The concept is usually identified with the Austrian economist Joseph Schumpeter,[2][3][4] who derived it from the work of Karl Marx and popularized it as a theory of economic innovation and the business cycle. It is also sometimes known as Schumpeter's gale. In Marxian economic theory, the concept refers more broadly to the linked processes of the accumulation and annihilation of wealth under capitalism.[5][6][7]
The German sociologist Werner Sombart has been credited[4] with the first use of these terms in his work Krieg und Kapitalismus (War and Capitalism, 1913).[8] In the earlier work of Marx, however, the idea of creative destruction or annihilation (German: Vernichtung) implies not only that capitalism destroys and reconfigures previous economic orders, but also that it must continuously devalue existing wealth (whether through war, dereliction, or regular and periodic economic crises) in order to clear the ground for the creation of new wealth.[5][6][7]
In Capitalism, Socialism and Democracy (1942), Joseph Schumpeter developed the concept out of a careful reading of Marx's thought, arguing that the creative-destructive forces unleashed by capitalism would eventually lead to its demise as a system.[9] Despite this, the term subsequently gained popularity within mainstream economics as a description of processes such as downsizing to increase the efficiency and dynamism of a company. The Marxian usage has, however, been retained and further developed in the work of social scientists such as David Harvey,[10] Marshall Berman,[11] Manuel Castells[12] and Daniele Archibugi.[13]
In modern economics, creative destruction is one of the central concepts in the endogenous growth theory.[14]
In Why Nations Fail, a popular book on long-term economic development, Daron Acemoglu and James A. Robinson argue the major reason countries stagnate and go into decline is the willingness of the ruling elites to block creative destruction, a beneficial process that promotes innovation.
History[edit]
In Marx's thought[edit]
Although the modern term "creative destruction" is not used explicitly by Marx, it is largely derived from his analyses, particularly in the work of Werner Sombart (whom Engels described as the only German professor who understood Marx's Capital),[15] and of Joseph Schumpeter, who discussed at length the origin of the idea in Marx's work (see below).
In The Communist Manifesto of 1848, Karl Marx and Friedrich Engels described the crisis tendencies of capitalism in terms of "the enforced destruction of a mass of productive forces":
Impediments to Creative Destruction[edit]
Politicians often impose impediments to the forces of creative destruction by regulating entry and exit rules[70] that make it difficult for churning to take place. In a series of papers Andrei Shleifer and Simeon Djankov illustrate[71] the effects of such regulation on slowing down competition and innovation.
In popular culture[edit]
The film Other People's Money (1991) provides contrasting views of creative destruction, presented in two speeches regarding the takeover of a publicly traded wire and cable company in a small New England town. One speech is by a corporate raider, and the other is given by the company CEO, who is principally interested in protecting his employees and the town.