Monday, June 18, 2012

Creative Destruction

[Repost from forum]

"Creative Destruction" is the fundamental divergence from what capitalism was expected - by some - to become, back in the 1800's, and what it became - and was the defining feature of the 80's. In order to explain this divergence, first you have to understand the position of Marx - his belief was that, as capitalism went on, more and more factories would be built, until their output exceeded consumption, at which point the profit motive, and the capitalist system by extension, would fail and socialism, and then communism, would rise to replace it.  (Later revisions by Marx recognized this failing.  I believe he failed to address a new mechanism for the rise of socialism.)

There are three philosophic responses while still maintaining some semblance of capitalism - the first is outlined clearly in Brave New World, in which this situation is maintained, but rather than cut back production, factories respond by increasing demand artificially, by making products shorter and shorter lived, forcing people to repurchase them. I do not know who originated this idea - many people blame Ford, because of his famous reducing-the-quality-of-parts-that-outlast-his-cars approach, but they miss that this was not to reduce the lifespan of cars, but to reduce the expense of producing parts whose final years are going to be spent in a scrapyard anyways. It'd be similar to somebody who sells a two foot pipe whose only application always results in three inches being cut off cutting those inches off in advance, or just making it a one-foot-nine-inch pipe - it saves money without reducing the value to the customer.

The Brave New World is a private-industry driven artificial rise in demand. (Although in the book it was affected by government, rather than industry.) It fails because it ignores the effects of competition - I won't buy a shittier product that lasts half as long for the same price. Which is why I don't buy Stanley screwdrivers (although they always come with things like car emergency kits) - I've had three of the damn things break on me. They're gift tools - something you buy if you, personally, aren't going to use it, and hence are a niche market, and cannot replace the mainstream market (short of government intervention).  (They are actually somewhat cheaper, actually, and have useful applications in situations in which tools are lost or destroyed for reasons outside the tool's durability, such as in boating)

The second response is Keynesian economics - raising demand artificially to offset the difference until consumption grows into the demand. The fundamental principle here is that no factory should ever be shut down, ever - it's the idea that we should only grow, and never shrink, that an economic decline is always a failure, and always a problem to be corrected. (In action it doesn't stop the economic decline, or even slow it, and may even prolong it by increasing the expense of resources to the few growth industries remaining.)

The Keynesian economic model fails for the reasons mentioned above - it doesn't accomplish what it sets out to do, and may even be counterproductive.

The third response is that of Creative Destruction - which is the model which the economy actually follows. Creative Destruction is at the heart of a functional capitalism - in short, it means that the weakest companies die. The least efficient, the oldest, the least profitable.

Contrary to Marx's model, wherein hundred year old factories run forever, Creative Destruction means they are dismantled for scrap metal. There is a limited demand - and thus the goal is to maximize one's market share, -not- to maximize one's production. Which is why I can't buy Mountain Dew Pitch Black on Halloween anymore - while delicious, I was approximately the only person in the country purchasing it. (And purchasing it quite cheaply, as a result.) The point isn't to make as many products as possible, even if those products are profitable. Yes, it could make money making Pitch Black II. But it could make -more- money using those assembly lines and marketing money to alternative uses, like making Voltage, an altogether more popular flavour.

Other People's Money is a brilliant movie - one of the very few with DeVito which I am genuinely fond of - which does an absolutely excellent job of demonstrating the principle of Creative Destruction, and which also illustrates our resistance to a highly productive practice.

And Creative Destruction is -precisely- the principle which any populist theory of economics - like socialism or communism - is going to lack. Because we -are- resistant to it - and for good reason, it's highly inconvenient, and personally problematic. Creative Destruction is why there are very few travel agents anymore, having been eliminated in favour of websites which do their jobs faster, for less money, and often better - and if you were living in a communist country, would you let the world destroy your profession, make you redundant, unnecessary, and force you into a trade which you are unfamiliar with and less skilled at than everybody else? It is necessary, absolutely necessary, for any real long-term gain - but people hate it with a passion, because its fundamental principle is dependent on destruction and change.

Which is the reason communisms - and populist theories of economics generally - fail. Because people are fundamentally good, as long as things are going well - and will protect the unnecessary, outdated, and the weak. Nobody wants to say, "Okay, we don't need you anymore, the whole investment of the whole of your life is now for naught, start over from scratch." It HAS to be said, at some point - but nobody will say it. It's cruel.

It's cruel. And ultimately it is necessary.

No comments:

Post a Comment