricultural Revolution, battle of ideas, Bernie Sanders, business climate, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, corporate social responsibility, creative destruction, currency manipulation / currency intervention, David Ricardo: comparative advantage, Donald Trump, floating exchange rates, full employment, gig economy, global supply chain, global value chain, guest worker program, illegal immigration, immigration reform, income inequality, index fund, investor state dispute settlement, knowledge worker, labor-force participation, low skilled workers, Lyft, manufacturing employment, Mark Zuckerberg, meta analysis, meta-analysis, offshore financial centre, open economy, Paul Samuelson, profit motive, purchasing power parity, race to the bottom, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, Silicon Valley, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transfer pricing, uber lyft, winner-take-all economy, working-age population, zero-sum game

Figure 3.7: Countries with Higher Wages Have Higher Productivity Note: The figure shows 2015 data. Data source: OECD Statistics. Four Winners and Losers from International Trade While the basic logic of the overall gains from trade is undeniable, there are important features of the world that these arguments ignore. As countries open up to trade, their export sectors expand and their import sectors shrink. This Schumpeterian “creative destruction” entails serious transition costs, and may generate lasting changes in the distribution of income. In the United States, international trade enlarges the sectors of our economy that make commercial aircraft, soybeans, medical instruments, integrated circuits, and software, while shrinking the sectors that make textiles, shoes, steel, and tires. In other sectors of the economy, the effect of trade is ambiguous, as we both export and import large quantities of cars, pharmaceuticals, manufactured goods, and machinery.

Few companies today produce horse carriages, typewriters, or vacuum tubes; these products were displaced by automobiles, computers, and semiconductors. Large, big-box retail chains displace mom-and-pop stores, as customers appear to opt for lower prices over neighborly interactions. People stream their entertainment instead of hooking up cable TV boxes. Fancy coffee shops get sprinkled all over the country, while old-fashioned diners fade away. This creative destruction always generates a lot of job loss and job creation. In fact, in the American economy, a single quarter typically sees over six million jobs created and six million destroyed. Figure 4.2: Job Creation and Destruction, 2006–2016 Note: The figure shows the US total nonfarm employment series. Data source: US Bureau of Labor Statistics. This dynamic job creation and destruction is a result of capitalism itself, as new industries replace old industries, and competition (often domestic) causes some companies to expand as others contract.

See Google American Airlines, 283 American dream, 4, 178, 304n1 Antidumping, 315n2 Antitrust laws, 153–154, 162–164, 283–286; and European Union, 153–154 Apple, 61–62, 145, 147, 167–168 AT&T, 284, 286 Autor, David, 77 Bargaining, 42–44 Bartlett, Bruce, 334n2 Base Erosion and Profit Shifting (BEPS), 159, 226–227, 279 Bell Laboratories, 284 Bernanke, Ben, 151 Bilateral trade balances, 135 Birnbaum, Jeffrey, 332n20 Boeing, 60–61, 144, 153 Borjas, George, 194 Bracero Program, 193, 196 Brain drain, 206–207 Brexit, 160, 298 British Columbia carbon tax, 275 Budget deficits, 241–242 Buffett, Warren, 246, 249 Burman, Leonard, 247 Bush Administration, 274 Business tax reform, 168–174, 250–252, 275–278 CAFE standards, 255–256 Campaign finance reform, 292 Canada: free trade area, 96; immigration policy, 185–188 Capital markets, 120 Capital taxation: rationale for, 250; tax rates, 248; trends, 46 Carbon tax, 162, 254–257; in British Columbia, 275 Card, David, 194 Center for Automotive Research, 84 CEO pay, 43–44, 152 Chetty, Raj, equality of opportunity project, 303n1 Child labor, 162 China: accession to WTO, 102; currency value, 127; economic growth, 63–68; infrastructure spending, 237; One Belt, One Road initiative, 100, 237, 298; relations with United States, 104; trade surplus, 12, 123, 144 China shock: and 2016 election, 76–79; size of, 76–78 Clemens, Michael, 191, 194, 196–197 Clinton, Hillary, 78 Clinton Administration, 78, 103, 274 Columbia Sportswear, 272 Comcast, 285 Community adjustment, 232 Community college, 230–231, 235 Comparative advantage, 68–72 Competitiveness, 68–72, 164, 166–168, 269 Comprehensive Economic and Trade Agreement (CETA) between EU and Canada, 161 Consumer Financial Protection Bureau (CFPB), 230–231 Corporate inversions, 165–166 Corporate profits, 39–42, 90–91, 168 Corporate savings, 40–41, 151 Corporate social responsibility, 277–278 Corporate tax rates, 155–156 Costco, 281 Country by country reporting, 278–279 Creative destruction, 73 Currency Movements, 124–127, 133 Current account deficit. See Trade deficit Debt, 241–242 Demographic change, 241 Dollar, David, 63 Dorn, David, 77 DREAM act, 214 Drucker, Jesse, 319n27 Earned Income Tax Credit, 112, 228, 243–246 East India Company, 138 Economic inequality: and economic growth, 16–18; and tax system, 26, 44–46, 243–246; trends, 16–19 Economic insecurity, 23–25 Economic sanctions, 55–56 Education funding, 234–235 Estate tax, 253–254 Euro, 314n11 European Union, 102, 104, 298 Excess Profits.


