Economics Assignment | Creative Destruction
Added on - 28 May 2020
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Running head: CREATIVE DESTRUCTIONCreative DestructionName of the Student:Name of the University:Author note:
1CREATIVE DESTRUCTIONCreative destruction refers to the ongoing process of innovation where new things andnew systems replace existing things and the existing systems (Archibugi, Filipptti & Frenz,2013). This means it refers to the mechanism of continual process and product innovation bywhich the old and outdated production units are replaced by the new ones. It permeates themajor feature of the structural adjustments, macro-economic performances, and thefunctioning of the markets. With the passage of time, the process of constructive destructionilluminate for over 50% of the total productivity growth (Martin & Scarpetta, 2012). Theobstacles in this process may have a strong both short and long run macro-economicoutcomes.Joseph Schumpeter first coined the term ‘Creative Destruction’ in the year 1942(Sledzik, 2013). He has developed this concept of creative destruction from Karl Marx. Heconsidered it as an essential fact about the capitalism.Schumpeterian creative destructionpervades the major face of the macroeconomic performance (Mitchell, 2013). JosephSchumpeter has used this term for describing the particular form of the economic growth,which the entrepreneurs especially bring towards the capitalist structure. He further arguedthat creative destruction was the introduction of entrepreneur of fundamental innovation inthe capitalist structure, which was real power that has sustained the continuing growth ineconomy; even it has ruined the economic significance of the established enterprises that mayhave relished a level of monopolistic authority earlier. He has described the creativedestruction as a process of total economic growth into the capitalist structure, where theentrepreneur creates economic value through their radical innovations more than it isdestroyed when their innovations replace the already established process of doing the things.However, the primary aspect of the belief of Schumpeter was “The essential point to grasp isthat in dealing with capitalism, we are dealing with an evolutionary process”.
2CREATIVE DESTRUCTIONAccording to this theory, the term leads to eventual failure of the capitalism aseconomic system. The current business uses the term in order to refer it to the unappealingchoices, which is considered important for the sustainability. With the same, the corporateexecutives uses the term ‘creative destruction’ in order to describe the unpopular measures ofcost-cutting like outsourcing and downsizing as the creative destruction. It could be used invarious different areas including product development, corporate governance, economic,marketing and technology (Mazzucato, 2013). For example, in the field of productdevelopment, creative destruction refers to disruptive technology. Smartphone is one of thefrequently cited examples that have killed earlier market for not only the day-to-day cellphones but also the MP3 players, PDAs, calculators, wristwatches, voice recorders andcameras as well. On the other hand, in the field of marketing, the ad campaign is one of theexamples of creative destruction. Ad campaigns targets the new and lucrative markets byrisking the alienation of the existing one.Creative destruction not only permeates the long-run development but also thestructural modification, operation of factor markets and the economic fluctuations (Ogun,2014). At the microeconomic level, creative destruction is typified by several decisions inorder to create as well as destroy the arrangements of productions. The decisions are verycomplex and they involve several parties and that too with technological and strategicconsiderations. Effectiveness of these decisions is not only dependent on the managerialtalents but also depends on the presence of the sound institutions, which provides appropriateframework of transactions. The failure among the dimensions could have severe impact onthe micro-economic level, once it communicates with the restructuring process. Some ofthese constraints are natural since they are derived from the utter complication of suchtransactions. The rest others are human made and their origins are ranged from the eccentriceconomic ideas for achieving higher human objectives like the inviolability of the human