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Creative Destruction

Innovation Strategy

Creative Destruction is the silver lining in our tough economic times, some would have us believe. There is nothing like a bit of clearing out the old to make way for innovation and that’s exactly what the recession is doing. Or is it?

Radio 4’s Analysis recently broadcast an overview and update on Creative Destruction. The programme asked whether the closure of high street names is a reason to celebrate, or a smokescreen that makes economic downturn easier to handle.

Presenter Phil Tinline was exploring the idea originally developed by economist Joseph Schumpeter in the 1940s, who believed innovation causes the death of established businesses and leads to new opportunities.

Serial entrepreneur and co-founder of the Institute of Entrepreneurs Luke Johnson explained that the chart on his wall, mapping failed businesses, is a prompt: “I have this chart just to remind me that you need to be reinventing, adapting and constantly innovating to stay alive and relevant”

It is an idea popular with some politicians. Mitt Romney worked it into his US presidential campaign, while British politicians are more circumspect. Philip Dodd, of Made in China UK, says that when destruction is happening anyway, Creative Destruction is a way to make it seem less bad and was used by people “…to comfort them as the earth is shattered and power moves to the East. In my view this is a kind of smokescreen to comfort us in dark times.”

But is it always inevitable? David Edgerton, historian of Technology and Chair of London Centre for the History of Science, Medicine and Technology at Imperial College London, says change is often an addition and not a replacement. The car did not replace ships, trains and planes and the internet is not everything.

Schumpeter had said Capitalism would itself become a victim of Creative Destruction – a prediction which has not yet come true. Tinline reasoned that, like the introduction of the motor car and demise of the horse and cart, whatever comes to replace capitalism is unpredictable. Johnson’s belief that it could in fact be worse now than when Schumpeter devised the term is a shock, whatever happens next.

Johnson says: “The pace of technological change is relentless and what that means is people must think hard about whether the industry they serve will still be around in 30 years and whether actually, like a frog in a kettle that’s gradually getting hotter, they should jump sooner rather than later and the idea that they could King Canute-like, stop the oceans, I think is fantasy.

“I do think this could be even more of a problem now than when Schumpeter wrote the book in the forties.”

Tinline concludes that Creative Destruction should not be damned as destructive or celebrated as creative but should be treated with care ‘as the ambivalent idea it so evidently is’.

Listen to the episode – highly recommended – in full here.

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