Binit Agrawal

Creative Destruction cannot be stopped or slowed down, it must be embraced with preparedness

“Capitalist reality is first and last a process of change”

– Joseph Schumpeter

“I was on campus last trimester when Jairam sir (photocopier, library) met me. While we usually exchange banter, this time he was pretty sad. He told me how in the last five years, his revenues have come down drastically, to almost half. It was because of greater reliance on ‘camscanner’ by students instead of photocopying, digitization of forms and also because of the preference for soft copies by the current crop. However, he said he still makes decent money due to projects and reading materials. Little did he know about the upcoming softcopy submission of projects and digitization of prescribed reading material, of which he’s the sole contractor. On a policy level, it’s argued that changes rooted in the advancement of technology are great, even though they cause the penumbra of uncertainty for individuals. It gives them a chance to enhance their skills through training and put themselves to more productive and creative uses. It’s beautiful in abstract. But in cases like that of Jairam sir, learning new tricks having owned a photocopy stall for more than a decade would be a black swan moment. I just thought you all should know about the offside of this move which we often miss.”

– Alumnus and former Student Body President, NLSIU

In this post I am going to argue that Creative Destruction cannot be stopped or slowed down, rather, we should find ways for sustainable adaptation to the same.

What is Creative Destruction?

Creative Destruction (CD), according to Schumpeterian economics, is the only constant of capitalism. Every few years there comes a revolutionizing innovation, whether as a product or a process, which makes the incumbents go bust. These incumbents may be companies (does anyone yahoo!, click with a Kodak or answer to the Nokia ringtone anymore) or entire sets of job holders. One of the most ubiquitous professionals of the 20^th century, typists, are rarely found these days. Around 10% of jobs go extinct each year and almost the same number of new ones created.[1] In the S&P 500, the average tenure of a company is 10 years.[2] Thus, creative destruction is a fact which every capitalist must accept. In economics classes, we are made to believe that Price competition is the primary form of competition. That capitalists undercut each other by reducing prices, stealing customers and striking on the competitor’s profits. But in reality, it is not that kind of competition which counts. Rather, what counts is the competition from a new product, a new technology or a new organizational structure. This newness strikes not at the margins of the profits of the existing firms but at their foundations and at their very lives.

The Big Question

CD is understood to be a cyclical process occurring every few years. But the pace of technological improvement as one might realize is compounding in nature. It is becoming faster and faster with each passing day. There are two implications of this: jobs will go extinct sooner and people will have lesser time to adapt in order to be employed. This is further compounded by the stage of technological development we are in. Automation and Artificial Intelligence are at our doorsteps; products of the same revolution the photocopier is a victim of.

This begs the question, is creative destruction unsustainable and destructive?

Is Creative Destruction Unsustainable And Destructive?

No, creative destruction is sustainable and arguments of it leading to joblessness are half-truths. Undoubtedly CD makes many skills redundant. But it creates many new opportunities, albeit, requiring new skills. The consequence is that either we master the new skills or others will master them and replace us. Thus, while it is true that many individuals suffer, there is no way we can stop those sufferings. This is illustrated as below.

The NLSIU Photocopier’s Timeline: An Illustration

1988 – The shop starts. Photocopying limited to class notes, reading material and photocopy of books available in the library. Projects are handwritten.

Late 1990s – Tech revolutions reaches India. Projects can now be written on PC and printed.

2000s – Explosion of e-materials (articles, cases, books, etc.). Students have access to a lot more content now. Thus, instead of being limited to materials in the library, they start printing these earlier inaccessible e-materials.

2010s – Students become comfortable with softcopies. They reduce their rounds to the library printer.

2019 – Jairam Sir (JS) is given a lesson on subscription economy by LSPR. He then starts softcopy services for nominal charges. Notes, reading materials, books are scanned and saved as PDF. Freely available PDF lock technology is used to avoid multiple students from using the same PDF. Now students can buy these readable softcopies, instead of using camscanners.

2020 – JS realizes the brand value of NLSIU. Contracts with professors and students to start selling softcopies of prescribed reading materials and class notes online. Students from other lawschools, professionals, etc. start buying them.

2022 – Student Body lobbies with the administration to digitize the library. JS gets the contract, makes huge gains.

