Creative destruction is a term coined by the economist Joseph Schumpeter to indicate that, while temporarily painful to those affected, technological innovation that causes job losses in certain sectors of industries ultimately creates wealth and prosperity for everyone (including those affected). Cars displaced horse carriage manufacturers… a significant advantage for everyone and the modern world, we can all agree. This doesn’t mean there are no horse carriage manufacturers, just a few niche ones left, which are actually profitable. There doesn’t need to be a thousand horse carriage manufacturers anymore… it just doesn’t make any economic sense.
Who today can deny that current companies and technologies like Uber, Airbnb, and the smartphone itself (which soon will be in the hands of everyone in the world, including the 3rd world due to falling prices, giving everyone instant access to information and education) are adding significant value to users and consumers, and thus increasing the overall wealth of everyone in the world?
Creative destruction is hard. But it means that people in the old industries must to adapt, which they can… and history validates this. Economics states that resources should flow to where they are most valued. If this is to be the case, some changes have to occur every now and then. Change, after all, is a fundamental force of life.
If change is fundamental, and innovation is a good thing for society, why do we continue to see claims that innovative companies today are causing harm? This is observed most recently in the remarks by Hillary Clinton and Bernie Sanders that Uber needs to be regulated and that in general the technology poses a threat to consumers. But these claims aren’t just limited to the Democrats, or left-leaning parties… they aren’t even limited to politicians. Lobbyist from taxi companies and hotel companies lash out against Uber and Airbnb, respectively. They aren’t even limited to lobbyists, some managers of companies are quick to defend their existing technology, as opposed to changing and innovating with the times, and thus ultimately end up bankrupt.
A closer look into history reveals that this isn’t new. According to an excerpt by Richard Foster in “Innovation: The Attackers Advantage”, this fear is ~700 years old:
The fear that machines owned by others would destroy jobs is at least 700 years old. In 1397, the guilds in Cologne persuaded the town’s government to band machine making heads on pins because it would cause unemployment. In sixteenth-century England, Parliament enacted a law restricting the purchase of looms with the intention of protecting hand-crafted products. In the same century, Anthony Muller, an inventor of a more efficient weaving apparatus, was promptly put to death by the local mayor who feared widespread unemployment and unrest. In 1663, London workers destroyed the new, mechanical sawmills that were viewed to threaten their livelihood. Amsterdam city officials responded to the urgings of the guilds by prohibiting the construction of tower mills that could have replaced inefficient post mills and dislocated hundreds of generously compensated millers. The tower mills were built in a different city with the effect that the Amsterdam millers were displaced anyway. Ribbon making machines were banned in Holland and smashed in England in 1676. In 1710, Nottingham rioters smashed stocking frames and burned warehouses full of finished goods. John Key, the inventor of the flying shuttle, was attacked by infuriated mobs who subsequently burned his house down. By 1811, machine smashers had organized themselves in gangs, called themselves Luddites (in honor of Ned Ludd who reputedly destroyed a machine to which he was assigned three decades earlier) and systematically smashed labor saving devices in all parts of England. Is it any different today in some European countries? Even in America the labor unions have hardly embraced automation.
Why, as an advancing society, do we continue to harness this fear of innovation today?
