Creative Destruction

Apologies for the gap in publishing in this space, I’ve been away on business for quite a few days.

The Dow plunged 777 today.

Not good.

Creative Destruction is the process by which companies and industries collapse and fail in the face of new technologies.

The phonographic industry was destroyed by the cassette. The cassette industry was destroyed by the CD. The CD is currently being destroyed by the MP3.

During periods of recession and extreme distress – you should get an accelerated rate of creative destruction. Industries that were once tottering get pushed right over that edge. They would have gone out anyway. They were just pushed a little bit too soon.

The current recession is a manufactured one. The economy had used JIT technologies to largely solve the inventory problem that used to be the root cause of recessions past. (We used IT to reduce the large swings in factory production and inventory, or, that’s what we’re led to believe in the economic literature). What we have now is swings in credit inventory. I fear that this will be the new source of recessions. It’s far more nefarious.

I don’t believe we’ve nearly seen the power of the network, the social network, to restructure global society. We saw the profound effect that the telegraph, radio, and television had on society – but it took several years, if not decades, for the true social impact of those technologies to really manifest themselves.

We’ve seen some of that with the Internet. Probably quite a bit. But I don’t think we’ve seen the bulk of it.

Times will be tough. I think there’s a lot of destruction that’s going to happen with the Internet (though, not nearly to the extent that the old world offline folks are about the experience). The truth is that recessions favor innovation in low cost channels. The Internet is an intensely low cost channel. Therefore, I think we’re going to see a lot of Creation. But I can also see a lot of Destruction.