How We Create the Wealth of Nations
Chapter 14: Summary of Part II
This chapter summarises what we have learned in Part II about the destructive side of business innovation. It is offered as a brief summary for the convenience of those who feel they cannot see the wood for the trees. We have studied seven case studies of business innovation and have focussed on the destructive side of these innovations. This focus does not imply that there is no creative side, nor that the destructive side will generally dominate the creative side. We simply adopt this focus on the destructive side because, despite our familiarity with Schumpeter’s concept of creative destruction, the destructive side is most often ignored in the study of innovation. Figure 14.1 summarises what we have found. For each case, it indicates where the negative or destructive effects are to be found. The most obvious destructive effect is the way that innovation by one company can undermine the sales, the market share or the profitability of other businesses. Put like that, it is perhaps seen as one of the least dysfunctional side-effects – and indeed, some would say it is no more dysfunctional than the evolutionary principle of ‘survival of the fittest’. However, in some cases, that may mask the true hardship implied by this aspect of creative destruction. In some cases, the destructive effects were substantial. Small-scale weavers suffered severely from the advent of the wide frame. Many local booksellers were driven out of business by online book-selling. The concentration of beer production drove many small brewers out of business. And we argued that high frequency trading is little more than ‘robbing Peter to pay Paul’. Moreover, high frequency traders do nothing for corporate governance, and the survival of good corporate governance depends on the dedicated long-term shareholder – a dying breed.
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