Embracing Creative Destruction

Hopeful Pragmatism for a Disruptive World

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Largely ignored outside of the ivory tower for the half century after his death in 1950, the work of economist Joseph Schumpeter has experienced a revival, particularly the notion of creative destruction as the driver of modern capitalism. Writing on the origins of disruptive technologies, their transformative economic impacts, and their future implications, the authors in this issue call into question the tendency of economists, ecologists, and others to understand the world in terms of harmony and equilibrium – and to attempt to impose such conditions on the world. Better to embrace the productive messiness that has always characterized our technologies, our economies, and our societies.

Summer 2014 | Ted Nordhaus, Mark Caine, Michael Shellenberger,

Over the last two decades, Joseph Schumpeter has become perhaps the most influential economist in the world, largely because of his view of capitalism as a process of “creative destruction.” His most famous work, Capitalism, Socialism, and Democracy, published in 1942, is today more widely cited than John Maynard Keynes’s The General Theory of Employment, Interest and Money. Schumpeter taught at Harvard and was elected president of the American Economics Association in 1948. Yet his work was neglected outside of academic economics for almost half a century after his death in 1950.

It was not until the go-go 1990s that Schumpeter received widespread attention. It is not hard to see why the concept of creative destruction would seem intuitive to a generation that saw laptops, smartphones, and social media replace typewriters, fax machines, and newspapers. Ambitious entrepreneurs replace old technologies with new ones. Old firms either change radically, as IBM did, or die, as Kodak did. Economic growth is not a smooth, incremental, wealth-producing process: it is a messy one punctuated by new technologies and processes that change not only the material basis of our everyday lives, but also our culture, our politics, and our values.

In placing greater emphasis on the technological means of production than on the process of market exchange, Schumpeter is the only prominent figure in the mainstream economic canon who owes more to Karl Marx than Adam Smith, observes Mark Sagoff in these pages. Traditionally, economists had viewed the periodic crises that rocked capitalist economies as external and exceptional events that disrupted what would otherwise be stable and smoothly functioning markets. Schumpeter, following Marx, argued to the contrary that these crises — resulting from technological change as well as from overproduction, war, and other shocks — were an essential feature of capitalism and, in fact, kept market economies dynamic and growing.

Schumpeter famously lauded the entrepreneur, who he argued was the heroic figure of capitalism, a visionary who could imagine the future in ways that others couldn’t and could therefore drive technological change and economic growth. Not just a visionary, the entrepreneur got things done. This ideal, as much as the theory of creative destruction, has made Schumpeter a hero to those who attribute the bulk of our prosperity to market forces. But Sagoff reminds us that Schumpeter’s elevation of the entrepreneur profoundly challenges standard economic accounts of markets and prices. The entrepreneur, Schumpeter argued, is not a rational, utility-maximizing actor responding to price signals to truck and barter his goods most efficiently, as economics textbooks suggest. Rather, he is a dreamer, a visionary, an artist, and a doer. It is precisely the entrepreneur’s disdain for petty price competition, small-minded corner-cutting, and the battle for market share that allows him or her to imagine and create the future.

By the early 1920s, Schumpeter had doubts about the transformative potential of the lone inventor. With the cost and scientific complexity of technological innovation rising, Schumpeter believed that only large firms would have the resources, infrastructure, and market access to innovate on the scale necessary to drive continuing technological change and economic growth. Were he alive today, Schumpeter would surely acknowledge the increasingly important role that governments have played and continue to play in the development of new technologies. Thanks to the work of a generation of neo-Schumpeterian scholars, it is now widely accepted that the US government in particular was crucial to creating the technologies behind the iPhone, the shale gas revolution, and life-saving pharmaceutical drugs.

1.

Despite this highly successful economic record of public-private technology development, most mainstream economists have endeavored to airbrush the public role out of the picture. In these pages Fred Block, a leading innovation scholar, takes aim at Nobel Prize-winning economist Edmund Phelps, author of the recent book Mass Flourishing, for asserting that pure markets, and not these hybrid public-private technology networks, are the source of our technological progress and by extension our economic prosperity. As technologies have become more complex, innovation more costly, and shareholders more insistent on short-term profits, the public role in developing new technologies has only grown more important. According to Block, the jaundiced view Phelps takes of the government’s role in commerce “would destroy the very dynamics that have made sustained innovation possible in the first place.” Though Phelps is not explicitly opposed to technological change, Block notes, “Phelps’s preferred path amounts to modern-day Luddism.”

