In pursuit of knowing Why Nations Fail, 15-yearlong research in drawing lessons from 2000-year history concluded that Creative waves of destruction make the difference. The rise of UK-led Europe during the first industrial revolution was due to a creative wave of destruction fueled by profit-making competition from ideas stemming from steam engines and mechanization. Similarly, the rise of the USA in the 20th century was due to creative waves of destruction fueled by electrical and electronic technology core powering reinvention waves.
The reinvention of mechanical means of energy consumption and utilization led by the innovators and entrepreneurs of the USA culminated in unfolding creative waves of destruction on jobs, firms, and the economy of the steam engine era. Consequentially, at the dawn of the 20th century, the 2nd Industrial Revolution started unfolding. Due to America’s lead driving reinvention waves, the Innovation epicenter started migrating from Europe to the USA.
Our prosperity has risen due to finding better means of Getting jobs done. It has been happening due to the evolution of inventions and innovations by the reinvention. Reinvention waves through the change of technology core succeed in offering better alternative tools for performing jobs. As a result, the quality of living standards, firms, and national prosperity advance.
However, the rise of the reinvention wave unleashes destruction on demand of previous generation products, giving birth to creative waves of destruction. Hence, creative waves of destruction refer to the loss of demand for matured products and the destruction of jobs and businesses offering them due to the rise of reinvention waves around superior technology core in offering radically different next-generation products in getting jobs done better.
Why does it happen, and what is creative destruction theory?
As noted by Carl Marx in the ancient philosophical writings, unlike other living creatures, human beings have an inherent tendency to recreate the world. They do it by reinventing means of getting jobs done. Jobs could be hunting, bringing light in the darkness, or traveling from one place to another. Such creative activity leads to reinventing existing products and processes in offering better alternatives. Thus, previous products and jobs producing them become obsolete or suffer from destruction due to the rise of the new wave. Hence, the theory of creative destruction refers to the dynamics of the rise of reinvention waves in recreating the world by causing destruction to demand for proven existing products and jobs.
In the 1940s, Prof. Schumpeter articulated this transformation as creative destruction theory, known as Schumpeter’s creative destruction. Recently, it has drawn interest in explaining and comprehending the rise of tiny technological Startups and the fall of behemoths. However, such a dynamic is not a recent phenomenon in the age of information technology or the industrial revolution. It has been with us since the very beginning of existing human beings on this planet. For example, upon getting light through burning firewood, the human race moved to reinvent it by changing wood with oil.
Increasing Scale Effect
Since the ancient age, creative waves of destruction have been unfolding. However, before the industrial age, those waves were not scalable. For example, clay tablets or printing presses with wood blocks could not keep getting better and cheaper. The lack of scalability was due to a limited flow of knowledge and ideas for pursuing a long runway of incremental advancement. However, the human race crafted a scalable path through empirical investigation, engineering, modeling, and simulation. Consequentially, reinvention waves started scaling up, forming increasingly growing creative waves of destruction. For this reason, we succeeded in migrating from pre industrial age through increasingly more powerful reinvention waves, unleashing intensifying disruptive effects.
Examples of Creative Waves of Destruction
Amazon ventured into the idea of reinventing how we select, order, buy, and read books. The journey began with choosing from the online catalog and ordering through the internet for receiving the delivery. However, this alternative means could not rise as a creative destruction force, causing Disruptive innovation in conventional book publishing, printing, distribution, and retailing. To scale up this idea, Amazon got into serious R&D, leading to paperless book printing as digital content, delivery over the internet, reading through handheld devices, or listening as audio. Consequentially, the e-book has emerged as a robust creative wave of destruction. In addition to the change in the way of reading books, jobs for printing, binding, and retailing paper books have already started suffering from disruptive innovation.
Since its invention, Television has been evolving through creative waves of destruction. At the dawn of the 20th century in the 1920s, Scottish Engineer John Logie Baird invented Television around mechanical technology core. However, within 20 years, the creative wave of destruction on mechanical television unfolded due to reinvention by RCA through changing the mechanical technology core with electronics. Subsequently, Sony reinvented TVs by adjusting the vacuum tube technology core with semiconductor devices, resulting in another wave of destruction. Since then, television evolution has been progressing through one after another creative wave of destruction. The underlying force has been the change in the technology core of transmission, displays, and user interfaces.
