There’s a meme on Facebook and Twitter that asks people to “confess your unpopular opinions.”
I suppose I could play that game by saying that I’d rather eat fast food than patronize most fancy restaurants (especially if I have to pay the bill!). And I’ve unintentionally played that game already by admitting that politicians aren’t always sinister and evil.
But I have something even more astounding to confess: My leftist friends are right when they assert that the free market destroys jobs.
Not only are they right, they probably underestimate the number of jobs that are destroyed by capitalism. Over time, millions of jobs vanish because of the greedy pursuit of profits.
Mark Perry of the American Enterprise Institute shares some very sobering data on how almost all of the big companies of the 1950s have faded over the past 60 years.
Comparing the Fortune 500 companies in 1955 to the Fortune 500 in 2014, there are only 61 companies that appear in both lists. In other words, only 12.2% of the Fortune 500 companies in 1955 were still on the list 59 years later in 2014, and almost 88% of the companies from 1955 have either gone bankrupt, merged, or still exist but have fallen from the top Fortune 500 companies (ranked by total revenues). Most of the companies on the list in 1955 are unrecognizable, forgotten companies today (e.g. Armstrong Rubber, Cone Mills, Hines Lumber, Pacific Vegetable Oil, and Riegel Textile). …That’s a lot of churning and creative destruction, and it’s probably safe to say that almost all of today’s Fortune 500 companies will be replaced by new companies in new industries over the next 59 years.
And why did these companies disappear or shrink in size, thus leading to major job losses?
Mostly because capitalists, seeking profits, invested money in ways that displaced old technologies, hurt old competitors, and made old products less attractive.
Sounds terrible, right? Jobs are lost because of greedy rich people trying to increase their wealth.
And if you’re one of the people in the unemployment line, it is terrible.
But keep in mind that this process of creative destruction led to new technologies, new competitors and new products. And the net effect of all these changes is that – on average – we are much richer.
Mark elaborates.
…for that we should be thankful. The constant turnover in the Fortune 500 is a positive sign of the dynamism and innovation that characterizes a vibrant consumer-oriented market economy… In the end, the creative destruction that results in a constantly changing group of Fortune 500 companies is driven by the endless pursuit of sales and profits that can only come from serving customers with low prices, high quality and great service.
Indeed, this system is what has given us the “hockey stick” of human progress.
All this disruption and change is what enables our society, over time, to grow faster and produce more goods and services and lower prices.
At least when the market is allowed to operate with the right set of policies – what I call the recipe for growth and prosperity.
In my speeches, I sometimes make similar points by using historical examples.
- I ask audiences to think about how personal computers have made our lives more enjoyable and productive, but I then ask them to ponder what happened to the people who had jobs making, selling, and servicing typewriters.
- I ask audiences to think about how the automobile boosted productivity and increased mobility, but I then ask them to consider the lost jobs of people in the horse and buggy industry.
- I ask audiences to think about how electrification and the light bulb improved the economy in countless ways, but I then ask them to speculate on the number of jobs that were destroyed in the candle-making sector.
The sad reality is that progress has a price tag. Yes, we are far richer because of great inventions that boosted productivity and improved lives. But that doesn’t change the fact that real workers with real families often experienced genuine anguish when jobs in some sectors disappeared. And that’s still happening today.
And workers are largely blameless when job losses occur. All they did was exchange honest work for honest pay. It was the capitalists who made mistakes by not managing companies effectively and not allocating capital efficiently (or, to be more charitable, they simply failed to anticipate major changes that were about to occur).
By the way, this isn’t an argument for government intervention. We would be much poorer today if politicians tried to save jobs every time there was creative destruction in the economy. Perhaps most important, every job that they “saved” would be offset by the jobs (and prosperity) that weren’t created or didn’t materialize because the clumsy foot of government replaced the invisible hand of the market.
What Bastiat taught the world in the 1800s is still true today. We have to consider both the seen (the jobs that are saved) and the unseen (the greater number of jobs that don’t get created) when contemplating the impact of government.
This is why I want the economy to be as dynamic and innovative as possible so that displaced workers can find new positions as quickly as possible, hopefully earning even more money.