pages: 113 words: 37,885

Why Wall Street Matters by William D. Cohan

Apple II, asset-backed security, bank run, Bernie Sanders, Blythe Masters, bonus culture, break the buck, buttonwood tree, corporate governance, corporate raider, creative destruction, Credit Default Swap, Donald Trump, Exxon Valdez, financial innovation, financial repression, Fractional reserve banking, Gordon Gekko, greed is good, income inequality, Joseph Schumpeter, London Interbank Offered Rate, margin call, money market fund, moral hazard, Potemkin village, quantitative easing, secular stagnation, Snapchat, South Sea Bubble, Steve Jobs, Steve Wozniak, too big to fail, WikiLeaks

He imagines that the Fed governors are sitting around their big oval table in Washington, scratching their heads, wondering why there’s less job creation than there should be, why there are fewer small businesses being started, why there is a decrease in entrepreneurial behavior, why the economy’s growth remains so sluggish. “The answer is because without creative destruction you don’t have new business formation, and they have decided creative destruction is not what they like,” he said. “They don’t like anything that has the word ‘destruction.’ So they stopped the destruction, and therefore there was no creative creation that followed it.” He can’t do anything to influence Tarullo or the Fed, of course, so he is doing the only thing he can do given his view that Tarullo’s strategy will end badly, very badly: He has made a big bet against the American economy so that he and his investors can benefit if he’s right.


pages: 128 words: 38,847

The Curse of Bigness: Antitrust in the New Gilded Age by Tim Wu

AltaVista, barriers to entry, collective bargaining, corporate personhood, corporate raider, creative destruction, Donald Trump, income inequality, Johann Wolfgang von Goethe, Joseph Schumpeter, Kickstarter, move fast and break things, move fast and break things, new economy, open economy, Peter Thiel, price discrimination, road to serfdom, Robert Bork, Silicon Valley, Snapchat, The Chicago School

See Etsuko Kameoka, Competition Law and Policy in Japan and The EU (2014), pp. 5–6 *In the early 1960s, historian Richard Hofstadter would famously remark that antitrust was no longer a popular movement but that it “now runs its quiet course without much public attention.” *One prominent exception was the iconoclastic economist Joseph Schumpeter, who had championed the entrepreneur in his earlier years, but in his later years grew to admire the large monopolistic corporation and begun to see the lure of monopoly as a principal driver of innovation and “creative destruction.” Schumpeter, however, did not take seriously the problem of investment in barriers to entry, and particularly the power of government to insulate monopolies from creative destruction. See Tim Wu, The Master Switch (2010). *In Bork’s words: “A value will be announced as pertinent with a confidence that is matched only by the mystery that shrouds its derivation. A very specific decision is then whelped from the value premise without benefit of midwifery by any visible minor premise.”


