Thinking Carefully about "Creative Destruction"

"Move fast, break things" is a terrible way to organize an economy.
Appears in Fall 2016 Issue: Join the Anti-Revolutionary Party
September 1 st 2016

Facebook's motto, "Move fast, break things," is the credo of our modern economy.

The motto was originally intended as a marker of Facebook's internal company culture. It was a culture focused on getting things done and out—"shipped"—and dealing with the inevitable snafus, bugs, and breakdowns at a later point. The motto was so much a part of the company that they put it in their corporate documents when pitching investors.

This vision makes certain dubious, debatable, and ultimately religious claims about humanity and society, and uses the natural dynamism of market economies as a cloak.

But "move fast, break things" has come to represent more than just one company's motto. The entire Silicon Valley ecosystem Facebook shares with Apple, Netflix, Google, and other tech overlords embodies the words, and their collective creative efforts have resulted in the destruction of countless industries— network television, movie rental stores, telephone companies, to name a few.

These firms are now some of the most valuable in the world, with five companies in the global top ten in market capitalization. The fact that just over twenty years ago a number of them didn't even exist shows the ability of these firms to move fast; and the virtual disappearance of other major companies like Kodak shows how they break things.

But the arrival of new technologies and companies and the demise of others isn't limited to the world of silicon and code. In his book Capitalism, Socialism, and Democracy, published in 1950, Joseph Schumpeter observed that it is endemic to our economy as a whole. In the chapter wherein he coins the term "creative destruction," Schumpeter writes:

The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U.S. Steel illustrate the process of industrial mutation 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. It is what capitalism consists in and what every capitalist concern has got to live in.

This incessant revolution is most visceral in the way it affects workers and their skills.

There is an inherently social element to creative destruction.

Maybe your mom or dad—maybe you—are people whose vocational pathways have been significantly affected by this phenomenon. Maybe you grew up in a town whose major employer has pulled up stakes and left you with decades of experience but no prospects. How many wheelwrights or blacksmiths do you know? I'll bet you know as many blacksmiths now as a wheelwright in 1905 knew airline pilots. And US Steel—the prime example of a "destroyer" for Schumpeter— half a century on has itself been destroyed. Once a leading global company, US Steel bears little resemblance to the company that drew the attention of presidents in the 1950s and 60s.

For all this, there is a significant difference between capital-C-capital-D "Creative Destruction" and lowercase creative destruction. There is a kind of creative destruction (small c, small d) that simply describes a very real, inherent dynamism in economic life. But Creative Destruction as an ideology— what we might even call Creative Destructionism—is a slogan for a revolutionary vision that transforms the natural dynamism of the economy into a particular vision of humanity and society that bears remarkable similarities to previous, distinctly political, revolutions. This vision makes certain dubious, debatable, and ultimately religious claims about humanity and society, and uses the natural dynamism of market economies as a cloak. Discovering the difference between the two is critical if we are to try to understand creative destruction and the ways it supports or hinders human freedom and our life together.

Economic Meteorology: Understanding The Gale

Schumpeter's term "perennial gales of creative destruction" has become a creaky catchphrase. Creaky because four words are made to bear the weight of meaning that used to be shared by the larger work of political economy.

It's worth, therefore, taking a look at Schumpeter's description and the order in which it takes place to prevent its collapsing on us. He effectively outlines two causes of creative destruction:

We assign markets the status of a god or a ghost.

  1. Opening up of new markets
  2. New organizational development

When he speaks of opening up new markets, he means two things. One is the ability of companies to sell a particular product to new people. The opening up of trade to previously closed-off countries like China in the late 1980s did open up new markets, of course, and because of the unique characteristics of the Chinese market (which is really the combination of the Chinese people, its history, its institutions, its stage of development, and its combined proclivities), companies shifted their business strategies and investments in directions that responded to those characteristics. The idea of allocating millions to previously small or non-existent aquaculture operations that cultivate giant clams like the geoduck (look it up) to take advantage of the Chinese appetite is one example of how new markets are creative.