Here’s a short video from Learn Liberty that teaches about this process of creative destruction.
P.S. There’s also another Learn Liberty video that teaches about creative destruction. I’m a big fan of all their videos, including the ones on the Great Depression, central banking, government spending, and the Drug War. And the videos on myths of capitalism, the miracle of modern prosperity, and the legality of Obamacare also should be shared widely. You also should watch their videos on job creation, the price system, public choice, and the Food and Drug Administration.
[…] Hubbard notes that economic growth requires creative destruction, but also acknowledges that this process causes […]
[…] Hubbard notes that economic growth requires creative destruction, but also acknowledges that this process causes […]
[…] And that’s just a partial list. I’m not asserting that markets produce perfect results. Indeed, markets are a never-ending process of creative destruction. […]
[…] And that’s just a partial list. I’m not asserting that markets produce perfect results. Indeed, markets are a never-ending process of creative destruction. […]
[…] societies far more prosperous in the long run. Moreover, when politicians interfere, they will cause more pain for more people in both the short run and the long […]
[…] societies far more prosperous in the long run. Moreover, when politicians interfere, they will cause more pain for more people in both the short run and the long […]
[…] is what is called “creative destruction.” It’s painful, but it is why we are much richer today than we were in the […]
[…] is what is called “creative destruction.” It’s painful, but it is why we are much richer today than we were in the […]
[…] is what is called “creative destruction.” It’s painful, but it is why we are much richer today than we were in the […]
[…] be more specific, jobs are destroyed because of changes in trade that are caused by innovation. And I cite several […]
[…] Most people say the key feature of capitalism is competition. Hard to argue with that characterization, but I would go one step further and say that it is one of the consequences of competition – “creative destruction” – that best captures why free markets make it possible for entrepreneurs to deliver mass prosperity. […]
[…] is the process of “creative destruction” and we should all recognize that it can be very bad news for people who have careers that are […]
[…] is the process of “creative destruction” and we should all recognize that it can be very bad news for people who have careers that are […]
[…] is the process of “creative destruction” and we should all recognize that it can be very bad news for people who have careers that […]
[…] destruction” is no fun when you’re part of the “destruction” (even if it results in your children and grandchildren living better […]
[…] bad news is that some people lose their jobs as the economy evolves and changes. And some companies go bankrupt. There […]
[…] bad news is that some people lose their jobs as the economy evolves and changes. And some companies go bankrupt. There are real victims and […]
[…] how trade (whether domestic or international) leads to creative destruction, which results in some painful short-run costs but also yields immense long-run […]
[…] easy, as an armchair economist, to argue in favor of creative destruction. As explained in this video, this is why we are far richer than our ancestors. Even if our ancestors worked in the candle […]
[…] propósito, Mark fez esta mesma comparação em 2014 e 2015 e certificou que havia 61 empresas ainda na […]
[…] Politicians don’t see the “unseen” and they don’t understand “creative destruction.” […]
[…] and less costly ways of generating ever-more valuable goods and services. Watch this video and this video for more […]
[…] As is so often the case, it’s a question of the seen versus the unseen. […]
[…] As is so often the case, it’s a question of the seen versus the unseen. […]
[…] Mark did this same exercise in 2014 and 2015 and ascertained that there were 61 companies still remaining on the […]
[…] Mark did this same exercise in 2014 and 2015 and ascertained that there were 61 companies still remaining on the […]
[…] we’ve always had creative destruction. And, yes, it is very disruptive. But it’s also why we’re much richer today that we were in the […]
[…] chapter notes that creative destruction plays a vital role in […]
[…] system generates creative destruction, which sometimes can be painful, but the long-term result is that we are vastly […]
[…] system generates creative destruction, which sometimes can be painful, but the long-term result is that we are vastly […]
[…] system generates creative destruction, which sometimes can be painful, but the long-term result is that we are vastly […]
[…] Unfortunately, I don’t expect that this study will have any sort of impact on the debate. The people who already understand the negative impact of regulation now have more evidence about the value of unfettered markets and creative destruction. […]
[…] system generates creative destruction, which sometimes can be painful, but the long-term result is that we are vastly […]
[…] There has been considerable research on the results of various protectionist policies and the results shared by Mark Perry of the American Enterprise Institute inevitably show substantial economic costs, which means that the jobs that are saved (the “seen“) are more than offset by the jobs that are lost or never created (the “unseen“). […]
[…] There has been considerable research on the results of various protectionist policies and the results shared by Mark Perry of the American Enterprise Institute inevitably show substantial economic costs, which means that the jobs that are saved (the “seen“) are more than offset by the jobs that are lost or never created (the “unseen“). […]
[…] There has been considerable research on the results of various protectionist policies and the results shared by Mark Perry of the American Enterprise Institute inevitably show substantial economic costs, which means that the jobs that are saved (the “seen“) are more than offset by the jobs that are lost or never created (the “unseen“). […]
politijim
The average “working man” does not exist. If someone allows themselves to be so categorized, they are lost.