pages: 422 words: 113,830

Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism by Kevin Phillips

algorithmic trading, asset-backed security, bank run, banking crisis, Bernie Madoff, Black Swan, Bretton Woods, BRICs, British Empire, business cycle, buy and hold, collateralized debt obligation, computer age, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency peg, diversification, Doha Development Round, energy security, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, George Gilder, housing crisis, Hyman Minsky, imperial preference, income inequality, index arbitrage, index fund, interest rate derivative, interest rate swap, Joseph Schumpeter, Kenneth Rogoff, large denomination, Long Term Capital Management, market bubble, Martin Wolf, Menlo Park, mobile money, money market fund, Monroe Doctrine, moral hazard, mortgage debt, Myron Scholes, new economy, oil shale / tar sands, oil shock, old-boy network, peak oil, plutocrats, Plutocrats, Ponzi scheme, profit maximization, Renaissance Technologies, reserve currency, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, Satyajit Das, shareholder value, short selling, sovereign wealth fund, The Chicago School, Thomas Malthus, too big to fail, trade route

And by giving transfusions to otherwise insolvent banks, she said, Paulson and Bernanke had prolonged the crisis. “They should not be re-capitalizing firms that should be shut down. . . . Firms that made wrong decisions should fail.”32 Letting bad decision makers fail was how things worked in the old days when “creative destruction” kept capitalism on its toes. Now, of course, too many institutions in the United States were perceived as too big to fail, which made creative destruction unacceptable. And that inacceptability, in turn, denied U.S. capitalism some of its capacity for renewal. Had Paulson and Bernanke been willing to take a blowtorch to the Frankenstein firms and their practices and products back in late 2007 or early 2008, some six or eight might well have had to be broken up, taken over, or forced into bankruptcy or receivership—indeed nine more or less were anyway.

Indeed, foreigners sold U.S. securities heavily in August. Clearly, elements of marketplace globalization are in some retreat, not least in the United States. Over the last fifteen years, I have used the term “financial mercantilism” to describe a collaboration in which Washington and the U.S. financial sector seek to minimize certain unwanted marketplace forces. The purpose is to suppress what economist Joseph Schumpeter called “creative destruction”—for the United States, circa 2008, that would include the failure of a major financial institution or the deflation-cum-downward-revaluation of financial assets. My book Arrogant Capital (1994), following several notable bailouts, used this phraseology: “Financial mercantilism—government-business collaboration calculated to suspend or stymie market forces—has at least partly replaced yesteryear’s vibrant capitalism.”

In the meantime, of course, heads of the giant New York banks enjoyed growing wealth, although of their number only Citigroup’s Sandford Weill appeared on the Forbes 400 list.46 Financiers were now making much the same breakthrough in the wealth sheets that finance had made in the sector comparisons a decade earlier. Part of the reason for sketching some of the realignment of wealth that has flowed from the rise of the financial sector is simply to underscore how yesteryear’s support for the creative destruction of a free and fast-flowing marketplace would logically have evolved into support for an assets “Plunge Protection Team” or a federal assets-maintenance strategy instead. Keep the markets up. Please, gentlemen, especially with all of those crazy people in the Middle East and the dollar coming unglued. Meanwhile, the new economy is breeding more stratification and inheritance than mobility.


