Brooklyn Reinvented Through Creative Destruction

(p. A13) The Wythe Hotel sits in the heart of Williamsburg, a Brooklyn neighborhood directly across the river from Manhattan. Opened to rave reviews in 2012, the hotel offers luxury dining at Reynard restaurant and spectacular city views from the rooftop bar. (Beers: $11.) Not long ago, the Williamsburg waterfront was a postindustrial wilderness, abandoned but for squatting artists; today it’s lined with glass towers and strolling millennials. The Wythe, set in a 1901 factory that once produced barrels for local breweries, features rooms with exposed-brick walls, spare concrete floors and beds made from salvaged wood. The streetscape retains a gritty feel–except at 3 a.m. on a Saturday, when party kids pour out of the nearby nightclubs and limos jostle for curb space with Ubers.
It’s easy to mock such scenes. But the borough’s boom deserves to be taken seriously, argues Kay S. Hymowitz in her engaging book, “The New Brooklyn: What It Takes to Bring a City Back.” Ms. Hymowitz, a fellow at the Manhattan Institute, recounts how “a left-for-dead city”–“a cultural and economic peasant enviously eyeing the seigneur just across the East River”–has reinvented itself in recent decades and emerged as “just about the coolest place on earth.” What, she asks, turned Brooklyn into a global brand?
The history of the borough, according to Ms. Hymowitz, embodies what economist Joseph Schumpeter dubbed the “creative destruction” of capitalism–the continual obliteration of old modes of production by rising industries and new technologies. In colonial times, Dutch and English farmers tamed the lush hills of Long Island’s southwestern tip. Slavery flourished; the indigenous Canarsee people disappeared. In the 19th century, industrial growth annihilated the bucolic past, while immigration reshaped the city’s culture. Factories closed and capital fled in the postwar decades, shattering communities and leaving the built landscape to decay. That destruction, though, cleared the decks for another burst of creative energy–one that has made Brooklyn a model, and a cautionary tale, for the cities of tomorrow.

For the full review, see:

Michael Woodsworth. “BOOKSHELF; Kings County Comeback.” The Wall Street Journal (Thurs., Aug. 17, 2017): A13.

(Note: the online version of the review has the date Aug. 16, 2017.)

The book under review, is:
Hymowitz, Kay S. The New Brooklyn: What It Takes to Bring a City Back. Lanham, Maryland: Rowman & Littlefield Publishers, 2017.

Introvert Was Student of Schumpeter and Hayek

(p. A9) As a boy, David Rockefeller idolized his big brother Nelson, a self-assured bon vivant who didn’t let the family name stand in the way of a good time–and sometimes furtively shot rubber bands at his siblings during the morning prayer periods imposed by their austere father.
David, by contrast, was shy, insecure and often lonely, retreating into his hobby of collecting beetles and reliant on tutors for companionship.
. . .
A family friend advised him that studying economics would dispel the idea that any job he obtained was due to his family’s influence. He took graduate courses at Harvard, including an introduction to economics from Joseph Schumpeter.
He furthered his studies at the London School of Economics, where his tutor was Friedrich von Hayek, a future Nobel laureate. He won a doctorate in economics from the University of Chicago in 1940 after writing a dissertation on overcapacity in industrial plants.

For the full obituary, see:
James R. Hagerty. “Former Chase Leader Overcame Shyness as Child.” The Wall Street Journal (Sat., MARCH 25, 2017): A9.
(Note: ellipsis added.)
(Note: the online version of the obituary has the date MARCH 24, 2017, and has the title “David Rockefeller Overcame Youthful Shyness and Insecurities.”)

Countries Became Prosperous by Studying Drucker (Who Had Studied Schumpeter)

According to the article quoted below, former Cambodian communists are studying the thought of Peter Drucker. Drucker wrote many influential articles and books. My favorite is his article praising his teacher Joseph Schumpeter, written in the year that Schumpeter would have turned 100.

(p. A4) MALAI, Cambodia — For years, Tep Khunnal was the devoted personal secretary of Pol Pot, staying loyal to the charismatic ultracommunist leader even as the Khmer Rouge movement collapsed around them in the late 1990s.