2025 – Now that all the books and journals are digitized, students access them from their rooms. But many still want printed versions for sake of comfort, underlining, etc. To improve business, JS starts taking orders on mail and phone. Prints the required pages and delivers them to the room. Technological advancement also reduces the cost of printing.

Now, given the fact that JS has been given a contract to operate the shop by NLSIU, his capacity to quote a royalty will keep reducing with a decrease in demand for printouts. If JS adapts and clinches the opportunities as illustrated above, he will be able to quote a better price. If he doesn’t, there will be some other photocopier who will do so and win the contract. Hence, the key here is to adapt.

What About AI/Automation/Robots: is it a Destructive Creation?

I shall now deal with the more general question of job destruction due to the introduction of AI. Certainly, hundreds of classes of jobs will be lost to automation. But in turn, many will be created too. The advent of mobiles and computers too extinguished many jobs. Personnel employed as telephone operators, telephone line repairmen, typists, mailmen, etc. lost their jobs. But these jobs were replaced by those in mobile and computer repair shops, call centres, sales services, etc. Similarly, expansion of automated machines will mean a lot of people will be needed to repair these, service them, configure them, train them, etc.

Further, we humans, even if supported by basic income or no income, can’t sit doing nothing. As it will unfold, our workweeks will become shorter and there will be many people having a lot of free time. This will lead them to leisure, education and crime.

• Tourism will grow exponentially (if you think tourism is not big enough, last year there were approximately 1.3 billion international travellers, contributing around 7.6 trillion dollars to the world economy – 10% of the world’s economy).[3] This will cause a huge requirement for hotels, restaurants, guides, artists, artisans. Majority of those earlier unemployed will be absorbed by this sector. Additionally, the increased importance of tourism as a sector of the economy will force the government to clean up the environment. This will create a need for a lot of indigenous people to undertake reforestation and restoration activities. This will emerge as a big rural industry.
• Education too will become a larger industry. People will tend to study more and longer and there will be more people volunteering/working as teachers and professors. This will also create a demand for people in media, movies, literature and the information industry. This will soak in large numbers of educated unemployed.
• There will be a spike in the number of criminals as jobs dry up. This will also increase the need for home forces and the state will have to invest in home affairs. Employment opportunities in police and home forces will, hence, increase.
• If the predictions of the technological transformation are true, then 3D Printing will be a thing very soon. It will give rise to cottage industries as people will start 3D printing objects and selling them. It will also create a demand for designers who can design unique objects and products, which can then be printed and sold.

State’s Role

The transformation painted above, while possible, will not be easy. The state must set the right policies to support this adaptation.

• Investment in education, skill training, tourism, environment, etc. will be a must.
• Furthermore, establishment of sovereign wealth funds will also be imperative. Given that capital, not labour, will be the source of riches, wealth may get concentrated in the hands of few rent-seekers who own the capital (land, factories, machinery, shares of companies, etc.). If the government itself becomes this rent-seeker by buying shares in companies (as those of many rich countries already do), it can redistribute this income amongst its citizenry.
• The government will also have to create entrepreneurship funds and incentivize small businesses. There will be, as stated, opportunities for cottage industries, in tourism, in leisure and in education. These sectors are suited for small businesses and to avoid big businesses to take control over these sectors, small business incentives will be needed. This will also aid in the creation of a more equal society, as small businesses become the primary sources of income as against jobs.
• Additionally, taxation systems will have to be altered. Given people will earn very less, income tax (which taxes labour) might have to be abolished, except for the richer sections. In its place, capital gains tax, robot tax, etc. might have to be instituted (which will tax capital, the primary source of production). Lastly, the intellectual property rights regime will have to be weakened. This will allow people cheaper access to better technologies while curbing rent-seeking.

Conclusion

No one can stop creative destruction from taking place. Such attempts will lead to inefficiencies, backwardness, strikes and fights. If India shuns it, Vietnam will embrace it, Indonesia will and so on. We will anyways lose out in that scenario, plunging our people to doom. Moreover, the promised benefits are too hard to ignore. Better education, healthcare, infrastructure, environment, energy availability, etc. will add to the quality of life. Hence, we must open up to technology, plan out well on how to address the issues and facilitate a restructuring of our economy and society.

[1] https://economics.mit.edu/files/1785

[2] https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/creative-destruction

[3] http://media.unwto.org/press-release/2018-01-15/2017-international-tourism-results-highest-seven-years

Image Source: JobsDB.Com