Image source(eitrawmaterials.eu/wp-content/uploads/2020/01/LH_CE_News-Header.jpg)
Economic Growth
Prior to reading the articles that follow, I had no understanding of the word creative destruction, and more importantly how it plays into our economy. In order to understand the effects of creative destruction and what it entails, it is important to understand economic growth.
Bylund helps inform on the importance of production in Chapter 4 of Unbeatable, Imperfect Markets in The Seen, the Unseen, and the unrealized. He helps explain how the economy operates like a system. Both the seller's decision and buyers decision will have an impact on the market. In order for this to be considered a fair market, the buyers and sellers would have the same amount of power.
Imperfect Markets
When thinking about imperfect markets and the distribution of power, this made me think of the increase in imperfect markets over the years. In many ways it seems that most real world markets are perfect markets. Airplane companies and tech companies that operate as a monopoly are examples of imperfect markets in the economy today. From what I concluded from Chapter 4 of his book, there essentially is no market that is technically a perfect market, all are somewhat flawed.
The flaws in the market are caused by many different reasons. People's decisions, and changes in regulations have large effects on the economy and can impact it negatively. Regulations have the power to increase and decrease competition. Bylund also explains the effects this may have on effect on the consumer's cost. Looking further into how the economy operates like a process, Bylund discusses specialization, and explains the benefit in doing so. Specialization allows for people to focus on a specific task and increase both production and the time of production. Much like how countries focus on producing what they are best at, people must do the same.
Innovation Drives Growth
Through Schumpeter's reading I was reminded of the importance of innovation to the economic process. With no innovation, there can be no economic growth. This I related well with my understanding of creative destruction and its importance in the economy. While entrepreneurs like Elon Musk and Mark Zuckerberg are not always well liked, they paved a path to economic growth by creating something new. There are of course going to be repercussions in doing so as innovation becomes more creative and harder to compete with. Schumpeter accounts much more credit for the entrepreneurs and risk takers as contribution to the economy. I agree with his emphasis that they are a key driver to innovation and growth. When thinking about companies like Apple and Samsung there are very few competitors in the market and tough barriers to entry. This causes the market to become imperfect. Through my reading I understood that through an imperfect market the economy still operates as a system, both the buyers and sellers decision impact one another..
Creative Destruction
When thinking about creative destruction and its current role in our economy, I thought of the iphone. The iphone in my opinion is a great example of the effects of creative destruction. Prior to the release of the iPhone, there were no such things as apps. Through the development of the iPhone and technology came many jobs that overall benefit the economy. However, the evolution of technology itself in many ways has also replaced jobs. Relating back to what Schumpeter states about innovation:
“And this evolutionary character of the capitalist process is not merely due to the fact that economic life goes on in a social and natural environment which changes and by its change alter the data of economic action;” (Schumpeter pg. 82, 1962).
While there continues to be bad that comes from new technologies and disruptive innovations, there is also good that comes. This all plays into the economy and its process. Bylund States:
"markets are unbeatable because they cannot be improved upon, but they are imperfect because they are imperfectly understood" (Bylund, 2016, p. 47).
With no economic action can come no economic development. The process may be negatively impacted along the way but the process will still operate. Bylund helped me understand how the increase and decrease in competition can have an effect on cost and purchase behavior. While we want a competitive market, we must make sure that the markets can stay competitive with innovation. It is ultimately the entrepreneurs that push for change and innovation. Their contribution to the economy is needed and important for driving growth in any successful economy.
Conclusion
It is important that citizens understand the delicate process that is our economy. In order to make informed decisions they must understand the benefits of specialization, and the importance of competition. The distribution of production leads to an increase in overall production. I conclude that creative destruction is likely to take place in the presence of any large new innovation. The distribution of power between buyers and sellers is beneficial in an operating market. The economy is constantly changing, along with regulations. People must become aware of how development and innovation affects them personally, and the overall economy.
References
Bylund, P. L. (2016). Chapter 4: Unbeatable, Imperfect Markets. In Seen, the unseen, and the unrealized: How regulations affect our everyday lives (pp. 47–72). essay, Lexington Books.
Schumpeter, J. A. (1962). Chapter VII: The Process of Creative Destruction. In Capitalism, socialism and democracy (pp. 81–86). essay, Harper Torchbooks, Harper & Row.