Explaining Creative Destruction

Leander McCormick-Goodhart provides an overview of the concept of creative destruction

The term “creative destruction” was first coined by Joseph Schumpeter in his book Capitalism, Socialism and Democracy in 1942.

Schumpeter was an economist of the Austrian School which advocated a laissez-faire approach to economic policy and argued that the ephemeral human nature made it unreliable to mathematically model a changing market. Schumpeter argued that long-wave cycles were caused by a step change in technology or a significant innovation. Innovation is a strong source of market power and entrepreneurs can therefore compete with existing firms in an industry, eroding their profits and market share and eventually becoming more powerful than them.

Consequently, “creative destruction” describes the process of industrial transformation, from a competitive to a monopolistic market and then back to a competitive one. We can see the idea of “creative destruction” in action today as CDs are gradually being replaced by MP3 players and digital music downloads.

BMW - Bavarian Monopolist at Work [24 May 2012]
Unit 2 Macro: Evaluation on Supply-Side Policies [21 May 2012]
Unit 3 Micro: Game Theory and Business Economics [21 May 2012]
Unit 2 Macro: The Current Account of the Balance of Payments [20 May 2012]
Unit 2 Macro: Migration and the UK Economy [20 May 2012]
Unit 2 Macro: Positive and Negative Multiplier Effects [20 May 2012]
Unit 2 Macro: The Importance of Productivity [20 May 2012]
Unit 2 Macro: Revision Notes on Supply-side Policies [10 May 2012]
Unit 3 Micro: Innovation in Markets [10 May 2012]
Unit 2 Macro: Model answer for revision data question [9 May 2012]
Unit 2 Macro: Growth and Development Glossary [5 May 2012]
Robert Schiller - Finance and the Good Society [1 May 2012]
Unit 1 Micro: Using the Cost-Benefit Principle [30 Apr 2012]
Tullow Oil and African Development [25 Apr 2012]
Unit 4 Macro: The Euro Zone Crisis (Revision) [22 Apr 2012]
Unit 3 Micro: The Third Industrial Revolution [20 Apr 2012]
Unit 3 Micro: Quiz on Business Costs and Profits [11 Apr 2012]
Unit 3 Micro: Quiz on Market Structures [11 Apr 2012]
Unit 3 Micro: Evaluation Question on Supermarkets [11 Apr 2012]
Unit 3 Micro: Revision on Entry Barriers [10 Apr 2012]
Unit 1 Micro: Market Failure in Private Health Care [8 Apr 2012]
Unit 3 Micro: Revision on Business Objectives and Pricing [8 Apr 2012]
Unit 3 Micro: Revision on Contestable Markets [8 Apr 2012]
Unit 3 Micro: Revision on Monopoly Price and Output [6 Apr 2012]
Unit 3 Micro: Monopoly and Economic Welfare [6 Apr 2012]
Unit 3 Micro: Revision on Scale Economies and MES [5 Apr 2012]
Unit 1 Micro: Revision on Price Elasticity of Supply [5 Apr 2012]
Unit 4 Macro: Productivity Improvements in China [3 Apr 2012]
Unit 1 Micro: Revision on Producer Subsidies [2 Apr 2012]
Unit 3 Micro: Revision on Scale Economies, Technology and Prices [1 Apr 2012]
Unit 1 Micro: Nottingham introduces workplace parking tax [1 Apr 2012]
Unit 1 Micro: Revision on Producer Cartels [31 Mar 2012]
Unit 2 Macro: Revision on Capital Investment [30 Mar 2012]
Unit 3 Micro: EU Imposes Further Price Cap on Mobile Phone Companies [29 Mar 2012]
Beyond the Bike - Gold Digging in Sudan [28 Mar 2012]
Unit 4 Macro: Evaluating 3 Years of Quantitative Easing [27 Mar 2012]
Unit 2 Macro: Policies to Drive Economic Recovery [9 Mar 2012]
Unit 2 Macro: Focus on UK Manufacturing [6 Mar 2012]
Adapt or Die - Lord Bilimoria and the Cobra Story [4 Mar 2012]
Unit 4 Macro: Sovereign Wealth Funds [4 Mar 2012]
Unit 1 Micro: Breaking Down the Cost of Gas [4 Mar 2012]