But new markets are not just about selling existing things in new places. Schumpeter is also talking about selling new things in existing places—things that might not yet have been imagined at a different, earlier moment of time. There was no market for steamship travel in the days before steam engines were invented. Yet in 1883, there was enough of a steamship industry (for goods, travellers, and employment) for Mark Twain to write Life on the Mississippi. Your imagination can probably fill in about a dozen other examples just by looking around. While new markets drive economic growth, they are almost always accompanied by losses of some sort. The steamship industry displaced canoes and sailboats, for instance.

This combination of gains and losses occurs not only with new products or markets— that is, things and places—but also with new ways of organizing people. There is an inherently social element to creative destruction. The social character of the factories was a creative way of organizing people—but it resulted in the destruction of previous ways of organizing work. The movement from the blacksmith's shop, where one person would perform a variety of different tasks once or so in a given day, to the shop floor, where one person would perform the same task a hundred times a day, is a social invention. The ability of a collective group of people—whether aided by machines or not—to bang out thousands of wheel hubs a day by performing discrete tasks is a type of social technology that is an equally important contributor to destruction as the automatic blacksmith hammer.

Schumpeter describes the institutional expression of all of this with the phrase "industrial mutation." Some companies, like the Hudson's Bay Company, are shape-shifters. Peter C. Newman, in his history of the company, notes that it started as a fur-trading company with a royal charter from Charles II. It now is a publicly traded retail and realestate firm that doesn't do fur except when customers of its flagship store, Saks Fifth Avenue, want it. Companies that don't mutate—like Kodak—die.

Those who claim that markets will do what markets will do and that they are not subject to moral valuation are in fact making a particular claim about human life and society that is revolutionary.

Like Heraclitus's river, you can't invest or work in the same economy twice, because it's not the same economy, and your skills are not as valuable as they once were. Who knows where the river will go next?

Weapons-Grade Dynamite or Oxbow Lake?

So the creaturely vocation of making does entail loss; our creations engender destruction of a sort. We get the most visceral sense of this when we see the massive unemployment— and the attendant social problems—that follow these creative developments. This is especially true in "industry" towns or regions where most employment came from one or very few employers or from a particular type of work. The Canadian folk singer Stompin Tom Connor's song "Muckin' Slushers" captures a part of this:

Come on you muckin' slushers
You jack leg, drillers and blasters
The price of Uranium is up and there's money to make
Come on you big rock boulders
Who answer to the name of miner
This old boom town is still around on the
shores of Elliot Lake

It's not just a boom town because of the dynamite used to pull uranium out of the Canadian Shield but because "the price of Uranium's up." But it's when it's down that the place looks like a bomb hit it; this is especially true for towns and regions where new markets and technologies displace many workers. It's this experience that leads many people to associate capitalism with destruction and turn their back on it. Some even go so far as attribute a particular and sinister sense of violence to our economic structures. Naomi Klein's Shock Doctrine, for instance, suggests that "creative destruction" is not a metaphor but can be equated with real mass violence that is (to borrow a phrase from my favourite English peasant) "inherent in the system."

But is this always true? Nobody explicitly set out to destroy the blacksmith trade; someone set out to find a better way to shape metal products. And when that better way was found, the blacksmith's services were no longer needed. A closer look at the phenomenon suggests that the oxbow lake is a better metaphor than weapons-grade dynamite. These lakes, described by Mark Twain in Life on the Mississippi, are created by a redirection of water that stems from the water's own meandering, cutting a body of water off from the main course of the river. At some point, a town located on an oxbow lake that used to experience the economic boom accompanying location on a major North American trade route found itself cut off from trade and commerce because the river directed its waters elsewhere. Lacking access to markets and trade, the town dies. Creative destruction is, I think, often like this. Capital, labour, and desires go in one direction rather than another, and the industries that used to be at the center of activity shrivel rather than explode.

Maybe our view of the justice of markets needs to consider the extent to which justice is defined by recognizing God.

This isn't to downplay the effects of destruction, however, nor, as we will see below, the complexities and culpabilities of it. It is better to be honest that there are real losses even with the good that is gained, and we need to consider ways to think morally about this process.

Is the Invisible Hand Subject to Justice?

Trying to think morally about the implications of creative destruction means considering the way economics is a human endeavour.

