macroeconomics, gdp, growthIn 1942, in his book Capitalism, Socialism and Democracy, Joseph Schumpeter described ‘Creative destruction’ as:
…The disruptive process of transformation that accompanies radical innovation. In Schumpeter’s vision of capitalism, innovative entry by entrepreneurs was the force that sustained long-term economic growth, even as it destroyed the value of established companies and laborers that enjoyed some degree of monopoly power derived from previous technological, organizational, regulatory, and economic paradigms.
However, in 2011, in The Great Stagnation, Tyler Cowen detailed the following recent phenomenon [pp. 49-50]:
Most Web activities do not generate jobs and revenue at the rate of past technological breakthroughs. When Ford and General Motors were growing in the early part of the twentieth century, they created millions of jobs and helped build Detroit into a top-tier U.S. city. Today, Facebook creates a lot of voyeuristic pleasure, but the company doesn’t employ many people and hasn’t done much for Palo Alto; a lot of the “work” is performed more or less automatically by the software and servers. You could say that the real work is done by its users, in their spare time and as a form of leisure. Web 2.0 is not filling government coffers or supporting many families… Everyone on the Web has heard of Twitter, but as of Fall 2010, only about three hundred people work there.
In fact, at the time of publication, here were the online industry employment levels of some of the top Web companies:
Cowen makes another important point [pp. 48]:
Much of the value of the internet is experienced at the personal level and so will never show up in the productivity numbers. Buying 2 dollars worth of bananas boosts GDP, but having 20 dollars worth of fun cruising the Web does not… Cruising the Web may even lower GDP on net if instead you would have gone out to buy an ice-cream cone or otherwise spent some money, even if you would have had less fun away from your computer.
My Question:
"Creative-Destruction" cannot be matched to "The Great Stagnation" and current rounds of innovation in some linear / one-to-one way.
The only way you could do so is if one technology or business archetype was directly replaced by another but with fewer employees. For example, the invention of steam-powered electrical production did result in the destruction of the oil and candle-as-lighting industries. If this direct replacement had resulted in fewer steam-engine workers replacing the existing industry then stagnation may have resulted. It didn't. Instead it resulted in a proliferation of new products and services.
In terms of Google, Facebook, et al, what equivalents did they replace? More importantly – small as they may be in terms of individual employees – what new industries have they created? What we've seen is a new innovation (low-cost telecommunications requiring an investment only in virtual infrastructure - i.e. software and hosting) which resulted in a massive diversification of services.
Consider that Google has created the entire search-engine optimisation industry (42 million results). Youtube has created companies which specialise in short-form movie-making (e.g. The Guild). Think of all the blog platforms that have created new publications. Facebook has stimulated a multi-billion dollar social gaming industry. All have created new forms of advertising and creative media. Tens of millions of new jobs have resulted.
Each of these individually may be very small but their cumulative effect has transformed our world economy and social interactions.
Neither are these new technologies directly displacing each other. The coming of Facebook didn't reduce demand for internet search, neither did it have much impact on the declining fortunes of newspapers which were already disrupted by new forms of information interchange.
Schumpeter's Creative Destruction can apply in cases where direct displacement has taken place (e.g. online news and fast publication cycles replaces daily print news) but not in cases where they are entirely new services (like Twitter, which hardly appears to be a replacement for the exponential growth of SMS).
The low barriers to entry and start-up costs have also permitted a diversification to serve fringe interests leading a vast range of tiny businesses serving minority wants.
All these would mitigate against worrying about innovation being a cause of any economic stagnation.
Lurking in the question may be an assumption that GDP is a reliable measure of economic growth. It is not. So something may be good for economic growth, but bad for GDP; or vice-versa. See these related questions:
The economic value of innovation in media strikes me as being rather thorny. Has Facebook contributed to the welfare of the people who use it? Well, for now, we’d have to say that the answer is yes, because people have chosen, and continue to choose, to use it without coercion. But what’s the lost economic productivity of that? (hard to measure), and what might be the future costs of the surrender of privacy involved? (very hard to forecast)
Similarly, with Twitter: a great destroyer of productivity for some office workers; for others, a new communications channel that makes their information-gathering and filtering much more efficient. The first aspect of that, the office idling, is a loss of economic growth; the second aspect, the more efficient information gathering, offers potential additional economic growth. Both aspects are very hard to put meaningful values on, so forecasting the net impact is very difficult.
Cowen's colleague and co-blogger, Alex Tabarrok, suggests in Launching The Innovation Renaissance: A New Path to Bring Smart Ideas to Market Fast that the solution to the great stagnation is more creative destruction, not less. He argues that, if anything, the government and entrenched interests have gotten in the way of the process of creative destruction by, for example, being too permissive in the grating of patents and not allowing enough knowledge workers into the United States.
In short, after reading both Cowen and Tabarrok's e-books, I think you will find the answer to your question is no.
I would say that (in a roundabout way), Cowen’s great stagnation thesis “proves” Schumpeter’s “creative destruction” growth model.
Schumpeter’s model is a LONG TERM construct. “Creative destruction” can cause stagnation in the “intermediate” term by being overly disruptive, and forcing the economy and society to realign itself for new technologies. That’s what happened in the 1930s following the “creative destruction” of the “roaring twenties. More to the point, that’s what’s happening today, following the turn of the century tech boom.
Great Stagnation is an extremely dubious hypothesis. If you look at the entire world, it couldn’t be any further from stagnating, and Creative Destruction is doing quite fine everywhere.
In the West - the only stagnating part - special interests groups have made creative destruction much harder than in let’s say China.
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