pages: 474 words: 120,801

The End of Power: From Boardrooms to Battlefields and Churches to States, Why Being in Charge Isn’t What It Used to Be by Moises Naim

additive manufacturing, barriers to entry, Berlin Wall, bilateral investment treaty, business cycle, business process, business process outsourcing, call centre, citizen journalism, Clayton Christensen, clean water, collapse of Lehman Brothers, collective bargaining, colonial rule, conceptual framework, corporate governance, creative destruction, crony capitalism, deskilling, disintermediation, disruptive innovation, don't be evil, failed state, Fall of the Berlin Wall, financial deregulation, Francis Fukuyama: the end of history, illegal immigration, immigration reform, income inequality, income per capita, intangible asset, intermodal, invisible hand, job-hopping, Joseph Schumpeter, Julian Assange, Kickstarter, liberation theology, Martin Wolf, mega-rich, megacity, Naomi Klein, Nate Silver, new economy, Northern Rock, Occupy movement, open borders, open economy, Peace of Westphalia, plutocrats, Plutocrats, price mechanism, price stability, private military company, profit maximization, Ronald Coase, Ronald Reagan, Silicon Valley, Skype, Steve Jobs, The Nature of the Firm, Thomas Malthus, too big to fail, trade route, transaction costs, Washington Consensus, WikiLeaks, World Values Survey, zero-sum game

The answer to both questions is yes and no. The trends we are currently observing can be interpreted—or simply dismissed—as the manifestation of what economist Joseph Schumpeter (and before him Karl Marx) dubbed “creative destruction.” In Schumpeter’s words: “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 same 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.”42 The shifts in power that we see all around us—which include and transcend the ascent and demise of business enterprises—are certainly consistent with Schumpeter’s expectations.

As we saw in Chapter 8, in a telling example of the effects on power of the More, Mobility, and Mentality revolutions, venture capital investment models have spread from Silicon Valley to many other nations, energizing latent entrepreneurial skills in once-unlikely hubs of business innovation. And new multinationals have emerged from countries that until recently no world-class company viewed as breeding grounds of potential competitors. We know that shifts in the pecking order of companies are as old as the modern market economy, and that a profound link between innovation and “creative destruction” is at the heart of capitalism’s vitality. Yet, the massive global changes we now see go further.4 They could not have happened without the decay of power. At the core here is something that is hard not to like: just as the decay of power in politics has undermined authoritarian regimes, in business it has curtailed monopolies and oligopolies while giving consumers more choices, lower prices, and better quality.

., 98, 131, 147 Business, 12, 13, 16, 26, 29, 31, 35, 37, 41, 60, 68, 71, 221, 243 M-structure (M-form) of, 37–38, 46 state-owned, 160, 178, 183 structural revolution in, 162–163 See also Corporations Cairns Group, 155 Cairo, 85, 199 California, 94, 207 Call Centers, 70, 177 Cambodia, 89, 209 Cameron, David, 89 Canada, 79, 86, 97, 99, 145, 149 Capital, 32, 38, 39, 47, 101, 160, 167, 171–172, 173, 174, 183, 186, 208, 220 access to, 180–181, 187 venture capital, 180, 220 Capitalism, 35, 39, 40, 41, 45, 47, 49, 71, 132, 158, 168, 174, 211 and creative destruction, 71, 220 models of, 37–38 Caracas, 85 Cardoso, Fernando Henrique, 106 Carey, John M., 94 Caribbean nations, 155 Carlsen, Magnus, 4 Carnation Revolution, 82, 83 Carnegie, Andrew, 42, 206–207 Carnegie Corporation, 206 Carnegie Endowment for International Peace, 67, 130, 238 Cartels, 29, 46, 221, 222, 226 Caryl, Christian, 120 Castañeda, Jorge G., 60 Castells, Manuel, 212, 213 Casualties, 5, 56, 110, 111, 113, 117, 120, 231 Catholic Church, 18, 70, 73, 84, 194, 197, 198, 199 CBS, 212 Cedar Revolution, 103 Cellphones, 5, 56, 62, 63, 66, 71, 102, 111, 178, 206, 214 CEMEX company, 175, 186 Central America, 66, 185 Centralization, 35, 36, 38, 41, 43, 44, 52, 71, 75, 198, 199, 203, 211, 228 decentralization, 77, 96–97, 209, 229 in militaries, 112, 115, 116, 117 CEO turnover, 163–164.


