The Innovating Era: Creative Destruction or Destructive Creation?

We have been entering some perilous times recently and I can’t imagine when Joseph Schumpeter outlined his groundbreaking efforts for explaining “creative destruction” he or anyone else, could imagine this being flipped around to what we are facing more today, in a more innovative era, that of “destructive creation”.

Schumpeter saw “creative destruction” as the renewing, through new innovation, society’s dynamics that would lead to higher levels of economic development and welfare.

At the same time recognizing that this destroyed a few of the incumbents to the benefit of many more newcomers and increasing value creation for broader society.

Today it seems we are caught in the reverse of this- the process of “destructive creation”- where it benefits a few rather than the many. This sets out often to destroy or greatly diminish the usage value of existing products and services before it is optimal to actually do so, and in the process incurring often significant costs not taken into account at the time.

These unforeseen issues have consequences that negatively affect parts of society not foreseen or contemplated at the time.
The shift has placed the emphasis on the role of destruction rather than creation in driving innovation activity. This is getting uncomfortable, innovation then becomes not so good for you perhaps? This is becoming the game for a few to make money, to corner markets, to dominate and wanting to achieve monopolistic positions and not so worried over the wealth creation aspects of creating jobs, building communities, cherishing certain values.

We need to be on guard in understanding the fundamentals within innovation as it should advance for the good of society, not be actually working to its detriment.

Actually who is benefiting from the distribution of new wealth? The developed world is seeking desperately ways to regain growth but it needs to be more equitable, not in the hands of a few that determine our choices but increasingly seem unaccountable for their actions.

Firstly a couple of examples of “creative destruction”

A really good one was the arrival of the personal computer, the economy significantly profited without significant economic upheaval. It raised productivity and ushered in significant value for many.  The typewriter of course quickly became obsolete for this “creative destruction” and certainly the organizations investing in this lost out.

Another one has been the general advancement of technology. For example within the telecom sector where we were able to benefit from massive increases in managing data, calls and volumes around the world to connect us all up into a global economy.

Old switchboards, chunky mainframes and old communicating technology were thrown out and this advancement in technology allowed the scarce resource of people to be employed differently and more productively.

Technology has provided huge advancements but it also has its downsides.

The problem both of these examples have though is they are technology lead. Technology has been racing ahead. With the active encouragement of “policy innovation” and its stimulus, we have been building more complexity as technology became more powerful. Complexity is everywhere.

You add in scientific advances it has been a powerful combination effect of promoting social change- often radical social change. All positive, or has it been?

Today, we are dependent on complex technological systems to manage much, often incomprehensible to most if not all of us. Let me give you a couple of examples of the growing downsides we are seeing.

Let me provide some examples of “destructive creation”

Derivatives- that dirty word that we have been struggling with over the past few years, that has been causing much within our current global downturn.

At its heart was a system no one quite understood that created mortgage leverages, financial convertibles and it was in this proliferation of complexity and uncertainly these highly leveraged investments had become totally incoherent to us.

The “destructive creation” part then kicks in often in unexpected ways with tragic consequences for many in lost jobs, lost homes, lost lives and lost investment money for  many, while a few made massive gains.

Asia was another example; its lightening speed in its growth had lead to a recent financial crisis simply triggered by capital account converting that shifting into a myriad of different financial instruments. The downside of that had not been anticipated in policy intervention and we had a significant scale of financial destruction that was not creative but destructive in its effect to the economies for some time.

Again many people lost out, for some, recovery from this effect never occurred -it changed their lives, often to start again.

Although we are told there are sound risk models in place to assess and antiscipate, we certainly can’t look upon the promise from these with the same naivety in the future after a number of recent events. Much seems unpredictable in hidden consequences.

But I would ask “have we lost the plot a little here”, perhaps we can’t really predict and control anymore, when the complexities we have built still continue and add even more layers. We need to accept more ‘destructive creation’ will occur.

The destructive effects presently going on in Europe

Let’s take Greece and its ‘melt down’ of the past twelve months. Could we have predicted the massive social unrest and serious economic decline in the approaches taken by the parties responsible for managing an orderly recovery?

How many times are we hearing “structural adjustment” to cover massive upheaval and watching a civil collapse happening on front of our eyes. Thousands of previously healthy businesses in Greece are being starved of finances, of demand and caught up in such social upheaval.

This is destructive creation for the many who have got caught up in the ‘collective adjustment’ applied.

How will the Euro shake out in the coming months when our leaders just seem unable to get their heads around its complexity? This is a proliferation of complexity fuelling uncertainty.

Is this because we have been great inventors and innovators or poor at working through all the consequences as analytics alone can’t explain these things in coherent ways, we just watch “destructive forces” being applied in the name of social and structural adjustment sweep away whole swaths of creative good as well.

The pursuit of growth and wealth is fine but are we balancing the conflicting values, consequences and upheavals well enough in the equation, otherwise it tips from this “creative destruction” over into “destructive creation” and that is not a healthy place for innovation to be.

The obsession with innovation- myself included!
Presently our Governments are obsessed with innovation- it sometimes feels it is the only game in town for future growth. Let’s just keep adding novelty and ever increasing value to get our economies going seems to be the mantra.

