“Creative Destruction” as Catchall
Matt Yglesias has responded to my post on the destruction wrought by some capitalism with a fairly narrow complaint about my sarcastic comment about what I still maintain his original post entailed: an apology for the kind of destruction that Bain Capital engages in because (he argued) all successful capitalism creates such destruction.
I don’t really want to get into the weeds of things with Marcy Wheeler on private equity, so let me just say that this view she sarcastically attributes to me is the reverse of the view I hold:
Capitalism is all about creative destruction, you see, so we must celebrate that creative destruction.
What I think is that in a market economy creative destruction happens, and that has terrible consequences for the lives of people who are adversely effected by circumstances beyond their control.
[snip]
The message of creative destruction, when you understand it, is that the idea that “a rising tide lifts all boats” is a cruel lie. Growth is broadly beneficial over the long-term but individual human beings live out their lives on finite time scales and many individual people suffer from even generally positive economic trends.
He goes on to describe several things as creative destruction:
- The rise of desktop publishing software and the damage it does to established graphic artists*
- The hypothetical legalization of gambling in CA and the damage it would do to Las Vegas’ casino industry
- The decline of Kodak (which in his earlier post he attributed to the rise of digital cameras) and the decline it brought to Rochester, NY, generally
I won’t get too deep in this, but I think it useful to, first of all, point out that these are not all like things. Indeed, the legalization of gambling is only partly about market forces at all, it’s about legislative forces (and usually, in this day and age, is brought about by the purchasing of influence, precisely the opposite of real capitalism), and it often doesn’t lead to real growth at all. And both desktop publishing and digital cameras combine two things: the introduction of new technologies and their successful marketing. The example of Kodak also involves globalization. All of which are distinct from the financialization of capitalism represented by Bain, which is where this all started.
I’d like to suggest that we do ourselves a big disservice by lumping them all in together under the term “creative destruction.” The very term is one rolled out to excuse the ravages of capitalism. And used as Yglesias does, it doesn’t make fairly clear distinctions we can make between different practices of capitalism or even forces–like technology–that interact powerfully with capitalism but are distinct from it. Nor does it permit analysis of whether any useful “creation” is going on at all. That is, the term closes off precisely the kind of discussion we ought to be having–and Mitt’s Bain critics were engaging in, before Yglesias accused them of simplifying the issue–about the choices we make in our society and economy.
Yglesias and I absolutely agree we need to help those who suffer as a result of change brought about by capitalism, technology or (in the case of casinos) money-driven policy decisions. But there is, at the same time, plenty of space for distinguishing between capitalist practices that are considered noble or useful, and those which should be treated with shame and moral outrage, if not regulatory prohibition.
And I believe that those practices that serve no useful purpose for the society as a whole, like Bain’s vulture capitalism, falls into the latter category.
* In the interest of full disclosure, I should note that my father was one of those people at the intersection of technology and career success. As such, he had a significant hand in changes–particularly the roll out of the PC–that brought about the introduction of software that changed the value attributed to skills of graphic designers and secretaries. Which of course means all the advantages I’ve had in my life derive in part from the pain that computers have caused people. Not that it changes that fact, but I will say that many of my adolescent drag-down fights with my father consisted of me calling him a stupid asshole for rolling out technology before society was ready and the software was appropriate.
The most useful question is what did you make today? In most of the cited examples, something better was made out of something lesser. In the case of Bain and the fellow-travelers, there is nothing of value created, only destruction, and after the coffers are looted to enrich Bain, et al.
Capitalism doesn’t require destruction.
“the opposite of real capitalism”
To be clear, I think you mean “pure” or “laissez-faire” though laissez-faire isn’t really pure as it allows for governmental interference to the minimal extent necessary to ensure the peace, property rights, and health of the capitalists; consumers and other citizens not so much. :-)
@Greg Brown: Well, insofar as a legislture creates a new “market” out of whole cloth–usually one designed solely to benefit the rich people who paid to get that past the legislature–it’s not about market at all.
And yes, I’m still grumpy about the way casinos have been rolled out here in MI, though the folks who run GR didn’t succeed in usurping the right of tribes to run them and thereby cannibalize the customers of the casino half an hour south.
@emptywheel:
:-) My political/economic understanding of casinos and gambling in general in the US: first there was gambling and thus a market. Next, there were laws passed making gambling a crime. This didn’t kill the market, just drove it underground where profits were higher, corruption grew, and there was no revenue to the governments involved. Governments in need of revenue lost their zeal to support the anti-gambling crowd, passed fresh laws authorizing and regulating gambling, thus making the market legal again, increasing government revenues and bribes to the supposed regulators and their owners.
Interestingly, governments seem to have been paid four times in the process: to enact laws outlawing gambling, to avoid seeing illegal gambling, enacting laws to legalize and regulate gambling, and accepting bribes to issue licenses for the new regulated gambling as well as to be sure not to enforce the regulations.
The NPR meme of the day is that criticism of Romney and Bain Capital is criticism of “capitalism”, which is something no self-respecting Republican or American should ever do. In reality, something NPR ventures into more rarely than before, it is criticism of a particularly virulent excess, the kind that many governments (especially from 1945-80, after which came Reagan and Thatcher) regulated in order to protect their citizens and promote the general welfare.
As for “creative destruction” it is an oxymoron that ranks with “military intelligence” and “airline food”. Like “Social Darwinism”, which is neither social nor Darwinian, it is an attempt to legitimate not capitalism, but a pernicious, ruthless, rapacious expression of it, one which has become tremendously popular for boards of directors that seem to have no business purpose in mind beyond the personal enrichment of their CEO’s.
The three examples of creative destruction are each worthy of detailed investigation.
