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Is Beyoncé's Creative Destruction Shumpeter's Big Moment?

Published Thursday, December 19, 2013 12:10 am
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Last Friday marked a rather large milestone in digital media. Music superstar Beyoncé launched her blockbuster, eponymously-titled album in completely digital form. No CDs, no packaging, no transport; a minimal carbon footprint indeed, despite a million sales in less than a week. While the environmental rewards of such commerce received most of the attention – and they are certainly both positive and significant – the fact that far fewer working class Americans were employed by the multimillion dollar affair highlights a major challenge in our modern economy.

Almost 100 years ago, Austrian economist Joseph Schumpeter famously coined the term creative destruction. Schumpeter saw entrepreneurial innovation as the driving force that sustained economic growth in capitalism, creating new markets and increased efficiencies while simultaneously destroying established producers who would have most likely enjoyed something of a monopoly prior to the new invention. Schumpeter was not, however, optimistic that this paradigm was sustainable in the long term, going so far as to warn that it would ultimately undermine the entire capitalist system and perhaps even lead to its collapse.

The idea that technology would put too many people out of work goes back at least to the 18th century when the first spinning wheels began to replace looms. Economists quickly realized, however, that economic growth was good for industrial innovation and it became generally held that the increases in profit, coupled with lower prices and increased choices in the marketplace led to a net gain in economic spoils for just about everyone.

The theory went that if a machine was developed to do what a man once did, there would be more jobs created by those increased efficiencies than were lost in the replacement. The price of the good would fall, making it accessible to more people more often. The increased economic activity of the good meant more jobs, plus people would be needed to engineer and build the machines, deliver them, sell them, etc. Wealth created by such advances could be invested into more technologies still and so on and so forth.

For the most part, this has proven true. However, it's important to ask whether the modern economy has also masked some of the challenges. For a century, we enjoyed almost infinite access to cheap energy and hard borders in currencies and the geopolitical world meant that things like prices and wages, and imports and exports were more easily or at least systematically controlled than in today's globalized economy.

There's also the undeniable reality that we've reached a point in technological advance where non-labor-intensive is the new norm. Go into any economic enterprise and it has significantly less employees per dollar earned than ever before. Look at how many self-checkout lanes are popping up in Wal-marts and consider the incredible amount of commerce that is transacted in each store, despite having to employ relatively few people at very low wages. Plants everywhere continue to use more and more robotics to do everything from paint cars and process foods to assemble electronic devices.

 

The increased efficiencies – and a globalized economy that allows companies to increasingly tap cheap third-world labor for the work that does have to be done by a human – have led to more and more technologies becoming affordable to the average person, but they've also led to fewer people sharing in the economic fruits of innovation. Because of technology, human workers are more productive than ever before. But the current system not only fails to allow them to share in the rewards of such productivity, but it creates increased competition between a growing population of workers who are now, at least to some degree, competing not only with technology, but with second and third-world skilled, semi-skilled and unskilled workers to get a piece of that shrinking pie.

 

Consider this: productivity per worker has increased 23 percent in the last 12 years, yet median wages are exactly the same and real unemployment is up significantly. I said this before, but I can't stress it enough – that's bad news for a consumer-based economy in which 70 percent of GDP comes from consumption of goods.

So, where has that growth gone? Well, a full 95 percent of the income gains since 2009 have gone to the top 1 percent of all wage earners and corporate profits have set all-time records in recent years. Banks, for example, have been booking record profits, yet a new report shows that as many as a third of their tellers are on public assistance because their wages are so low. There's no simple way to address this dynamic, but it's clear that the market hasn't been self-correcting. If we don't find a way to develop policies that create a more equitable end game, Joseph Schumpeter's name might become as well-known as Keynes, Hayek and Friedman.

 

Dennis Maley's column appears every Thursday and Sunday in The Bradenton Times. He can be reached at dennis.maley@thebradentontimes.com. Click here to visit his column archive. Click here to go to his bio page. You can also follow Dennis on Facebook.

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