The problem is we seem to be destroying more than we can build at present, yet a ‘few’ gain from these seeds of “destructive creation” while a majority don’t. We need to flip this back to “creative destruction”.

How much of a society cost are we prepared to pay? Should all this be laid at the door of innovation? We need to inquire about, to explain and understand these forces, both the positive and negative far more.

You can get to a certain point where you hit innovation saturation and we will begin to reject it unless we see its value invested within our community, not in others far away.

The replacement rate is speeding up

The other part of “destructive creation” is the attention we are all paying to the replacement rate. The way we discard our mobile phones, cars, household goods and creative increasing ‘toxic’ waste has its destructive creation part. These were foreseen, even have been actively encouraged to promote our economic well being but are they?

I know Steve Jobs and what he built at Apple is regarded as a beacon of success but there is a darker side to this. High rates of innovation, often not truly needed, can be disruptive to the larger society as a whole.

A few jobs, many outsourced into low cost environments is leading to a jobless growth in the rest of the industry, it is destroying the usage value (useful life left) of existing products to the benefit of the few, rather than the many.

Some might call this a “shutdown game” establishing conditions that negatively affect values of other products, or is that still called offensive marketing, knowing exactly what the customer needs? I’m not 100% convinced.

Shareholder value is our focus point but what about the shut downs, those old, empty, rusty building that seem to be increasing not decreasing. We are faced more with de-industrialization issues than seeing re-industrialization coming from the present ‘destruction’ forces unleashed upon us all today.

What is the cost of disruption and destruction of whole communities in social costs, in our investments for the future when we can’t ‘feel’ or see the benefits of “creative destruction” emerging?

There are many industries that start out thinking they are on the path to “creative destruction” but somewhere along the road got flipped into “destructive creation”. Often this was not the intended path but it became the consequence. Adding more just reinforced the greater destruction leaving it less creative, except in pockets of expertise.

Pressures suddenly built. Competition fell away, they went into troughs of uninspiring innovation for some time. Consumer software upgrades come to mind here, killing off perfectly good software to force us into upgrading but actually pushing us to search for alternatives, killing off useful gained knowledge and continued utility. Where is the cross over point in “creative” and “destruction”?

The quicker we adapt, the sharper we suffer declines somewhere else- technological choices and social consequences- new gadgets vs. decline in privacy for example. Yet the total industry consequence of one party dominating in “destructive creation” is only seen that much later on when the total decline cannot be stopped.

It is often not one parties fault unless they are deliberate in their design but we are losing the ability to understand all the consequences of decisions, with unforeseen knock-on consequences .

For instance, if our banks don’t change as society is perceiving they should, and the policy makers seem unable to work through the complexity of this level of change, then society has two choices: remain with the present system where a few seem to gain over the majority, or seek out a change in the financial lending system so society again puts back “creative” at the front of “destruction” to benefit the broader community.

Let’s be honest, the banking industry has not been so innovative in many ways, besides enhancing wealth creation by the use of financial instruments or just to constantly sustain the existing ‘world order’. Will an alternative to our existing financial system evolve and or disrupt, but at what destructive cost?

Disconnects are all around.

There is, when you look around, a lot of seemingly partial and disconnected aspects to our advancement. Where are we in our debates on climate change, stem cell research, toxic chemicals, landfills and plenty more.

How will we manage the feeding of the world in years to come? How will we manage the old and sick. How will society re-integrate growing groups who are getting disenfranchised? All of these can be destructive or built on constructive ways that ‘create’ orderly change. Yet, they seem bogged down in complexity, and opposing forces and we are not breaking through these in new order ways. We somehow must.

There are always it seems contesting sides and consistent daily arguments from all sides in complex arguments about how the world would work and why their solution provides the answer. The problem is we simply don’t know. We seem to be losing comprehension of the bigger picture. I’m not sure when you try to describe the big picture it really is so coherent and that is one of our big problems.

Issues are just far too complex.

We are facing more uncertainly and incoherence than ever. Should we call a moratorium on innovation or is it just invention? Can we afford too?

It is interesting observation, we do seem to have moved back to enjoy narratives, myths and cult stories more than in the past, is that a yearning for something from the past in our  lives where one person tells a story that just made sense as it seemed full of wisdom and real good for many?

I think we, as humans, have been reduced down and until we can regain mastery over the complex, needing a structural and societal adjustment or we otherwise will continue to suffer the consequences of “destructive creation.”

I think we might start yearning for the good old days of just “creative destruction.” Is technology leading and we are lagging? Can we regain control?

So some commentators have suggested that we have to reawaken our imaginations and really think deeply about our values. Then innovation can perhaps return to being context-specific working in positive enhancing ways to improve society as a whole and not be used for a selected few.

All I hope is it will let us ensure we put the emphasis back far more on the “creative” innovation part and not the ‘destructive’ nature we have been moving towards recently.

Certainly inspired and some points are drawn from the paper “Destructive Creation and the New World Order” by Paul Harris & Daniel Sarewitz