For example, I am not so sure that desktop publishing has done a huge amount of damage to graphic artists. It might produce a shift in clientele at the low end. At the high end, graphic artists are the ones using the desktop publishing software, making their work easier and faster. The accompanying boom in internet web sites, digitally delivered products, and digital marketing, etc., might actually have increased demand.
Also, I’d take exception to the idea that “growth is broadly beneficial in the long run.” It’s generally accepted as axiomatic. But much of what is counted as economic growth is wasteful or even harmful. The most obvious example are the polluting industries and those that are contributing to global warming.
Yglesias’s argument seems to have been made off the top of his head without much examination of the evidence or thought.
Cutting employment is the management religion of today. Any manager who advocates against it might as well admit to being an atheist or a Communist. Any politician who does so is treated as a failed extra in a Frank Capra film.
The Conservative mind notwithstanding, change is a constant. The issue is on whose shoulders does its costs land. Is that result an unavoidable consequence of the expression of “natural law”, the David Brooks view, or, like tax and regulatory policies, a consequence of aggressive, intentional burden and blame shifting.
Unemployment, for example, is a frequent consequence of innovation, whether it be cars for buggies, PC’s and cell phones for tape-driven room-size computers, or automated looms for hand weaving. It is also a consequence of the intentional privatizing of gain and socializing of costs.
A related topic you have written about is what is America’s “industrial policy” and how should it respond in the face of systemic changes in employment.
A great myth is that unlike foppish Europeans and “cooperative”, rice-growing Orientals, America is too independent, too rugged, too sturdy, too stand on your own two-feet (but lobby to be first in line for government handouts to corporate America) to need one. The reality is that we indeed have one. It is, in part, to socialize the costs of change, but to explicitly deny families, communities and states a governmental mechanism to blunt its worst excesses, to make more efficient the re-allocation of family resources in response to change, all in an effort to avoid placing its costs on the American corporation. Mitt Romney’s Bain Capital is a poster child for that industrial policy.
Cutting staff is a favorite short-term strategy, as is keeping “temps” for years, not paying vendors until after the quarter, and other trickery. However, strategically it prevents the operation from seizing opportunities because there is no bandwidth to take on other tasks. Also, if something breaks or goes wrong, there is no reserve to successfully address problems, everything’s a fire drill and scapegoats are launched when the situation runs its course.
Keep in mind that the Bains are interested in short term performance so they can leave the suckers holding the bag. That’s why it’s pump and dump.
i think “contribution to public value” is a useful metric.
Looks like Yglesias falls prey to the same sort of nonsensical magical belief in technology that characterized Bubble Boy Greenspan, who created the ‘Greenspan Put’ by his idiotic childlike belief that technology was making all of us, everywhere, ‘richer’ and ‘more productive’. It’s all a form of bamboozlement.
Am listening to Dylan Ratigan’s just-released “Greedy Bastards” on audio this week, and I’d put a lot more stock in Ratigan’s views than in Yglesias’s. One of Ratigan’s themes is ‘what is productive economic activity, and how do we enable it?’
Yglesias is making himself irrelevant.
@readerOfTeaLeaves:
ROTL !
I left a huge pitcher of Chocolate Martinis here, around the holidays and left an open invite for you to partake …
I am way behind on my reading here, but I wanted to make a comment about “creative destruction”. The term was originally Marxist and in that system I think it would be applied to the financial crisis that peaked in 2008. Marxists would, at least to the extent I understand Marxist thought, agree that Bain Capital style capitalism is an example of creative destruction.
Schumpeter later adapted and popularized the phrase to refer to something quite different. Schumpeter’s idea was more akin to the “disruptive technology” theme that Internet gurus are always chasing. In this model, creative destruction is all about radical innovation creating new wealth and challenging market dominating firms, only to displaced themselves by the next innovation. I always thought of the IBM mainframe -> DEC minicomputers -> IBM PCs to be the classic example of that category.
I was originally introduced to the phrase through a completely different idea of “creative destruction” in the thinking of Col. John Boyd. Oddly enough, given that he was military man with relatively little formal eduction, his version was the most abstract. In his view, “creative destruction” was a purely mental exercise which involved taking several unrelated domains, breaking them down into constituent parts and removing their context, then re-assembling some of them into something completely new. The classic example he used was to take all the properties of a skier, a tank, a speedboat, and a bicycle and then create a snowmobile out of some of them.
Sadly, people like Dick Cheney have transmogrified Boyd’s ideas to justify things like the invasion of Iraq. Many people have only heard the phrase as an example of the hubris of the neo-cons.
Obviously, all of these concepts, while related in some ways, are so different that the phrase tends to lead to misunderstanding and weird category errors. I think the phrase is especially dangerous in the hands of someone like Yglesias who is a broad, but often shallow thinker without much experience in the real world. Now I’m sounding like a grumpy old man, but that’s what I think.
@coral: “Yglesias’s argument seems to have been made off the top of his head…” I believe Yglesias went to the wikipedia entry for “Creative Destruction,” skipped the interesting segments on Marx and Schumpeter and went right to the “Examples” paragraph where he pulled out the references to the downfall of photography and newspaper publishing. Perhaps he did two or three minutes of reading as the research for his post.
EW–Somewhat off topic…but I was trying to figure out if my state pension plan (Wisconsin Retirement System–WRS) had done any deals with Bain Capital. WRS has $5.5 billion out to private equity firms, but at this writing, I can’t figure out if any of my pension savings went to Bain deals.
I did, however, find that City of Detroit Police & Firefighters Pension System is a plaintiff in a lawsuit against Bain, Blackstone, Carlyle, Goldman Sachs, and others filed in 2007 over bid-rigging. The case is still going on in federal district court in Mass: 1:07-CV-12388. Bain is listed as the first defendant, I figure, because it is first alphabetically. The PACER file has 510 documents in it, as of last week.