The Internet collided with earth with the force of a comet, those who saw it coming have benefitted beyond comprehension, untold riches have been mined from the impact site and surrounds whilst many others have been blown up by it’s impact.
What we have borne witness to is the deflationary impact of the collision between the internet and the traditional business model and the resulting global shredding of jobs.
Because the world had never experienced anything like this before it meant that the changes that have been forced upon many companies spelt destruction for some and evolution for others in order to remain relevant. Global pricing transparency suddenly appeared, profit margins were cartwheeled and the response by many was to start giving their products and services away in order to achieve scale and market penetration.
The combined market capitalisation of the global internet giants continues to grow and half of the worlds top ten largest businesses are now technology companies.
Management had to run faster in order to keep up and those who couldn’t were swept away by the tidal wave of change. Creative destruction on steroids, where does it end? Are we at the beginning or half way through?
Who knows with any certainty what the next big thing in business is when anyone anywhere can set up as long as they are able to get online.
The expression “creative destruction” was popularised by and is most associated with Joseph Schumpeter, particularly in his book Capitalism, Socialism and Democracy, first published in 1942. Already in his 1939 book Business Cycles, he attempted to refine the innovative ideas of Nikolai Kondratieff and his long-wave cycle which Schumpeter believed was driven by technological innovation.
Three years later, in Capitalism, Socialism and Democracy, Schumpeter introduced the term “creative destruction”, which he explicitly derived from Marxist thought and used it to describe the disruptive process of transformation that accompanies such innovation.
The music industry is a textbook illustration of how an industry can be blown to bits by the gales of creative destruction.
Creative destruction can cause temporary economic distress, such as layoffs of workers with obsolete working skills and loss of income or return on investment on the parts of owners, financiers, and investors. With regard to workers, though a continually innovating economy generates new opportunities to participate in more creative and productive enterprises (provided they can acquire the necessary skills), creative destruction can cause severe hardship in the short term as well as in the long term for those who cannot acquire the skills and work experience needed to work elsewhere.
Geographer and historian David Harvey noted that much innovation, however, is a double-edged sword.
The effect of continuous innovation is to devalue, if not destroy, past investments and labour skills. Creative destruction is embedded within the circulation of capital itself. Innovation exacerbates instability, insecurity, and in the end, becomes the prime force pushing capitalism into periodic paroxysms of crisis.
The struggle to maintain profitability sends capitalists racing off to explore all kinds of other possibilities. New product lines are opened up, and that means the creation of new wants and needs. Capitalists are forced to redouble their efforts to create new needs. The result is to exacerbate insecurity and instability, as masses of capital and workers shift from one line of production to another, leaving whole sectors devastated.
The drive to relocate to more advantageous places (the geographical movement of both capital and labour) periodically revolutionises the international and territorial division of labour, adding a vital geographical dimension to the insecurity. The resultant transformation in the experience of space and place is matched by revolutions in the time dimension, as capitalists strive to reduce the turnover time of their capital to “the twinkling of an eye”.