Technological Change Essay: Creative Destruction - A Deep Dive

This essay delves into the concept of creative destruction, examining its core principles and implications within the context of technological change. It explores whether creative destruction is a natural process driven by economic forces or primarily caused by the actions of entrepreneurs. The essay analyzes the viewpoints of various authors, including Schumpeter, and discusses the advantages and disadvantages of creative destruction, such as its impact on job creation and the obsolescence of industries. It provides examples, such as Netflix's disruption of the video rental industry, to illustrate the practical effects of creative destruction. The conclusion synthesizes the evidence to argue that entrepreneurs play a crucial role in driving creative destruction, acting as agents of change and innovation in the economy. The essay also touches upon criticisms of the theory and its relation to economic cycles, ultimately emphasizing the importance of entrepreneurs in fostering economic development and industrial dynamics.

RUNNING HEAD: TECHNOLOGICAL CHANGE
0
Technological Change
Essay
System 0032
[Pick the date]

Technological Change 1
Introduction
Creative destruction is a process that is related to dismantling the old processes that are
followed from a longer time and finding innovative ways to solve a problem or to do older things
with a newer way. Creative destruction is considered as the way to come up with new
technologies by applying various business and economic models. This concept has downsides
and upsides in relation to economic repercussions and technology. Businesses use this concept
for survival and growth in the market and to earn profits most entrepreneurs gain an edge in the
market on the basis of creative destruction (Bowman, 2018). This essay contains all the aspects
and pros and cons of creative destruction and the points that highlights whether it is an automatic
process or natural one or done by entrepreneurs. Further, opinions of different authors are given
in order to support the research and a conclusion is drawn from the evidences whether
entrepreneurs boost up the creative destruction or it is a natural process that could be happen
with time.
Creative Destruction: Natural process or caused by Entrepreneurs
Creative destruction is a process of destroying old technology with the newer one or by
creating more innovative solutions than previous one. Schumpeter described creative destruction
as a process that is essential for capitalism (Cunningham, 2010). This concept according to
different authors leads to various advantages and disadvantages. From the positive side, creative
destruction helps in economic expansion as through that people get more job opportunities and
leads to technological advancement. “This progression resultant in transformation of economies
and improve standard of living”. Just look at the transformation that automobile sector did for
transportation all that helped in job creation and supported the development of steel and oil

Technological Change 2
industry. But on other side, due to creative destruction many industries got affected in negative
way that includes agriculture industry (Tuluce & Yurtkur, 2015).
Caballero (2008) said that creative destruction is a typical concept and is considered as
important aspect of doing business because “as long as we live in a capitalist society,
competition and innovation will force businesses to progress to develop the ideal product or
service” and later this concept will reward those who adapt and plan these innovations and
transformations in business and it will hurt those who will remain constant and stagnant. Further,
“the landscape of business will undeniably change, but how it evolves will be an intriguing
course to behold”.
There are evidences that supported the Schumpeterian view, that “the process of creative
destruction is a major phenomenon at the core of economic growth in market economies”.
Crespo, Hlouskova & Obersteiner (2008) clearly stated that businesses create new ideas and due
to that old things or technology gets outdated and proved that overall creative destruction process
account for 50 percent of productivity growth and further added that around 10 percent of jobs
are created and destroyed in a year because of technological change.
In the words of Noyes & Deligiannidis (2010) on Schumpeterian theory they stated that
entrepreneurs enforce innovation in the society and they are the main sources that implement
new ideas in order to survive in the market. Entrepreneurs are heroic figures with different vision
and actions that enforce new innovations which help in creation of new industries and new
market and resultant in creative destruction.
However, Endres & Woods (2010) argued that creative destruction is harmful for society
and other businesses that are running in the industry. Creative destruction creates hardship and it

