Creative destruction: what kind of phrase is that? It sounds like a paradox - an oxymoron. How can the word creative, which has its origin in the root-word “create”, be linked to destruction, which in turn is rooted in “destroy”?
This dichotomy is, however, deeply embedded in the entrepreneurial phenomenon. Schumpeter (1942) outlined an economic process of "creative destruction," by which wealth was created when existing market structures were disrupted by the introduction of new goods or services that shifted resources away from existing firms and caused new firms to grow. The key to this cycle of activity was entrepreneurship: the competitive entry of innovative "new combinations" that propelled the dynamic evolution of the economy.
In essence entrepreneurship can therefore also be seen as a force of “creative destruction” whereby established ways of doing things are destroyed by the creation of new and better ways to get things done.
This dichotomy is, however, deeply embedded in the entrepreneurial phenomenon. Schumpeter (1942) outlined an economic process of "creative destruction," by which wealth was created when existing market structures were disrupted by the introduction of new goods or services that shifted resources away from existing firms and caused new firms to grow. The key to this cycle of activity was entrepreneurship: the competitive entry of innovative "new combinations" that propelled the dynamic evolution of the economy.
In essence entrepreneurship can therefore also be seen as a force of “creative destruction” whereby established ways of doing things are destroyed by the creation of new and better ways to get things done.
Just think for a moment of products and technologies that have become obsolete over the past 20 years or so... The floppy disk and stiffy making way for the memory stick; BETA and VHS video tapes making way for DVDs; on the brink of extinction one can think of the music cassette that is replaced by the CD. Also think of the development of the transistor and then the semiconductor.
Today Moore ’s Law – the power of the computer chip will double every 18 months at constant price – is actually being exceeded by modern chip technology. Combine this with management guru Peter Drucker’s Postulate: A tenfold increase in the productivity of any technology results in economic discontinuity. Thus, every five years there will be a tenfold increase in productivity. Author George Gilder recently argued that communications bandwidth doubles every 12 months, creating an economic discontinuity every three to four years. It does not take a lot of imagination to see the profound economic impact of “creative destruction.”
Today Moore ’s Law – the power of the computer chip will double every 18 months at constant price – is actually being exceeded by modern chip technology. Combine this with management guru Peter Drucker’s Postulate: A tenfold increase in the productivity of any technology results in economic discontinuity. Thus, every five years there will be a tenfold increase in productivity. Author George Gilder recently argued that communications bandwidth doubles every 12 months, creating an economic discontinuity every three to four years. It does not take a lot of imagination to see the profound economic impact of “creative destruction.”
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