what is creative destruction?

What is Creative Destruction?

Christian Sandström holds a PhD from Chalmers University of Technology, Sweden. He writes and speaks about disruptive innovation and technological change.

The value of the old is destroyed by the new.

The value of old technologies…

… is destroyed by new technologies

You know the song ”Video killed the radio star”? That’s Creative Destruction!

The term Creative

Destruction was used by

Joseph Schumpeter, an Austrian economist.

To Schumpeter capitalism leads to eternal structural changes

in firms, industries and economies.

And he argued that Innovation is what

drives this process…

Quote Schumpeter: ”In capitalist reality … it is not that kind of competition (price) which counts but the competition from the…

… the new commodity…

… the new technology…

… The new source of supply…

…the new type of organization…

- Competition which … strikes … existing firm … at their foundations and their very lives…

… this kind of competition is … much more effective that the other … and [is] the powerful lever that in the long run expands output” (End of long quote)

Old and New computer Performance? Resources?

Quote Schumpeter:

”A railroad through new country, i.e., country not yet served by railroads, as soon as it gets into working order upsets all conditions of location, all cost calculations, all production functions within its radius of influence; and hardly any ’ways of doing things’ which have been optimal remain so afterward”.

Why does it look like this along a small country road in Alabama?

If a new highway (an innovation) is built next to the country road, noone’s going to drive on the old road…

… The value of the old is destroyed by the new creation…

Here’s another example…

Well, actually it is not!

The photo is taken in New Orleans after the terrible Hurricane Katrina…

The views are terrible and strikingly similar! Innovations can create the same kind of views as a hurricane disaster…

And now a little game…

The next slide contains 4 photos

2 are from Hurricane New Orleans 2 are from old country roads

Guess which ones

are from New Orleans!

Don’t cheat =)

Tricky?

Here’s the answer…

NEW ORLEANS

NEW ORLEANS ALABAMA

COUNTRY ROAD

TENNESSEE

COUNTRY ROAD

Amazing how hard it is to tell the difference! Innovation is really about Creative Destruction!

Yesterday’s and today’s capitalist economy is all about Innovation and Creative Destruction.

Innovation was what drove the 19th century economy…

The telegraph Railway and the steam engine

New energy (coal)

Iron and steel

… And it drives today’s global economy as well

Oil The container The transistor

Plast

”From the steam engine to the search engine”

Surviving Creative Destruction is a challenge for firms…

… Surviving Creative Destruction is a challenge for industries…

…a challenge for societies

The tractor innovation destroyed the peasant’s job

It’s a challenge for people…

Other innovations create new jobs somewhere else in the economy…

Share of Swedish population working in agriculture, industry and services over time.

So, Innovation and Creative Destruction drive structural change in society

Innovations Destroy value at one place, and Create a larger economic

value somewhere else.

Summing it up…

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Find out more:

www.christiansandstrom.org