Technological Change 3
is a cycle that destroys old orders on a constant basis and creates new orders to do a thing. Due to
that many organizations face problems especially those who are not able to cope up with these
technological advancements and skills for running businesses. Creative destruction is important
for those entrepreneurs who can take advantage of these opportunities or participate actively in
this process of destruction. Let understand this with help of an example, success of Netflix is the
best example of creative destruction. Netflix a startup affected the disc rental and video tape
industry, this industry provided jobs to more than 80,000 employees in 1985 and this was
doubled to 170,000 in 1999.But because of creative destruction by Netflix, employment in disc
rental and video tape industry collapsed from 153,000 jobs that was 93 percent decrease in a
decade and considered as the largest employment decline in the industry. After that Netflix also
destructed the cable network industry, pay TV services and traditional TV networks. This
creative destruction negatively affected the media industry (Perry, 2015). Entrepreneurs are the
key drivers who implement creative destruction and gain advantage from it for longer run.
The entrepreneur is taken as the leader in the process of innovation and it is stated that
innovation is not confined to technical progress or invention rather innovation is termed as the
social function that facilitate economic development. Creative destruction impacted
organizations and some of the entrepreneurs negatively it is sometimes considered as natural
process and in some situation created by entrepreneurs. The issues that get researchers attention
are creation of an organization, generation of new resources, development of an idea, and new
skills or expertise (McGranth & Desai, 2010). McGraw (2007) researched and stated that
“entrepreneurs develop new ideas and innovative products and that innovation makes the old
products obsolete in relation to mechanical aspect”.
“every act of creation is first an act of destruction.” (Picasso, 2011)

Technological Change 4
Businesses or entrepreneurs only find solution for their problems in a different way and
that leads to creative destruction. Further, theory of creative destruction on this point was
criticized and one of them was cause and effects being confused with creative destruction theory.
“Critics argue that causality works in the exact opposite direction”. That means general boom
creates market disruptions and technological changes and out of that some proven to be good for
the economy and others proven to be bad disruptions. At last, “the Technological boom is not the
cause of the business cycles instead it is itself caused by the business cycle” (Peer & Vertinsky,
2008).
Creative destruction is also taken in the positive way as “creative destructions are the
consumer’s best friend, and ultimately the best friend of economic progress and job creation in
the long run”. There are forces that lead to creative destruction in the industries and one of them
forces is destruction of jobs and all this is benefiting the economy (Schubert, 2013). Some
economist argued that economic development and destruction of jobs are parallel to each other
and some said that job destruction in retail sector due to creative destruction is good thing. It is
argued that creative destruction is a natural process also as trend and demand of customers
changes and that forces the entrepreneurs towards developing new products and services that can
satisfy the needs of customer in the best possible way so this force of customer generate
automatically an environment which resultant in implementation of process of creative
destruction (Westeren, 2012).
“Creative destruction describes the process of industrial transformation from a
competitive to a monopolistic market and then back to a competitive one”. According to
Marxist, creative destruction is an inevitable process and necessary for economic development.
The positive impacts that economy faces due to creative destruction are productive use of

Technological Change 5
resources as firms that are unprofitable move their resources and willing to change will generate
more profits and contribute in economic development if that doesn’t happen people were living
according to nineteenth century standard of living (Schumpeter, 2010). Businesses are
developing due to threat of going outdated and this helps the businesses to gain competitive
advantage such as electronic age newspaper companies need to invest in their online presence
otherwise their business will be outdated, these forces are considered as natural forces and due to
that creative destruction boosting in the economy rapidly. Further, creative destruction if
considered as natural process also involve role of entrepreneurs as innovations and ideas are
implemented and organized only by the entrepreneurs. Technological advancement and changes
in some industries proven to be positive for them and due to that many jobs were created and
businesses are running in profitable manner (Selwyn, 2014).
Entrepreneurs are creating most out of creative destruction and this helps in making their
business profitable and gaining competitive advantage. All this is happening because
entrepreneurship is taken as the innovative activity that focuses on developing the best possible
outcome for a problem. Creative destruction is a destructive process and entrepreneurs are
considered as the medium through which this change can be implemented and accepted by the
society and affect the economy in a positive way. Moreover, destructive acts lead to
mismanagement in the economy and society but become the essential and inevitable part of
today’s technological era (Tzonis & Lefaivre, 2016).
Autio, Kenney, Mustar, Siegel & Wright (2014) supported that entrepreneurs promote
and drive innovation and that process of innovation resultant in creative destruction. He believed
that entrepreneurs set the creative destruction process in motion and they are the economic forces
that fed and maintained economic growth. These entrepreneurs also create sophisticated

Technological Change 6
structures of organization and more advance technology and all these contribute in improving
efficiency of production.
Entrepreneurs are the driver of creative destruction and cannot be considered as the
natural process (Skousen, 2015). Technological changes disrupt the industries and many big
players that were the giant in their industries and leading it. This led to ineffective use of
resources as technology get outdated and due to that again resources and capital invested by the
businesses to gain profits and this process of creative destruction become continuous in this
technology changing environment and in a minute many things get outdated and new innovative
products come in that place and then this impact customers and society and then demand and
supply in the economy and one innovation or creative destruction affect the economies, people,
businesses, industries and create a gap in communities. Whether it is done through natural
process or done by entrepreneurs its impact the economy and society in greater way (Galambos,
2011). Hence, entrepreneur central role is the development of economy as they have the ability
to disturb or change the economy status quo through new ideas and innovations. Thus,
entrepreneurs by innovations and creative destruction disturb the economy equilibrium and
promote economic development and industrial dynamics. Further, entrepreneur is the main agent
that ensures change in the economy and destruction is created by the entrepreneurs.