pages: 501 words: 114,888

The Future Is Faster Than You Think: How Converging Technologies Are Transforming Business, Industries, and Our Lives by Peter H. Diamandis, Steven Kotler

Ada Lovelace, additive manufacturing, Airbnb, Albert Einstein, Amazon Mechanical Turk, augmented reality, autonomous vehicles, barriers to entry, bitcoin, blockchain, blood diamonds, Burning Man, call centre, cashless society, Charles Lindbergh, Clayton Christensen, clean water, cloud computing, Colonization of Mars, computer vision, creative destruction, crowdsourcing, cryptocurrency, Dean Kamen, delayed gratification, dematerialisation, digital twin, disruptive innovation, Edward Glaeser, Edward Lloyd's coffeehouse, Elon Musk, en.wikipedia.org, epigenetics, Erik Brynjolfsson, Ethereum, ethereum blockchain, experimental economics, food miles, game design, Geoffrey West, Santa Fe Institute, gig economy, Google X / Alphabet X, gravity well, hive mind, housing crisis, Hyperloop, indoor plumbing, industrial robot, informal economy, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invention of the telegraph, Isaac Newton, Jaron Lanier, Jeff Bezos, job automation, Joseph Schumpeter, Kevin Kelly, Kickstarter, late fees, Law of Accelerating Returns, life extension, lifelogging, loss aversion, Lyft, M-Pesa, Mary Lou Jepsen, mass immigration, megacity, meta analysis, meta-analysis, microbiome, mobile money, multiplanetary species, Narrative Science, natural language processing, Network effects, new economy, New Urbanism, Oculus Rift, out of africa, packet switching, peer-to-peer lending, Peter H. Diamandis: Planetary Resources, Peter Thiel, QR code, RAND corporation, Ray Kurzweil, RFID, Richard Feynman, Richard Florida, ride hailing / ride sharing, risk tolerance, Satoshi Nakamoto, Second Machine Age, self-driving car, Silicon Valley, Skype, smart cities, smart contracts, smart grid, Snapchat, sovereign wealth fund, special economic zone, stealth mode startup, stem cell, Stephen Hawking, Steve Jobs, Steven Pinker, Stewart Brand, supercomputer in your pocket, supply-chain management, technoutopianism, Tesla Model S, Tim Cook: Apple, transaction costs, Uber and Lyft, uber lyft, unbanked and underbanked, underbanked, urban planning, Watson beat the top human players on Jeopardy!, We wanted flying cars, instead we got 140 characters, X Prize

For a different overview: Marguerite Ward, “AI and Robots Could Threaten Your Career Within 5 Years,” CNBC, October 5, 2017, https://www.cnbc.com/2017/10/05/report-ai-and-robots-could-change-your-career-within-5-years.html. McKinsey Global Research: Matthieu Pelissie due Rausas, “Internet Matters: The Net’s Sweeping Impact on Growth, Jobs, and Prosperity,” McKinsey Global Institute, May 2011. Yale’s Richard Foster: Richard Foster and Sarah Kaplan, Creative Destruction (Crown Business, 2001). As this original research was conducted with Innosight, see their executive summary for a quick overview: https://www.innosight.com/insight/creative-destruction/. In 2018, All Nippon Airways: For the official announcement, see: https://avatar.xprize.org/prizes/avatar. Chapter Two: The Jump to Lightspeed: Exponential Technologies, Part One Quantum Computing The coldest place in the universe: Author interview with Chad Rigetti, 2018. Back in 1995, astronomers in Chile: Public Information Office, Jet Propulsion Laboratory, “Boomerang Nebula Boasts Coolest Spot in the Universe,” June 20, 1997.

A 2012 study by the Partnership for a New American Economy, for example, found that three out of four patents issued to America’s top ten patent-producing universities have at least one foreign-born inventor. A different look at this same trend comes via “product reallocation,” which describes the rate at which new goods and services enter the market and force old ones to exit, or what economist Joseph Schumpeter called “creative destruction.” Far more than patents, researchers consider product reallocation the gold standard for innovative impact. A few years ago, researchers from the University of California, San Diego, found a direct link between migration and this gold standard. By tracking the product reallocation rate for every American company that hired a highly skilled foreign-born worker between 2001 and 2014, they found a very clear signal.