Every individual is unique in their skills and aspirations. Each person must look at themselves objectively to recognize their marketable skills. If those skills don’t match up with the current market, they must find a way to build new skills or find a different market. Of course the long term answer for most is not becoming a short order cook, but it may be a stepping stone. The tragedy of the current minimum wage debate is that many who have squandered K-12 educational opportunities will be shut out of on-the-job training through lower paying internships and entry level jobs.
Anyone who is motivated to succeed will take the time to identify the skills they need and put in the effort to gain those skills. Those unwilling to make themselves exceptional and diverge from the group will complain about lack of opportunity. I’ve never seen anyone with the reputation for working harder than everyone else lack for opportunity.
Dan, it would be valuable for some kind of layman understanding of historical punishment of the average “working man” negatively impacted by the very regulations trying to “save” his job – and the any parallels (micro or macro) of what happens to the low skilled labor force in an increasingly skilled labor demand.
There needs to be some salient answer to the coal miner/factory worker who was able to adequately raise a family at a job 10+ years ago – who can’t survive on an UBER pay scale. We have 2 generations of minimally educated workers now, that don’t see much hope in the new “innovation” economy when they aren’t skilled in computers or entrepreneurship.
The poorly educated youth (many urban) – need to have a long term answer other than becoming a short order cook. What good are all these wonderful cheap goods for a labor force than can’t afford to purchase them? MIT’s article here: https://www.technologyreview.com/s/515926/how-technology-is-destroying-jobs/
Creative destruction -apart from being a contradiction in terms – is a foul concept. Countless excellent products have been replaced with rubbish. Corporations continue to manufacture unnecessary goods, and then to persuade morons that they want what they do not want. Change is equated with progress. The electronic age has made a mockery of education, thought and a public life.
The “creative destruction” process should really be broken into several categories to really understand what’s going on:
Creation with no destruction – GPS is an example of something created that did not destroy many jobs. Map makers were probably more in demand because of the technology change.
Alternative creation – Digital cameras replaced film. New businesses were created and old businesses destroyed.
Process destruction – Automation will not radically change the product or service, however, many jobs will be lost.
Creative resource reallocation – Manpower and resources will be freed up by the above two. The availability of resources, often at discounted prices, allows entrepreneurs to reallocate those resources in creative ways.
Most new businesses start from this latter category, since established companies continually adapt through process destruction. It is said that new businesses account for most job creation. That is somewhat backward, since new businesses can only begin based on resources available, which would include the investment capital necessary to germinate.
In order to nurture a dynamic economy, provision must be made for people temporarily out of work. It’s important that support not immobilize transition, [like unemployment benefits] but rather encourage it. It is critical that the old model where healthcare and pension arrangements are company based be abandoned in favor of healthcare and pensions that travel with the individual.
On Tuesday, December 20, 2016, International Liberty wrote:
> Dan Mitchell posted: “There’s a meme on Facebook and Twitter that asks > people to “confess your unpopular opinions.” I suppose I could play that > game by saying that I’d rather eat fast food than patronize most fancy > restaurants (especially if I have to pay the bill!). And I'” >