Music and Video Streaming:
In the 1980s, we used to buy audio cassette tapes to enjoy preferred songs. We had to purchase VCRs and rent videotapes from Blockbuster or other rental stores to watch videos of our choice. But has it changed? We no longer buy audio tapes and visit video rental stores. A creative wave of destruction has unfolded, pushing blockbusters, many other video rental stores, and audio cassette tape makers out of business. Ironically, in the late 1990s, startups pursuing the idea of video or audio on demand went bankrupt too. It happened due to a lack of synchronization between connectivity, access devices, and viewing habits. Hence, we were surprised by the rise of Spotify and Netflix as disruptive innovation forces.
LED Light Bulb:
Human beings have been on a relentless journey of reinventing light sources. Each reinvention success unleashed a creative wave of destruction on its predecessor. For example, the emergence of the incandescent electric light bulb was a creative wave of destruction to the hurricane light and oil lamp industry. Subsequently, the rise of CFL partly destroyed Edison’s incandescent light bulb. In this long history of the evolution of light source through reinvention, LED light source has been a recent creative wave of destruction. To drive this evolution, the rise of successive waves of creative destruction has been demanding the growing role of ideas out of scientific discoveries and more precision engineering. Each subsequent wave has also been expanding the market—by making light increasingly better and cheaper.
The mobile phone has been a commonly cited example of the creative wave of destruction. It has partly destroyed the demand for land phones. More importantly, the rise of the smartphone wave has unleashed destruction on a series of products such as cameras, music players, radios, and PDAs. Besides, the reinvention of the smartphone itself has also released a creative wave of destruction.
How to Fuel the Creative Waves of Destruction?
As explained, humans begin having an inherent urge to pursue reinvention to find better means of getting jobs done. There has been no end to this desire. Hence, it has been an endless journey.
However, once reinvention waves grow, existing jobs and businesses suffer from the destruction effect. Therefore, existing elites or special interest groups, including the Government, have the natural tendency to prevent them from protecting extraction. Hence, Daron Acemoglu and James A. Robinson argued that nations that allowed the freedom to profit from pursuing creative wave of destruction prosper far better than those who resist protecting benefits from extraction. However, the freedom to pursue reinvention waves, posing a threat to existing jobs and businesses, is not sufficient for the rise of a creative wave of destruction. For example, despite governments’ support, the electric vehicle wave is yet to be fully powered by a creative wave of destruction. Besides, the creative destruction wave LED light bulb remained caught in a chasm for decades.
In addition to the freedom to profit from reinvention by unleashing a creative wave of destruction, we need a Flow of Ideas stemming from STEM. Such a flow should be sustained long enough for a growing embryonic reinvention wave as a better and cheaper alternative. Furthermore, technological progression faces chasms, which must be crossed by pushing scientific frontiers. For example, the LED light bulb got into the chasm and needed Nobel Prize-winning scientific discovery. Similarly, Autonomous vehicles yet to cross the chasm for unfolding its creative wave of destruction.
Demands Synchronized, Timely Response
Despite the importance of STEM for creating a flow of ideas turning the reinvention wave into a creative wave of destruction, there should be a synchronized and timely response from multiple fronts. For example, the same video or audio on demand, which failed to take off in the 1990s, succeeded as a creative wave of destruction in the 2010s. There must be synchronization between multiple waves, including consumer preferences, infrastructures, technology possibilities, and public policies.
Although economist Joseph Schumpeter introduced the creative destruction concept, the human race’s inherent tendency to pursue reinvention leads to the destruction of existing economic structures, such as industries, firms, and jobs. Besides, freedom to pursue reinvention destroying existing jobs and firms, as underscored in Why Nations Fail, is not good enough. Instead, the flow of ideas from STEM progression must ensure to sustain along with synchronized and timely responses from multiple actors.
This article is part of a book, Engineering Economics and Management–Modern Day Perspective.