Through creative destruction, old technology & businesses are destroyed.

Software’s Creative Destruction

Jun 6, 2014 • Businesses, Demand, Supply, and Markets, Economic Growth, Economic History, Economic Thinkers, Innovation, Labor, Tech • 213 Views    No Comments

During 1989, a computer scientist wrote a memo in which he explained how information could be shared through a computer network. Two years later we had the first web pages and by 1998, one quarter of the US population was using them.

Just 9 years.

By contrast, for one-quarter of the US population to use electricity, it took 46 years. For the telephone, it was somewhat faster and, as you can see below, we seem to be adopting new technology ever more speedily.

Creative destruction from new technology

From: The Economist

Thinking about the impact of the web, I wanted to share some of what I have heard from venture capitalist, Mosaic co-creator and Netscape co-founder Marc Andreessen. Saying that it will take 10 years for software companies to take over “large swathes of the economy,” he explains, “…six decades into the computer revolution, four decades since the invention of the microprocessor, and two decades into the rise of the modern Internet, all of the technology required to transform industries through software finally works…”

His examples? Amazon and the destruction of Borders, Netflix and the “evisceration” of Blockbuster, Apple’s iTunes and the demise of traditional record companies, Flickr and the disappearance of Kodak.

Our bottom line? In Capitalism, Socialism, and Democracy (1942), economist Joseph Schumpeter (1883-1950) conveyed how entrepreneurs propelled capitalism through creative destruction. Yes, new ideas destroy the status quo but also they fuel economic growth.

Nowadays, aren’t we all a part of the creative destruction process? Please let us know in a comment.

Sources and more...Pew Research and The Economist (gated) looked at the accelerating pace of technology generally but for a fascinating discussion of specific examples, I recommend Econtalk and WSJ (source of above quote) for Marc Andreessen's ideas. Complementing Andreessen, economist Timothy Taylor's Lecture 8 on Schumpeter is excellent in this Teaching Company/History of Economic Thought course.

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