See: https://www.newamericaneconomy.org/sites/all/themes/pnae/patent-pending.pdf. “product reallocation”: Gaurav Khanna and Munseob Lee, “Hiring Highly Educated Immigrants Leads to More Innovation and Better Product,” Conversation, September 26, 2018. See: https://theconversation.com/hiring-highly-educated-immigrants-leads-to-more-innovation-and-better-products-100087. Joseph Schumpeter called “creative destruction”: Ibid. By tracking the product reallocation rate: Ibid. In America, immigrants are twice as likely to start a new business: Grace Nasri, “The Shocking Stats About Who’s Really Starting Companies in America,” Fast Company, August 14, 2013. See: https://www.fastcompany.com/3015616/the-shocking-stats-about-whos-really-starting-companies-in-america. 33 percent of venture-backed companies: Mark Boslet, “NVCA Study Finds ⅓ Of Recently Public Venture Companies Have Immigrant Founders,” PE Hub Network, June 20, 2013, See: http://nvcaccess.nvca.org/index.php/topics/public-policy/372-nvca-releases-results-from-american-made-20.html.


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As the Future Catches You: How Genomics & Other Forces Are Changing Your Work, Health & Wealth by Juan Enriquez

Albert Einstein, Berlin Wall, bioinformatics, borderless world, British Empire, Buckminster Fuller, business cycle, creative destruction, double helix, global village, half of the world's population has never made a phone call, Howard Rheingold, Jeff Bezos, Joseph Schumpeter, Kevin Kelly, knowledge economy, more computing power than Apollo, new economy, personalized medicine, purchasing power parity, Ray Kurzweil, Richard Feynman, Robert Metcalfe, Search for Extraterrestrial Intelligence, SETI@home, Silicon Valley, spice trade, stem cell, the new new thing

Western Europe is not immune to massive changes … And could easily lose its way if it keeps trying to stop … Key technologies … And keeps bleeding brains to areas like Silicon Valley. Technology is not kind … It does not wait … It does not say please … It slams into existing systems … And often destroys them … While creating a new system.12 (Today’s chi-chi economist, Joseph Schumpeter … died half a century ago … trained as a lawyer … coined the term “creative destruction”: new products and discoveries relentlessly destroy the old … By age 30, he had three clear goals in mind: to become “Europe’s greatest lover of beautiful women and Europe’s greatest horseman—and perhaps also the world’s greatest economist.” He claims to have achieved two out of three.)13 COUNTRIES CAN EITHER SURF … EVER LARGER … AND MORE POWERFUL … WAVES OF CHANGE … OR THEY CAN TRY TO STOP THEM … AND GET CRUSHED.

See www.niehs.nih.gov/envgenom/elsi.htm. 10. Let’s talk about sex … Gina Bari Kolata, Clone: The Road to Dolly, and the Path Ahead (New York: William Morrow, 1998). Lori B. Andrews, The Clone Age: Adventures in the New World of Reproductive Technology (New York: Henry Holt, 1999). 11. Juan Enriquez, “Green Biotech and European Competitiveness,” Trends in Biotechnology, April 2001. 12. This process of creative destruction was identified over half a century ago by an Austrian economist turned Harvard professor, Joseph Schumpeter. See Joseph Schumpeter, Business Cycles: A Theoretical, Historical and Statistical Analysis of the Capitalist Process (New York: McGraw-Hill, 1939). 13. Charles J. Whalen, “Today’s Hottest Economist Died Fifty Years Ago,” Business Week, December 11, 2000. Chapter XII: Sleepless … (and Angry) in Seattle 1.


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The Future of Capitalism: Facing the New Anxieties by Paul Collier

"Robert Solow", accounting loophole / creative accounting, Airbnb, assortative mating, bank run,