Innovation and Predation

Abstract

In 1942 Joseph Schumpeter published Capitalism, Socialism and Democracy, a long book now mostly forgotten but with one short and immortal chapter dealing with technical change. In the phrase ‘gales of creative destruction’ Schumpeter called attention to the Janus face of innovation: its capacity to enrich and to destroy. On one side, innovation brings down costs: the supreme achievement of capitalism lay not in making more silk stockings for kings but bringing them within the reach of shop girls in return for steadily decreasing increments of effort. On the other side — facing producers instead of consumers, if you will — innovation is the battering ram that brings all the Chinese walls crashing down. Moreover, since technical change required the power and the resources of larger organizations, it justified the existence and even the conduct of large business firms. What appeared to be monopolistic abuse of power in a static view was transformed into the engine of productivity itself, once viewed in temporal and dynamic perspective.