Forced to reinvent himself after Pol Pot’s death, he fled to this outpost on the Thai border and began following a different sort of guru: the Austrian-American management theorist and business consultant Peter Drucker.
“I realized that some other countries, in South America, in Japan, they studied Drucker, and they used Drucker’s ideas and made the countries prosperous,” he said.
The residents of this dusty but bustling town are almost all former Khmer Rouge soldiers or cadres and their families, but they have come to embrace capitalism with almost as much vigor as they once fought to destroy class distinctions, free trade and even money itself.
Mr. Tep Khunnal helped lead the way, as a founder of an agricultural export company and a small microfinance bank for farmers before rising to become the district governor. From that position, he encouraged his constituents to follow suit.
. . .
“We joined the communists, and now we have joined the capitalists, which is much better,” said Dim Sok, a local official.
. . .
Mr. Tep Khunnal, 67, retired from government and business a few years ago and now devotes his time to spreading Drucker’s ideas across the country. He teaches at a university in a neighboring province and is translating the theorist’s work into Khmer. He has even compiled his favorite bits of Drucker’s wisdom into a small handbook.
. . .
He said he began reading about economics while serving as a Khmer Rouge envoy to the United Nations in the 1980s. Although he liked Milton Friedman, the free-market economist, and Frederick Taylor, who pioneered scientific management, he was most drawn to Drucker’s insistence that employees were central to an enterprise’s success.
“What I find interesting for me is that he talks about individuals, he gives power to individuals, not to collectivism,” he said of Drucker. “Frederick Taylor in the early 20th century, he talked about efficiency, but Drucker talked about effectiveness.”

For the full story, see:
JULIA WALLACE. “MALAI JOURNAL; Pol Pot’s Former Followers Become Cadres for Capitalism.” The New York Times (Thurs., MARCH 23, 2017): A4.
(Note: ellipses added.)
(Note: the online version of the story has the date MARCH 22, 2017, and has the title “MALAI JOURNAL; They Smashed Banks for Pol Pot. Now They’re Founding Them.”)

The article by Drucker on Schumpeter, mentioned by me above, is:
Drucker, Peter F. “Modern Prophets: Schumpeter or Keynes?” Forbes (May 23, 1983): 24-28.

Entrepreneurial Consumer J.P. Morgan “Handled Setbacks with Equanimity”

Schumpeter wrote that the entrepreneur is the one who overcomes obstacles to get the job done (1950, p. 132). Obstacles come in many forms. One of them is consumer resistance to change. So one key contributor to the technological progress is the “entrepreneurial consumer” who is willing to invest in new, buggy, possibly dangerous technologies at an early stage. (Paul Nodskov, a student in my spring 2014 Economics of Technology seminar suggested using the phrase “entrepreneurial consumer.”)
Alexis de Tocqueville observed that in contrast to Europeans, Americans were “restless in the midst of their prosperity” (2000 [first published 1835], Ch. 13). Perhaps even that early, America had more entrepreneurial consumers?

(p. 131) Morgan prized being ahead of everyone else, and the next year was concerned that his plant was already less than state of the art, a suspicion that was confirmed when he persuaded Edison to send Edward Johnson to the house for an evaluation. Johnson was instructed to upgrade the equipment and also to devise a way to provide an electric light that would sit on Morgan’s desk in his library. At a time when the very concept of an electrical outlet and detachable electrical appliances had yet to appear, this posed a significant challenge. Johnson’s solution was to run wires beneath the floor to metal plates that were installed in different places beneath the rugs. One of the legs of the desk was equipped with sharp metal prongs, designed to make contact with one of the plates when moved about the room.

In conception, it was clever; in implementation, it fell short of ideal. On the first evening when the light was turned on, there was a flash, followed by a fire that quickly engulfed the desk and spread across the rug before being put out. When Johnson was summoned to the house the next morning, he was shown into the library, where charred debris was piled in a heap. He expected that when Morgan appeared, he would angrily announce that the services of Edison Electric were no longer needed.
(p. 132) “Well?” Morgan stood in the doorway, with Mrs. Morgan standing behind him, signaling Johnson with a finger across her lips not to launch into elaborate explanations. Johnson cast a doleful eye at the disaster in the room and remained silent.
“Well, what are you going to do about it?” Morgan asked. Johnson said the fault was his own and that he would personally reinstall everything, ensuring that it would be done properly.
“All right. See that you do.” Morgan turned and left. The eager purchaser of first-generation technology handled setbacks with equanimity. “I hope that the Edison Company appreciates the value of my house as an experimental station,” he would later say. A new installation with second-generation equipment worked well, and Morgan held a reception for four hundred guests to show off his electric lights. The event led some guests to place their own orders for similar installations. Morgan also donated entire systems to St. George’s Church and to a private school, dispatching Johnson to oversee the installation as a surprise to the headmistress. The family biographer compared Morgan’s gifts of electrical power plants to his sending friends baskets of choice fruit.

Source:
Stross, Randall E. The Wizard of Menlo Park: How Thomas Alva Edison Invented the Modern World. New York: Crown Publishers, 2007.

Schumpeter’s book is:
Schumpeter, Joseph A. Capitalism, Socialism and Democracy. 3rd ed. New York: Harper and Row, 1950.