Unit 3 Micro: Volkswagen targets growth markets [25 Feb 2012]
The Economics of Climate Change - Stern 5 Years On [21 Feb 2012]
Unit 1 Micro: Public Goods [11 Feb 2012]
Unit 1 Micro: The Facebook Floatation [3 Feb 2012]
Unit 4 Macro: Focus on India - Comparative Advantage [27 Jan 2012]
Unit 4 Macro: Focus on India - World’s Cheapest Computer [26 Jan 2012]
Unit 4 Macro: Focus on India - Supply Side Issues [25 Jan 2012]
Unit 1 Micro: Can the UK Computer Games Industry Grow [24 Jan 2012]
Unit 3 Micro: 3D Printing and a Manufacturing Revolution [23 Jan 2012]
Unit 1 Micro: Nano Technology and Energy Efficiency [17 Jan 2012]
Economics at the Movies - Foods that Make Billions [15 Jan 2012]
Using Infographics in the classroom [15 Jan 2012]
Unit 4 Macro: Does Manufacturing Matter? [10 Jan 2012]
Unit 2 Macro: Factors Driving Business Investment [10 Jan 2012]
Unit 4 Macro: Natural Disasters and their Economic Impact [7 Jan 2012]
2012 - Carnage on the High Street [28 Dec 2011]
Unit 3 Micro: Sub Normal Profits - BP Leaves the Solar Industry [21 Dec 2011]
Unit 3 Micro: Oligopoly and Duopoly in Bus Markets [20 Dec 2011]
Unit 2 Macro: Mobile Phones and African Economic Growth [18 Dec 2011]
Unit 4 Macro: The Rise in Self Employment [17 Dec 2011]
Unit 3 Micro: Patent Wars- A Touchy Subject for Apple [16 Dec 2011]
Unit 3 Micro: Hope Bikes - A Commitment to Excellence [30 Nov 2011]
Some Practice Interview Questions [27 Nov 2011]
Unit 3 Micro: Brand Loyalty in Mobile Phones [27 Nov 2011]
Unit 3 Micro: Patent Wars might Stifle Innovation [23 Nov 2011]
MON€Y PANIC$ – A Visualisation Challenge [18 Nov 2011]
Unit 2 Macro: Should the EU introduce a Tobin Tax? [14 Nov 2011]
LSE lecture: Darwin economy [13 Nov 2011]
AS Macro: The State of British Business [13 Nov 2011]
Unit1 Micro: Australia pass Carbon Tax [8 Nov 2011]
Unit 3 Micro: Unilever hit by rising costs [6 Nov 2011]
Unit 4 Macro: Richard Florida on the Great Reset [5 Nov 2011]
Unit 2 Macro: A New £50 comes into circulation [2 Nov 2011]
Unit 1 Micro: Google Maps to Charge for Usage [31 Oct 2011]
Unit 3 Micro: Examples of Price Discrimination in Action [31 Oct 2011]
Unit 3 Micro: UK Executive Pay - All in it Together? [29 Oct 2011]
Unit 1 Micro: Is the Sun Dipping on Solar Subsidies? [27 Oct 2011]
Unit 3 Micro: Ofcom gives stamp of approval for flexible pricing in mail [21 Oct 2011]
Keynes Prize: The Economics of Cities (3) [14 Oct 2011]
Can the “invisible hand” solve Africa’s poverty? [13 Oct 2011]
Keynes Prize: The Economics of Cities (2) [13 Oct 2011]
Keynes Prize: The Economics of Cities (1) [12 Oct 2011]
Why Is Macroeconomics Such A Mess? [11 Oct 2011]
Unit 3 Micro: Contestable Markets - Lucozade takes on Coca Cola [10 Oct 2011]
Unit 1 Micro: Waste Mountains as Above Ground Mining [6 Oct 2011]
Unit 3 Micro: Amazon launches the Kindle Fire [1 Oct 2011]
Unit 3 Micro: Science Cities and External Economies of Scale [29 Sep 2011]
Unit 1 Micro: Exercise on Market Supply [26 Sep 2011]
Another Economics prop - for remembering MC=MR! [15 Sep 2011]
Study Note - Finite Resources and Sustainability [13 Sep 2011]
Unit 2 Macro: Income and Wealth in the UK [12 Sep 2011]
Mixing with the Nobel Economists [4 Sep 2011]
Unit 1 Micro: Cotton Prices and the Retail Price of Clothing [13 Jul 2011]
Unit 1 Micro: Economics of Volatile Corn Prices [12 Jul 2011]
Unit 4 Macro: Dangers of High Inflation [11 Jul 2011]
Unit 3 Micro: Oligopsony - Dairy Losses Drive Farmers from the Fields [10 Jul 2011]
Where there’s muck there’s brass [6 Jul 2011]
China: The End of Cheap Labour [28 Jun 2011]
Two new RSA Videos - Matthew Taylor and Tim Harford [27 Jun 2011]

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