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International Trade - Creative Destruction

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Think of some examples of creative destruction. Describe them and discuss their benefits or costs to human welfare.

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Solution Summary

This solution provides examples of creative destruction and describes them and discusses their benefits or costs to human welfare.

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QUESTION AND RESPONSE:

1. Think of some examples of creative destruction. Describe them and discuss their benefits or costs to human welfare.

Creative Destruction is a term coined by Joseph Schumpeter in his work entitled "Capitalism, Socialism and Democracy" (1942) to denote a "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one" (http://www.investopedia.com/terms/c/creativedestruction.asp). By definition, then, creative destruction has both benefits and costs to human welfare e.g., new inventions help the inventor (and his firm and employees) (e.g. benefits to human welfare through economic factors and employment and business productivity), but most often at the cost of the old 'inventor' and inventions and the employees of those firms that might close (and often do) (e.g. costs to human welfare through loss of businesses and loss of employment for the employees of the businesses).

Specifically, creative destruction occurs when something new kills something older. A great example of this is personal computers. The industry, led by Microsoft and Intel, destroyed many mainframe computer companies, but in doing so, entrepreneurs created one of the most important inventions of this century. In fact, Schumpeter goes so far as to say that the "process of creative destruction is the essential fact about capitalism" ...

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