Schumpeter and Innovation

Schumpeter is famous for creative destruction. However, what happens when the destruction is emphasized more than the creativity? What if the creativity is not immediately obvious?

Did anyone know that Velcro would be the next show fastener when it was created? I doubt it. Some discoveries are made by mistake. Most searches for particular answers take you down paths turning out far different than you would have thought. Many prototypes are far different than their mass produced grandchildren.

For these reasons and more the existence of creativity might be hidden, but the existence of destruction is highly visible to those that experience it. For many romantic reasons we think of people that have been doing something a certain way for generations as unimpeachable. However, there is asymmetry toward those that come up with a more efficient and exciting way to do something. Is this because early adopters are just really bad at sharing their enthusiasm over the new products?

In grad school we used to say all the time: "The market loves you," every-time some new consumer surplus was identified. This also manifest itself in Deidre McCloskey's line: "Why are there no folk songs for capitalism?"

Schumpeter's thesis in Capitalism, Socialism, and Democracy can be summarized in the following way: Over time people focus less on the creative and more on the destructive. This suggest something like constant attention paid to the misery that is created by changes over time while the possibilities that are opened up are appreciated at decreasing rates over time. If we plot these, we get a equilibrium where the line crosses the decelerating function of creativity (like the Solow growth model, for those in the know).

This means that unless creativity is actively appreciated, it can be lost in the complaints about how so many are being left out of the advantages of the modern world. Nassau Senior suggested that the luxuries of today become the decencies of tomorrow and the decencies of today become the necessities of tomorrow. This theory suggested that people's expectations change over time about what is necessary. Today's necessities include a color TV, for even the most poor people in the US have this item, considered a luxury 50 years ago. The case for access to medicine is the most striking. Hardly anyone could have heart surgery 50 years ago. Now it is often covered for everyone with health insurance.

What a dramatic change! I think what Schumpeter and Senior teach us is that we need to compose the folk songs for capitalism. Don't be ashamed to sing loudly and proudly about how much the market loves you. If you don't love it back, progress could leave you.