Luddism, human rights scholar Karen Greenberg notes in her meditation on the rise of drone warfare, is not an option for either civil libertarians or human rights advocates. From the longbow to the canon to chemical and nuclear weapons, technological advances have constantly altered the nature of warfare and diplomacy. Drones have created vast new military opportunities and risks, reducing casualties in the field while creating new enemies. While the ability to project force into any corner of the world with little fear of casualties or costs brings with it the potential for all kinds of new military entanglements, drones are here to stay. The important questions concern the ways in which drones are transforming both war and peace.

The rise of drone warfare is part of a broader shift toward asymmetric conflict. Civil wars, insurgencies, and terrorism continue but the days in which great powers wage total war upon one another in pursuit of land and resources appear to have come to an end, Charles Kenny notes in “The Cooperative Advantage.” One reason for this is that technological innovation has reduced competition for limited natural resources. The older, preindustrial geopolitical paradigm was largely zero-sum: one country’s gain was another’s loss. When the US Congress passed its Guano Islands Act of 1855, authorizing Americans to take over any island rich with bird droppings, it was out of fear that others would corner the supply of what was then a critical component of fertilizer.

As the basis of national wealth has shifted from land and natural resources to knowledge, human capital, and technology, geopolitical competition for land and resources has waned. Where resource scarcity is zero-sum, technological innovation is increasingly win-win. In 1909, when German chemist Fritz Haber invented a way to make synthetic fertilizer, the benefit could spill over to the rest of the world, reducing resource scarcity and competition. Despite contemporary fear-mongering about Russia and China, international commerce and diplomacy have actually become less rivalrous. Far from a threat to our prosperity and future, “the rise of the rest,” especially the large nations of China, India, South Africa, and Brazil, will spur new technological developments which, Kenny argues, will redound to the benefit of all.

Just as techno-economic advances create epochal changes in economic and environmental conditions, new economic and demographic circumstances often transform political and ideological conflict. The growing share of the electorate constituted by new generational cohorts and non-white constituencies is bringing an end to America’s culture wars. Thus far, these developments have been a boon for Democrats nationally. But they also portend a more profound shift in partisan and ideological divisions, Michael Lind argues in “The Coming Realignment.

An electorate that is increasingly socially liberal will no longer be divided over social issues. Instead, evolving differences over the role of government, entitlements, and the environment, tied to changing patterns of how Americans live and work, will increasingly define the two-party system. Lind argues that highly stratified urban centers — Densiteria, he calls them — may not always be Democratic strongholds. Wealthy creative class professionals and asset-rich rentiers at one end of the income ladder, and a large population of low-wage service employees at the other — these are the denizens of Densiteria — may end up more libertarian than populist. In America’s sprawling suburbs and exurbs — Posturbia, in Lind’s terms — more egalitarian income structures and more industrial economies may make working and middle-class citizens more likely to embrace economic populism — and less likely to buy into traditional green regulatory and energy agendas.

A generational shift is similarly underway in food, suggests nature writer Emma Marris in “Beyond Food and Evil.” A new generation of young chefs is subtly but significantly challenging the holy hegemony of simple, fresh, traditional, and local food, which first took hold in Berkeley, California, in the 1970s. The new chefs are using technology to, paradoxically, bring out more of the local and the natural essences in their ingredients. But in so doing, the chefs are also rejecting the paradigm established by farm-to-table pioneer Alice Waters, where moral instruction was valued above creativity. Cooking, gardening, and eating differently aren’t likely to heal humankind’s supposed rift with Nature, but they might make for richer, more creative, and more fulfilling lives on Earth.

2.

Schumpeter was hardly the first thinker to see the world as an endless succession of cycles of disturbance and new growth. Marx borrowed the idea of creative destruction from the German philosopher Hegel’s concept of sublation (Aufheben), which means both to cancel out and to lift up — a process Hegel viewed as outside of history and thus, perhaps paradoxically, a permanent condition. Nietzsche described the Greek god Dionysus as “creatively destructive” and “destructively creative.” Heraclitus described reality as flux, and emphasized how war, one of the highest acts of human destruction, is the “god of all things.” And the idea has never been strictly Western: the Hindu god Shiva is both transformer and destroyer, capable of taking forms both benevolent and dangerous.

