If Only Caroline Had Read Schumpeter

Innovation is sometimes slowed because innovators do not know that creative destruction will replace old jobs with equally good, or better, new jobs:

In 1834 Walter Hunt of New York City made such a leap in lateral thinking. In his little machine shop down a narrow alley in Abingdon Square, he devised a machine for stitching cloth with two threads from two separate sources, one a needle on a vibrating arm and the other a transverse shuttle fed by an unwinding bobbin.
. . .
Hunt, an altruistic Quaker, never pursued his invention because his 15-year-old daughter, Caroline, recoiled from the thought that it would put seamstresses out of work. (p. 87)

Source:
Evans, Harold. They Made America: Two Centuries of Innovators from the Steam Engine to the Search Engine. New York: Little, Brown and Co., 2004.
(Note: ellipsis added.)

When People Change


(p. 462) People don’t change when you tell them they should. They change when they tell themselves they must. Or as Johns Hopkins foreign affairs professor Michael Mandelbaum puts it, “People don’t change when you tell them there is a better option. They change when they conclude that they have no other option.”



Source:
Friedman, Thomas L. The World Is Flat: A Brief History of the Twenty-First Century. New York: Farrar, Straus and Giroux, 2005.


Thomas Friedman’s claim here is plausible, but I find it surprising, given his strong push for a worker safety net when the worker loses a job to creative destruction. The safety net Friedman proposes, in this book anyway, is one that does incorporate some incentives to find a job, but sounds like it could be ‘gamed’ to delay the tough decisions that might need to be made. Hayek had some useful observations on this issue way back in his Road to Serfdom.

Taiwan: “Barren Rock in a Typhoon-Laden Sea”

(p. 262) The ideal country in a flat world is the one with no natural resources, because countries with no natural resources tend to dig deep inside themselves. They try to tap the energy, entrepreneurship, creativity, and intelligence of their own people–men and women–rather than drill (p. 263) an oil well. Taiwan is a barren rock in a typhoon-laden sea, with virtually no natural resources–nothing but the energy, ambition, and talent of its own people–and today it has the third-largest financial reserves in the world.

Source:
Friedman, Thomas L. The World Is Flat: A Brief History of the Twenty-First Century. New York: Farrar, Straus and Giroux, 2005.
(Note: italics in original.)

Software Industry Exemplifies Creative Destruction

(p. 4)  In our view, Microsoft’s dominant share in operating systems evolved legitimately from a free-market competitive process. The PC software industry was legally open and contained many talented players (Sun, Netscape, Novell, Oracle, Apple, IBM), some larger than Microsoft, some smaller. The market process in this industry has always been characterized by intense innovation, rapid growth, sharply falling prices, and bitter rivalry (and occasional cooperation) between rivals. The industry exemplifies Austrian economist Joseph Schumpeter’s vision of competition as a process of creative destruction. Microsoft achieved its market position by aggressively innovating and promoting an open, standardized operating system platform . . . 

 

Source: 

Armentano, Dominick T. Antitrust: The Case for Repeal. 2nd ed: Mises, 1999.

 

The Impossible Dream?

In Locked in the Cabinet, Robert Reich’s amusing allegory about life in Washington, Reich laments that the Democratic Party — and in particular the labor constituents in the party — did not support his vision of education and training as a means of enabling the labor force to adapt to and flourish in a time of rapid economic change and dislocation. Instead, they constituted what Reich called the "Save the Jobs Party," which wanted to preserve the industry, the companies and the jobs that exist today.

I think there is a similar phenomenon in antitrust. Antitrust is about process, and a particularly arduous one at that. We are proud that antitrust "protects competition, not competitors". We say that the market has winners and losers and that that is good.

Unfortunately, process is less attractive, in the concrete world in which real disputes arise and real grievances are formed, than is a comforting end-state. And political actors, I fear, are generally more zealous in guarding the latter than in seeking the former.

So, I can imagine constituents and lobbyists and public interest groups demanding the intervention of antitrust authorities to prevent the BA/NYNEX merger, to open up Korea for more car exports, or to restrict the imports of Japanese television sets into the United States. And I can imagine constituents urging that competition authorities in the EC should leave the Boeing/McDonnell Douglas merger alone or that the antitrust agencies here should stop meddling with hospital mergers in Michigan. But it’s hard to imagine tens of thousands of people gathered on the Mall, carrying placards with pictures of Joseph Schumpeter, and demanding that the government give them more "creative destruction."

 

Source:

A. DOUGLAS MELAMED. "International Antitrust in an Age of International Deregulation." Address Before George Mason Law Review Symposium: Antitrust in the Global Economy, Washington, D.C., October 10, 1997.

(Note: At the time, Melamed was Principal Deputy Assistant Attorney General, Antitrust Division, U.S. Department of Justice. Bold emphasis was added by Diamond.)

 

The Abuse of Power

FateOfAfricaBK.jpg
From a review of a promising book:

Most African countries have been atrociously governed in the past half-century. A lack of institutional checks has allowed an array of incompetent strongmen to rule as they pleased until the money ran out, at which point northern donors often tossed them an extra bundle of cash.
. . .
Kwame Nkrumah, for example, is widely revered. The founding father of independent Ghana, he was also an eloquent advocate of a united Africa. Africans tend to recall him as a man of great personal integrity who strove mightily to drag his country into the industrial age. Mr. Meredith lays out the facts. Nkrumah paid for his grand (and uniformly loss-making) industrial projects by squeezing money out of Ghana’s poorest citizens, the peasants, and by borrowing recklessly. He was utterly clueless about money. When his finance minister told him in 1963 that the national reserves were less than $1.4 million, he “sat in silence for fifteen minutes, then broke down and wept.”
He not only wrecked the Ghanaian economy; he also snuffed out such political freedoms as the country had enjoyed at independence. He had a law passed in 1958 allowing him to jail anyone suspected of subversive intentions. Twelve parliamentarians objected, on the ground that such a power was sure to be abused. Eleven of them were jailed, which rather proved their point.

ROBERT GUEST. “So Badly Misled.” The Wall Street Journal (Weds., August 31, 2005): D10. (A review of: Meredith, Martin. The Fate of Africa. PublicAffairs, 2005.)

The Creative Destruction of New York City

. . . the eyes of the city are focused firmly on its future, not on its history, and as a result, it subscribes to what the economist Joseph Schumpeter has called “creative destruction.” New York is constantly remaking and reinventing itself, both in its physical structures and in its population.

From the preface of:
Kenneth Jackson and David Dunbar. Empire City: New York Through the Centuries. New York: Columbia University Press, 2002.
(Note: ellipsis added.)