Working Paper: NBER ID: w20379
Authors: John Komlos
Abstract: Schumpeter's concept of creative destruction as the engine of capitalist development is well-known. However, that the destructive part of creative destruction is a social cost and therefore biases our estimate of the impact of the innovation on NNP and on welfare is hardly acknowledged, with the exception of Witt (1996). Admittedly, during the First and Second Industrial Revolutions the magnitude of the destructive component of innovation was probably small compared to the net value added to employment, NNP or to welfare. However, we conjecture that recently the new technologies are often creating products which are close substitutes for the ones they replace whose value depreciates substantially in the process of destruction. Consequently, the contribution of recent innovations to NNP is likely biased upward. This note calls for a research agenda to estimate innovations into their creative and destructive components in order to provide improved estimates of their contribution to NNP, welfare, and employment.
Keywords: No keywords provided
JEL Codes: E01; O10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Innovations (C) (O39) | Destruction (D) (Y40) |
| Destruction (D) (Y40) | NNP (negative impact) (F69) |
| Destruction (D) increases relative to Creativity (C) (O39) | SCR (decline) (D91) |
| Innovation by firm A (O31) | Obsolescence of firm B (L21) |
| Obsolescence of firm B (L21) | Perceived value added (C) inflated (D46) |
| Overall trend in SCR (decline) since 21st century (E32) | Negative contribution to NNP (E20) |
| Innovations in 21st century (O35) | Net gains from innovations overestimated (O39) |