Saturday, December 3, 2022

Creative Destruction: Is This the End of Capitalism?

Schumpeter in his work “Capitalism, Socialism and Democracy” argues that “capitalism is never stationary, because it always evolves into new markets and products, where innovations make existing products obsolete.”

Joseph Alois Schumpeter, (February/1883-January/1950), an economist who became Minister of Finance in Austria in 1919, takes the example of the transformation of the horse-drawn cart into the Ford T automobile, which in turn was replaced for new faster and more efficient models, in this line, in the 21st century, we can include cell phones.
There arises the idea of “Creative Destruction” that links the importance of economic dynamism, destroying economic analyzes that look at a static world, where political decision-making goes behind social changes.

End of capitalism
Joseph Schumpeter

Evolution

Some economists maintain that Schumpeter was for economics what Charles Darwin was for biology, because when analyzing the historical line from 1929 to 2008, they repeat Darwinian formulations such as, “capitalism destroys uncreative companies, allowing innovative ones to survive.”
We could prove them right if we take two industrial examples: cell phones, where not only has their consumption become widespread, but new devices make others obsolete, and automobiles, which went from being a product that only an elite could buy, to be available to millions of people.

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Marx versus Schumpeter

Schumpeter’s idea that “creative destruction will lead us to the capitalism of equality, where mass production will create wealth, which will spread throughout the population”, (the famous spillover), was a big mistake.
Schumpeter on this point agreed with Marx, assuming that “the process of incessant accumulation of capital would lead to a downward trend in the rate of profit”, in reality both predicted “the fall of capitalism”, one because of its “contradictions” ( Marx) and the other for his “success” (Schumpeter).
As we know, Marx assumed a class struggle between the bourgeoisie and the working class, but Schumpeter projected a type of socialist society, a consequence of the debacle of capitalism, we must point out that, for both, the true promoters of socialism were the minorities that accumulate riches.

Concentrated Economy

What neither Marx nor Schumpeter could foresee is that business competition in the 21st century is not based on dominating the market with a product, but with an idea, with a type or business model.
Today the largest companies in the world are digital, and it is impossible to make historical comparisons. Currently, economic dynamism has caused the greatest concentration of wealth in the entire history of mankind, today few people accumulate more wealth (comparative) than the ancient pharaohs, kings or tsars, with the difference that the “current subjects” work consciously, even going into debt, to acquire the new artifacts that will increase the riches of their “gods”.
To this we must add the macroeconomic context, which did not exist at the time of Marx or Schumpeter, such as excessive indebtedness of nations, speculative investment funds, tax havens, etc.
The problem is that governments cannot regulate this “creative destruction” (economic concentration), because a new technology will unexpectedly replace the current one, and regulation can hinder the development of the next innovation.
Let’s think that the country that regulates “creative destruction” will be behind, technologically, the one that releases these regulations.

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Cesar Leo Marcus was born in Buenos Aires, Argentina.
Doctor (PhD) in International Logistics and Foreign Trade, and Master (MBA) in Economic Sociology, he was professor of both chairs at the Universities of Madrid (Spain) and Cordoba (Argentina).
A journalist, he publishes in newspapers in California, Miami, and New York. He is a writer, he published twelve books, and a literary editor, director of Windmills Editions. He currently resides in California.

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