Those who wish for stability and harmony have long insisted that “another world is possible.” For centuries, Romantic thinkers have described how such a harmonic world could be created on Earth, with Marx and others pointing to a special role for science and technology. Today environmentalists follow Malthus in imagining that human innovation will fail to keep pace with environmental limits, and that once the crisis arrives, humankind will be forced to subjugate our greed and hubris to the unyielding laws of nature.

Learning to love this world in all of its messy, fallen glory is how Martin Lewis became an ecomodernist. As a nature-loving child in Northern California in the 1970s, Lewis held a rich and Romantic view of nature, indigenous peoples, and our prehistoric past. But doubts began emerging when, as an undergraduate, he learned that North American hunter-gatherers, whom he thought had lived in greater harmony with nature than modern humans do, had deforested much of North America and hunted mammoths and mastodons into extinction. They had transformed the landscape on a continental scale. Later, when Lewis studied an indigenous group in the Philippines for his doctoral research, he discovered that his view of indigenous people as natural stewards of the environment reflected his Romantic naiveté rather than any realities on the ground.

Our understanding of the relationship between humans, technology, and nature has real-world implications. Will Boisvert describes how European and US efforts to make human civilization “sustainable” through the use of renewable energy sources like biomass and biofuels have resulted in razed rainforests and industrial monocultures. Boisvert documents the ways in which attempting to rely more on biological processes and organic flows of energy (ie, agriculture), and less on energy stocks such as nuclear and fossil energy, ends up destroying nature rather than saving it. Human ingenuity has “unlocked enormous resources that biological processes cannot access,” he writes, “thus transcending Malthusian constraints on growth while easing the demands we placed on wild ecosystems.”

Contra Malthus, both Boisvert and Lewis remind us that the planet’s capacity to support human development has never been fixed. It is no longer necessary to deforest a continent to feed a few thousand people. Given that we have altered and engineered the nonhuman world, it has become possible for humans to live longer, healthier, and more rewarding lives with less impact on the environment.

Schumpeter himself had little use for Malthus, accusing him, along with David Ricardo, of ignoring the technological revolution happening around them and insisting on their preordained conclusions. In Schumpeter’s view, the problem was that these thinkers took an abstract model of a static state — “the economy at equilibrium” — and turned it into a “future reality,” at least in their minds. Idealized visions of how the economy should work prevented them from seeing how it actually did work.

Environmental thinkers since the 1960s have likewise created highly abstract models, whether of human demands on resources or of climate change, that fail to account for feedbacks, both social and bio-physical, or for technological progress. Green thinkers are thus constantly surprised by ongoing innovation and economic growth, whether from higher agricultural yields or abundant new oil and gas resources.

The idea that there exists a world of perfect harmony just beyond this one is ultimately a kind of nihilism, a rejection of the real world. It is also a way of avoiding taking responsibility for the messiness and the trade-offs in the present. While it is dramatic to imagine that this or that category — humans, the state, the market — are irredeemably corrupt and wicked, such a depressing outlook cannot meaningfully shape or manage our presence on earth.

The authors in this issue all suggest that our world and our powers of creative destruction must be embraced and guided, not denied or repressed. The challenge we face, in the ecomodernist view, is to become ever-wiser stewards of technological innovation, human development, and nature protection.

In place of the rigid dogma of free market fundamentalists, Block offers the pragmatism of the recently deceased development economist, Albert O. Hirschman. Trained in the European tradition of interdisciplinary scholarship, Hirschman pushed back against both his neoliberal colleagues, who exaggerated the cost of public infrastructure projects like roads, dams, and irrigation, and his Marxist peers, who insisted that progress was possible only after a revolution.

Against the rigidity of neoclassical economists and the pessimism of Malthusian environmentalists, the authors assembled here affirm the posture taken by Hirschman. “If an idea is not encouraging,” the economist once quipped to a colleague, “it is false.”


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Ted Nordhaus, Michael Shellenberger, and Mark Caine

Ted NordhausMichael Shellenberger, and Mark Caine are executive editors and managing editor, respectively, of Breakthrough Journal.
 

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