Thursday, November 24, 2005

Some Things are Better When They're Gone: Thoughts on Creative Destruction

I recently purchased all three books of fellow blogger James Lileks that depict the silly and ugly aspects of daily life from a generation ago. They describe the awful cuisine of Post-War America, the hideous home interiors during the 1970s and finally the embarrassingly misguided approach to child-rearing during the 1950s. Besides making me laugh so hard, I realized that many of the products and the companies that made them no longer existed. Lileks infers that such bad products and bad ideas, whether in parenting or interior design deserved a swift end, and that to imagine that these were things were once considered great makes it all funny for contemporary readers.

Still, a closer look at the advertisement of these products makes you realize that their demise affected a lot of people, especially since such elixirs, baby gear, furniture and vats of lard were all made domestically somewhere in Middle America: Rochester, New York; Union, New Jersey; Shreveport, Louisiana; Carlyle, Illinois; Fall River, Massachussetts; Des Moines, Iowa. Once their product proved to be ineffective or unsafe, it’s not difficult to imagine that thousands upon thousands of jobs were lost. These books depict an era in which the American economy was growing quickly, producing a major percentage of all the world’s goods, and experiencing a dramatic rise in the standard of living. It was also a time when manufacturing in foreign countries barely existed, and overseas outsourcing was inconceivable. What an American consumed in daily life was almost always American made, and there was little concern for foreign competition. From that angle, life must have been good for the factory worker in the vibrant consumer-hungry industrial economy that was post-war America.

Lileks’ books, in spite of their humor, teach a profound lesson: Many businesses and the ideas that inspired them were doomed to failure, even in the best of times. What makes us laugh is our acceptance that it was a good thing that these bad ideas and their concurrent products disappeared and that our current choices are thankfully much better. In more fundamental terms, most people believe that good ideas should continue, while bad ones should be laid to rest. Usually the market filters out the real stinkers, with fashion serving as the exception to that rule. If there is any fondness for the seventies, it was with that period’s clashingly absurd fashions. This fondness is based on the same assumption that it was a good thing society was able to transcend such bad taste and return to sensibility and sophistication. Whether such virtues describe our current culture is another subject.

The notion that it’s a good thing that bad things were abandoned in favor of better ones underlies Joseph Schumpeter’s concept of ‘creative destruction’. This is the idea is that a free market economy will always have companies who once dominated a product sector challenged and destroyed by smaller more innovative upstart enterprises. Obsolescence is a feature, not a bug, as it allows for better and more productive methods to create brand new industries while older industries either whither or restructure themselves. Creative destruction explains technological progress, but also the organizational progress of enterprises from the assembly line, to the bureaucratic, and now to the leaner and more flexible companies of today. The name implies the need for loss before gains emerge, and tends to simplify the constant job layoffs and frequent brushes with penury inherent in such a dynamic system. Creative destruction is especially brutal to those who depend on a static world where nothing ever changes, and the future is assured. The multifarious and resourceful thrive in uncertain times, and are often part of the changes that bring the old order down.

I got to thinking about creative destruction with regard to recent events at GM and its Delphi component, in which both are close to bankruptcy thanks to their inability to make a profit from all the obligations they owe to the labor unions. Apparently Detroit’s automotive companies are less about making money and growing than about maintaining a massive private social welfare system. And then I read this article that mentions the success of foreign motor companies that manufacture in the U.S. and I realize that Detroit’s problem isn’t necessarily that they can’t compete in terms of quality and value; it’s that their companies are structured in such an old-fashioned and inefficient way that current market realities will run them to the ground if they don’t substantially reform. In short, GM and Ford need to ‘get with the program’ if they want to survive, and there is no shame in adopting lessons from their foreign rivals. You can believe, as many self-entitled labor union members do, that globalization is inherently unfair, that foreign competitors are cheats, and that it’s more important for America to sustain an ailing business forever. The view is that it’s better to preserve a livelihood for hundreds of thousands of workers than for efficiency and products to actually improve at all. Will Franklin expands on the consequences of this static thinking brilliantly and why we both choose progress over unsustainable job conservation any day.

I own a GM car that has been extremely reliable and offers plenty of wonderful amenities for the price. I hope to continue owning American made cars in the future. But if the companies that make these cars do so only to sustain their workers’ appetite for priviledges rather than to make the best possible products, then I will surely opt for something better, even if it comes from abroad. I have no obligation to maintain such a baroque labor arrangement, and it is my responsibility help rid of the bad so that the good can emerge. Creative destruction may be the cause of a countless number of lost livelihoods, but it is also the cause of an ever-expanding number of people who can participate in the economy in unimaginable ways. If we can all agree that bad ideas in Lileks’ books are better left behind, couldn’t we reason that Detroit is better off shedding what is slowly killing it?

Hat tip: 2 Blowhards, Instapundit

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