Friday, June 3, 2011

Creative Destruction

"Economic progress, in capitalist society, means turmoil."
Joseph A. Schumpeter
Yesterday I used the words "creative destruction". I did not realize that this phrase originated with Karl Marx when he claimed that economic development arises out of the destruction of some prior economic order. I was introduced to the term via the work of economist Joseph Schumpeter who adapted the phrase and popularized it as a theory of economic innovation whereby progress is limited unless new products replace (destroy) old products and services. For example, if your new car lasted 20 years, there would be far fewer car sales and a much smaller automotive industry. We've gotten used to the idea of cars wearing out frequently. One car ad said the average person buys 12 cars in their lifetime.

Industries and companies are also subject to being obsoleted and replaced. (Hence I object to the very dangerous concept of "too big to fail". Don't try to block progress by saving companies who are unable to adapt with the times.)

What is being "destroyed" and replaced now-a-days?

1. The Post Office
There will always (?) be packages for Fed Ex, and UPS to ship but when was the last time you wrote a letter? My wife has embraced online bill paying and we send eCards to relatives so very little goes into our mailbox anymore.

2. The Personal Check
It costs the financial system billions of dollars a year to process checks. Plastic cards and online transactions will lead to the eventual demise of the check.

3. The Newspaper
Some "papers" have moved online and stopped publishing a paper copy. I expect this trend will continue, especially as iPad, Kindles, etc become more common for reading during the morning commute.

4. Paper Books
Why carry a heavy book (and fill book shelves) when it can be stored on your Kindle? I used to collect reference books but now turn to the Internet for current facts.

5. The Land Line Telephone
We keep ours for emergency preparedness and Internet. The telephones that plug into the wall often work during emergencies when cell towers are down or overwhelmed. But there may come a time when landlines are discontinued.

6. Music CDs
Too many people get fixated on the medium instead of the content. Music has existed and been sold on phonograph rolls, LPs of various sizes, 8-track tapes, cassette tapes,etc. The CD is just the latest and perhaps the last of the physical means of buying music. iTunes has shown that music can exist profitably in pure digital format on the Internet.

7. Television and Cable TV
Why pay someone to watch content when there are free alternatives online?

8. Camera Film
I have not used film in years.

9. Travel Agents
I do all my travel arrangements online.

Bottom Line

What other goods or services do you think will be replaced?

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