Creative Destruction

Capitalism has the ability of Self-Rejuvenation or Creative Destruction, which means one thing is replaced by another from within. This sounds a bit like cancer, and is in fact similar in certain ways. Joseph Schumpeter introduced the idea of “creative Destruction" and argued that it would be the core element of a dynamic economy. He said 1942 in his work "Capitalism, Socialism and Democracy"

"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 organisation that capitalist enterprise creates ... [This is a] 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"

In the economy often the small businesses go ahead with creative ideas and disruptive innovations, while the large companies cling to their old products and strategies. Innovation is more difficult for large organizations characterized by huge bureaucracy.

Links

• Wikipedia entry for Creative Destruction

Books

• Schumpeter, J. (1934) The Theory of Economic Development, Transaction Publishers (January 1, 1982) [orig pub. 1934]

• Schumpeter, J. (1942) Capitalism, Socialism and Democracy (Harper Perennial Modern Classics, 2008) [orig. pub. 1942]