create and destroy: the key to successful capitalism

“You see, freedom has a way of destroying things.”
Scott Westerfeld

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“the way to create art is to burn and destroy
ordinary concepts and to substitute them
with new truths that run down from the top of the head
and out of the heart”

Charles Bukowski

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One of capitalism’s superpowers is the ability to destroy itself over and over again. This means that stagnancy is its kryptonite. It is a form or method of economic change and never can be stationary. The truth is capitalism is an evolutionary change agent should it be permitted to be so (I will return to this point). I say this because so many people talk about capitalism as a ‘state’ yet that ‘state’ is ever changing in a blink of an eye. To describe a capitalistic society is simply to describe it in a point of time (and in the past). This evolutionary characteristic is not just due to economic/business but also changing social/societal environments which as it changes alters the arc of economic action. In fact, I could argue that the social condition is more important to capitalism than any industrial/business change. The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers, goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates. This implies a large amount of qualitative change in order to beget the quantitative economic/industrial change. I would be remiss if I didn’t point out that globalization is an inherently social activity from which economic activity emerges.  In other words, capitalism revolutionizes the economic structure from within destroying what exists to create something, and things, new. Schumpeter called this (in different words) Creative Destruction.

Which leads me back to “permitted.”

Every industry, every business and its strategy, is dependent upon both destruction and construction. Those who exist already maniacally create constructs in which their survival is guaranteed, i.e., they cannot be destroyed. Those who want to create are constantly seeking out opportunities to destroy what exists. I begin there to say “what is permitted”, for both aspects, dictates the success and thrivability of capitalism. The entire modus operandi of competition is actually dictated by what is permitted. Free market advocates suggest that some ‘invisible hand’ will dictate fair price competition and fair economic competition. The problem is that the competition from the new commodity, the new technology, the new source of supply, the new type of organization, the competition which commands a decisive cost or quality advantage and which doesn’t just attack the profit margins and outputs of the existing firms, but at their foundations and survival, is negated when existing ‘rules’ permit existing businesses to monopolize or have some unfair ‘scale’ advantage which doesn’t permit ‘new’ competition to gain a competitive foothold. I would be remiss if I didn’t point out this is why government subsidies to innovative industries and businesses are so crucial (but that’s a post for another day). But my point here is that if we permit monopolies or oligopolies than there is no destroy and the create is incremental at best. By the way, ‘permit’ has a social function as well as a governmental/administrative function. Rules, regulations and laws by the administrative state can certainly outline what is permitted and what is not, but the public – the social contract with the economy – also has a role in what is permitted. What I mean by that is (a) people need to become just a bit smarter about the negative aspects of monopolies and oligopolies and (b) people need to better understand short term ‘pain’ with the destroying part of capitalism for the longer term gain.**

• ** note: my prime example of this was the break up of the Bell telephone company. The first 5ish years after Bell was “destroyed” were miserable as a consumer, but it led to smartphones and cellular coverage and, well, a significantly better telecommunications world.

Anyway. I imagine my larger point here is that what we are permitting in the business world today is not capitalism nor certainly how we envision the best of capitalism to work. I, personally, believe we have to actively destroy some of the things we are permitting so that capitalism can create some of the innovations and inventions and, well, better things I envision capitalism is quite capable of creating. Ponder.