Technological Change 7
Conclusion
Creative destruction refers to the implementation of new ideas that replaces the outdated
ones. Schumpeter highlights the role of entrepreneurs in creative destruction in detailed manner
that is explained above and with that view of different authors on same concept is explained in
the above essay. Further, various authors criticized this theory and stated that creative destruction
is a natural processes and due to various economic forces it takes place. But from all the
evidences and analysis it is concluded that entrepreneurs cause the creative destruction or they
are the drivers of change and the process of destruction is implemented by entrepreneurs for
running and surviving in the market.

Technological Change 8
References
Autio, E., Kenney, M., Mustar, P., Siegel, D., Wright, M. 2014. Entrepreneurial innovation:
The importance of context. Research Policy, 43(7), 1097-1108.
Bowman, A. (2018). Creative destruction. Troubador Publishing Ltd.
Caballero, R. J. (2008). Creative destruction. The New Palgrave Dictionary of Economics:
Volume 1–8, 1203-1207.
Crespo Cuaresma, J., Hlouskova, J., & Obersteiner, M. (2008). Natural disasters as creative
destruction? Evidence from developing countries. Economic Inquiry, 46(2), 214-226.
Cunningham, S. (2010). Joseph A. Schumpeter, Capitalism, socialism, and
democracy. International Journal of Cultural Policy, 16(1), 20-22.
Endres, A. M., & Woods, C. R. (2010). Schumpeter’s ‘conduct model of the dynamic
entrepreneur’: scope and distinctiveness. Journal of Evolutionary Economics, 20(4), 583-
607.
Galambos, L. (2011). A comment on Nathan Rosenberg’s question:“Was Schumpeter a
Marxist?”. Industrial and Corporate Change, 20(4), 1223-1227.
McCraw, T. K. (2007). Prophet of innovation: Joseph Schumpeter and creative destruction.
Boston: Harvard University Press.

Technological Change 9
McGrath, R. G., & Desai, S. (2010). Connecting the Study of Entrepreneurship and Theories
of Capitalist Progress. Handbook of Entrepreneurship Research, (pp. 639-660). New
York: Springer.
Pe'er, A., & Vertinsky, I. (2008). Firm exits as a determinant of new entry: Is there evidence
of local creative destruction?. Journal of Business Venturing, 23(3), 280-306.
Perry, M. J. (2015). The ‘Netflix effect’: an excellent example of ‘creative destruction’.
Retrieved from http://www.aei.org/publication/the-netflix-effect-is-an-excellent-example-
of-creative-destruction/
Picasso, P., Roberts, R., Umland, A., & NY. Museum of Modern Art (New York.
(2011). Picasso-guitars, 1912-1914. Museum of Modern Art.
Schubert, C. (2013). How to evaluate creative destruction: reconstructing Schumpeter’s
approach. Cambridge Journal of Economics, 37(2), 227-250.
Schumpeter, J. A. (2010). Capitalism, socialism and democracy. routledge.
Selwyn, B. (2014). Commodity chains, creative destruction and global inequality: a class
analysis. Journal of Economic Geography, 15(2), 253-274.
Skousen, M. (2015). The making of modern economics: the lives and ideas of great thinkers.
Routledge.
Tülüce, N. S., & Yurtkur, A. K. (2015). Term of strategic entrepreneurship and Schumpeter's
creative destruction theory. Procedia-Social and Behavioral Sciences, 207, 720- 728.

Technological Change 10
Tzonis, A., & Lefaivre, L. (2016). The grid and the pathway. Times of Creative Destruction:
Shaping Buildings and Cities in the late C20th, 123.
Westeren, K. I. (2012). Innovation: from Schumpeter to the knowledge
economy. Foundations of the Knowledge Economy: Innovation, Learning and Clusters,
57-74.