For instance, my wife Nicole and I have been reading Cheryl Mendelson's book Home Comforts together in recent weeks. It is what might have once been called a book about home economics. One of the things she observes about home life is that there is a natural rhythm of use, consumption, depletion, and replenishment in every oikonomia. This is true for daily things like milk and bread but also for our household setup. I have a beautiful hand-crank burr coffee grinder that is made of walnut. It's a lovely piece of household machinery made by Peugeot—it works like a charm. The trouble is that this coffee grinder extends the crucial— crucial—time I must suffer between when I wake up and when I have the blessed elixir of the gods in my system. To alleviate this problem, Nicole and I purchased an electric blade grinder. It offers an inferior grind to our hand-cranked burr grinder, but it's quicker and easier, and cheaper than others. Maybe one day we'll buy an electric burr grinder, but for now we're happy.

What is interesting is that I'm not the only one who's made this decision. Millions of others have also opted for the electrical grinder, go straight for pre-ground coffee, or just skip the whole thing and contribute to the revenue stream of NASDAQ: SBUX. The result is that Peugeot's business and labour force has also changed. It has taken its expertise on gears and moving metal parts and applied them to the manufacture of other goods: you're now more likely to see the Peugeot brand on a car than a coffee grinder (though they still do manufacture pepper mills). The loggers and carpenters who handled the wood in my original hand-cranked grinder no longer work for Peugeot. Peugeot's not hiring carpenters, nor is it buying walnut in the same quantities. Multiply a billion times and in a billion places and you get a picture of one human dimension of creative destruction. The scope of this phenomenon, the very fact that it involves billions of noncentralized decisions of people in billions of different settings, leads us to think that it is something that "just happens." The sheer impossibility of trying to keep track of and understand these decisions—the tenuousness of one's particular actions on any given result—is why creative destruction is said to be the product of "the invisible hand." We assign markets the status of a god or a ghost. And because gods operate on a different moral plane, we are disinclined to think about the rise and fall of industries and the gains and losses that accompany them as moral phenomena.

It means making judgments about the desires that drive creativity.

Is it possible to talk about justice when it comes to the mysterious workings of the market?

Yes, it is, but if we're going to do so well we have to think on a different plane than neo- Marxists like Naomi Klein who are obsessed with political systems, and in a less myopic fashion than libertarians who think only in terms of individual action.

Moral thinking about creative destruction has to consider the moral context of the creativity— the real thing—before it can pass judgment on the destruction—the negation of it. If the new material and social technologies that drive creative destruction are examples of our human propensity to "find a better way" to do something, we need to know what makes something better. The challenge is that there are competing visions of what "better" is, and how you achieve that.

An Adequate Idea of the Dignity of Human Life

Some of these visions of "the better" are revolutionary— not in the sense that they recognize a natural dynamism, but in the sense that they are willing to clear people, tradition, history, to make room for their vision of the better. Those who claim that markets will do what markets will do and that they are not subject to moral valuation are in fact making a particular claim about human life and society that is revolutionary. Common to all revolutions is a commitment to total, massive, and rapid overthrow of existing social architecture—a desire to obliterate the existing social ecosystems on the belief that something better can be built on the razed ground. This impulse is best articulated in Mao's cultural revolutionary directive, as summarized by Thomas Campella in his book The Concrete Dragon, "to destroy the 'Four Olds' (si jiu)—old customs, culture, habits, and ideas."

Revolutions aren't marked so much by change—this is a natural part of life, after all—but in their insistence that moving fast and breaking things—that destroying and creating from scratch—is itself the way to achieve positive change. How much does "zero to one" differ from the Great Leap Forward? The goal of this type of creativity is to transform (again quoting Campella's description of Chinese urban development):

a city steeped in history to a "perpetually provisional" place, to paraphrase Henry James—a city constantly torn apart and rebuilt, that has not only rubbed out its past but increasingly now seems to have "no credible possibility of time for history."

This sounds remarkably familiar to Jamie Smith's articulation of the key points of the "move fast, break things" philosophy of Silicon Valley.

The confident narrative of progress, the narrow identification of progress with technology, and the tales of 0 to 1 creationism are the products of an echo chamber. This chamber fosters hubris among the faithful precisely because it shuts out competing voices that might remind them of the deeper and wider institutional, intellectual, and even spiritual resources on which they depend and draw.