The other book I mention, is:
de Tocqueville, Alexis. Democracy in America. Chicago: University of Chicago Press, 2000 [first published in two volumes in 1835 and 1840].

Strategic Conversations: Vital to Creative Adaptation or Reinforcers of Lazy Consensus?

MomentsOfImpactBK2014-04-24.jpg

Source of book image: online version of the WSJ review quoted and cited below.

(p. A15) “Moments of Impact” is at its best on the importance of promoting different perspectives. Businesses need to look at the world through as many disciplinary lenses as possible if they are to cope with the fast-changing threats that confront them. But day-to-day corporate life is all about fences and silos. Strategic conversations give companies a chance to examine their business models from the outside–and, as the authors put it, to “imagine operating within several different yet plausible environments.”
. . .
Mr. Ertel and Ms. Solomon argue that companies increasingly face a choice between what Joseph Schumpeter called creative destruction and what they call creative adaptation–and that strategic conversations are vital to creative adaptation. Perhaps so. But strategic conversations can also reinforce lazy consensus, as people try to justify their jobs and protect their turf. Many bold decisions are driven by the opposite of “conversations”–by senior managers deciding to lop-off functions or take the company in a radically new direction.

For the full review, see:
ADRIAN WOOLDRIDGE. “BOOKSHELF; Go Ahead, Strategize; The best ‘strategy meetings’ unleash fresh thinking and offer maverick views; the worst and dull, unstructured time-sucks.” The Wall Street Journal (Thurs., March 27, 2014): A15.
(Note: ellipsis added.)
(Note: the online version of the review has the date March 26, 2014, and has the title “BOOKSHELF; Book Review: ‘Moments of Impact,’ by Chris Ertel and Lisa Kay Solomon; The best ‘strategy meetings’ unleash fresh thinking and offer maverick views; the worst and dull, unstructured time-sucks.”)

The book under review is:
Ertel, Chris, and Lisa Kay Solomon. Moments of Impact: How to Design Strategic Conversations That Accelerate Change. New York: Simon & Schuster, 2014.

Business Cycles May Arise from “the Summation of Random Causes,” Rather than from Creative Destruction

The Slutsky result summarized below would seem to imply that you can explain business cycles without fingering creative destruction as the culprit, as Schumpeter had seemed to do. The costs of creative destruction are thus reduced, and the case for creative destruction strengthened.

(p. 232) Phil Davies and Joe Mahon investigate “The Meaning of Slutsky.” “A middleaged professor working at a Moscow think tank, [Eugen] Slutsky was virtually unknown to economists in Europe and the United States when he published his landmark paper on cyclical phenomena in 1927. In a bold statistical experiment, Slutsky demonstrated that random numbers subjected to statistical calculations similar to those used to reveal trends in economic time-series formed wavelike patterns indistinguishable from business cycles. The implication was that a similar stochastic process–‘the summation of random causes,’ as Slutsky described it–might be at work in the actual economy, causing prosperity to ebb and flow without the agency of sunspots, meteorological patterns or other cyclical forces. ‘That was a hell of an idea,’ said Robert Lucas, a University of Chicago economist who pioneered modern business cycle theory, in an interview. ‘It was just a huge jump from what anyone had done.’

Source:
Taylor, Timothy. “Recommendations for Further Reading.” Journal of Economic Perspectives 24, no. 2 (Spring 2010): 227-34.
(Note: bracketed name in original.)

The published version of the article summarized by Taylor is:
Davies, Phil, and Joe Mahon. “The Meaning of Slutsky.” The Region (Dec. 2009): 13-17, 42-46.

The Kairos of Creative Destruction in Medicine

Wikipedia tells us that “Kairos” “is an ancient Greek word meaning the right or opportune moment (the supreme moment).”

(p. x) With a medical profession that is particularly incapable of making a transition to practicing individualized medicine, despite a new array of powerful tools, isn’t it time for consumers to drive this capability? The median of human beings is not the message. The revolution in technology that is based on the primacy of individuals mandates a revolution by consumers in order for new medicine to take hold.

Now you’ve probably thought “creative destruction” is a pretty harsh term to apply to medicine. But we desperately need medicine to he Schumpetered, to be radically transformed. We need the digital world to invade (p. xi) the medical cocoon and to exploit the newfound and exciting technological capabilities of digitizing human beings. Some will consider this to be a unique, opportune moment in medicine, a veritable once-in-a-lifetime Kairos.
This book is intended to arm consumers to move us forward.

Source:
Topol, Eric. The Creative Destruction of Medicine: How the Digital Revolution Will Create Better Health Care. New York: Basic Books, 2012.
(Note: italics in original.)