Our creativity can be understood in a variety of ways. Some ways recognize, as Joan Lockwood O'Donovan argues, that

human freedom is a dynamic reality of human beings responding obediently to God's manifold revelation of his will, of his law. The value, the worth, the significance of human freedom lies in its reality as a positive human response to God's ongoing communication, so that there is no free human action that is not also a receiving of what God has already done and given.

Maybe our view of the justice of markets needs to consider the extent to which justice is defined by recognizing God. To channel Groen Van Prinsterer, creativity that proceeds without this awareness is, in a sense, not just economically revolutionary but also politically and theologically revolutionary. We should not be surprised to learn that Peter Thiel has invested heavily not just in technologies like Facebook but also in the Seasteading Institute, which is a literal attempt to build a city from scratch, away from the corruption of traditional political systems, mores, and the like. You can almost hear Thiel channelling his inner Belinda Carlisle. For every dollar he earns from Facebook and PayPal, you can hear "ooh baby do you know what that's worth? Ooh heaven is a place on earth."

It is not accidental that this view bears similarities to what James C. Scott calls "seeing like a state." Certainly the Silicon Valley conception of creative destruction is more benign than Mao's, but it shares a view of the world held by the modern state that, in Scott's words, "severely brackets all variables except those bearing directly" on its own interests, existing ecosystems be damned. Even if people like Thiel and Zuckerberg might be less like Mao and more like Napoleon in their desire to make the world "a better place," this revolutionary approach to business still has distinctly totalitarian undertones. It is no accident that the prime example of creative destruction today—China—is a society dominated by a marriage of the state and the corporation, and a reduction of individuals and civil-society institutions—especially the church—to ends defined by those entities.

But Schumpeter anticipates and exposes the poverty of this view: Even if we had the means of measuring the change in the technological efficiency of industrial products, this measure would still fail to convey an adequate idea of what it means for the dignity or intensity or pleasantness of human life—for all that the economists of an earlier generation subsumed under the heading of Satisfaction of Wants. (emphasis added)

Viewing creative destruction on these terms opens possibilities for understanding this phenomenon in anti-revolutionary ways. Understanding the "opening up of new markets" and new "organizational developments" in ways that try to "provide an adequate idea of what it means for the dignity" of human life means asking questions about creativity and its context that recognize the multifaceted nature of human life. That economic norms of thrift and efficiency, for all their importance, are not the sole moral criteria by which things are judged. It means making judgments about the desires that drive creativity. Would we ever be willing, for instance, to say that the expansion of a massive market in online pornography is a type of creativity conducive to the dignity of human life? It means making social judgments about the way we organize our workplaces. Is the attachment of productivity measuring armbands to grocery store workers—as was attempted by the British grocery chain Tesco—conducive to the pleasantness of human life, even if it enhances productivity? Were workers right to accept Henry Ford's bargain for high wages in exchange for stultifying work? It means making judgments about the political context of certain economic developments: is the total disregard for private property and labour law worth the exchange for Chinese economic growth and pulling millions out of poverty? And back in my kitchen: is it wrong to desire speed and ease when making coffee in the morning, and are speed and ease sufficient moral categories for understanding this technology? What does an electric coffee grinder do to my family?

Attempting to answer those questions will not necessarily require a particular response by, say, the state to prevent certain types of creativity. We are not always aware of the consequences—good or ill—of certain modes of creativity, and it pays to be humble in evaluating things. But it will not do to exchange humility in social or political responses to creative destruction for the hubris of markets. Our search for a better way to live in and understand the economy requires hard thinking about an adequate idea of the dignity of the human life. And perhaps, in the perennial gales of creative destruction, this requires something neither the market, nor anything on God's good earth, can provide.

 

Brian Dijkema is Program Director, Work and Economics at Cardus and senior editor with Comment. Prior to joining Cardus, Brian worked for almost a decade in labour relations in Canada after completing his master's degree with Cardus Senior Fellow, Jonathan Chaplin. He has also done work on international human rights, with a focus on labour, economic, and social rights in Latin America and China.

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