A lot has been said about "Creative Destruction" in the last few days.
Something about this term of Entrepreneurial Evolution really bugs me -- and I think I finally figured out what that is.
First off, beside the harsh imagery it connotes, "Creative Destruction" does have a place in a robust, growing economy ...
Definition of 'Creative Destruction'
Investopedia explains 'Creative Destruction'
Creative destruction occurs when something new kills something older. A great example of this is personal computers. The industry, led by Microsoft and Intel, destroyed many mainframe computer companies, but in doing so, entrepreneurs created one of the most important inventions of this century.
[...]
Such is the natural course of things, in life and in business. The old, must generally give way to the new.
That is how progress, progresses. That is how economies evolve ...
Here's another common place example of economic "Creative Destruction" at work. The profits do tend to go to the innovators ...
The Free Market is Brutal: Kodak Loses; Consumers Win
by Bob Adelmann, thenewamerican.com -- 07 January 2012
After 131 years, it appears that Eastman Kodak will be declaring Chapter 11 bankruptcy before the end of the month, according to the Wall Street Journal. It is currently seeking to sell off some of its 10,000 patents in order to stave off the inevitable, but the company is burning through its remaining cash reserves and credit lines rapidly.
[...]
But the company’s highly profitable dependency upon its film business kept it from seeing the coming change, and it failed to adapt in time to save itself. As a blogger noted in feedback to The Atlantic’s article, “What Killed Kodak,”
While it’s easy to say that digital “killed” Kodak, the truth is that it was film -- or rather the insane profit margin of film — that did in the company. Those huge profit margins covered up a lot of internal inefficiencies.
It also blinded the company to its imminent peril as digital photography took off, leaving Kodak in the impossible position of trying to play catch-up ball. It was late in developing its own digital cameras but managed briefly, in 2005, to sell nearly $6 billion worth, making it No. 1 in digital camera sales in the United States. By 2007 it had slipped to fourth, and by 2010 it was in seventh place behind more nimble players such as Canon, Sony, and Nikon.
I used to have a regular budget for "film and film processing" -- today, I no longer do. The advantages of Digital Photography eventually, for me, outweighed the advantages of film.
I guess, I helped put Kodak out of business. But I don't feel bad about it. This, in essence, is what a truly competitive Free Market is all about. Build a better "mouse trap" and "the world will beat a path to your door" ... I think that's how the old saying went.
Well those examples set up, the cognitive dissonance, the disdain, I usually feel when I hear about pols like Ron Johnson driving out patriots like Russ Feingold, by bantering about terms like "Creative Destruction" -- as if they actual knew what it meant. Beyond the Union-busting sound bites, that is.
It's happening again. Bain Capital, with 1% capitalist Mitt Romney at the helm, practiced an accelerated form of "Creative Destruction" -- to try and nudge the process along.
They effectively got to choose "winners and losers" by their supposed "investment" decisions -- even if those decisions involved downsizing, divesting, and claiming ownership with over-leveraged debt ...
Creative destruction: Hiring, firing and Mitt Romney
ChicagoTribune.com, Editorials -- January 10, 2012
[...]
Private equity is not constructed to be some altruistic job engine, and Romney shouldn't pretend that it is. Success in private equity requires unsentimental decision-making. The goal is to produce a return on investment.
Private equity companies, including Bain, are almost certain to have a mixed record. Bain funded the Staples office-supply chain under Romney's watch. It also has closed companies that it could not fix in short order. On Monday, The Wall Street Journal reported on 77 businesses in which Bain Capital invested during Romney's tenure. Bain produced "stellar returns," largely coming from a small number of its investments, while 22 percent of its companies filed for bankruptcy or closed within eight years of Bain's involvement, "sometimes with substantial job losses."
Private equity generally operates on what many workers would consider a hurry-up timetable: Its investments might include a three- to five-year "exit strategy." Companies that fail to make money as expected typically suffer the consequences of impatient investors.
[...]
Funny I thought "Markets" -- ie. Consumers, like you and me and your Aunt Millie, were supposed to pick the "winners and loser" -- in a true Free Market economy?
Sounds like that is not always the case. Sometimes the 'investment firms' decide, what gets created and what gets destroyed, instead.
I guess they're not called 'Corporate Raiders' for nothing ...
The long overdue downfall of Gordon Gekko
by Andrew Leonard, salon.com -- Jan 9, 2012
It is no surprise to see Mitt Romney attacked as a caricature of Gordon Gekko, the corporate raider immortalized in Oliver Stone’s 1987 film “Wall Street.” [...] Like Gekko, Romney made his fortune buying and selling companies; and like Gekko, he believes that his “greed is good” version of rough-and-tumble creative destruction is a positive force for America, weeding out the bad performers and nurturing lean-and-mean profit engines.
[...]
What the Wall Street Journal euphemistically calls “the rougher side of American capitalism,” in its Monday article examining the legacy of Bain Capital, is suddenly no longer in fashion. And there is no better proof of this than the spectacle of one of the great culture warriors of our time, Newt Gingrich, defecting to the other side.
His treason won’t help his sorry campaign, and won’t deflect Romney’s path to the nomination, but it is still well worth our attention. Because the power of its attack highlights Romney’s biggest vulnerability. In the 32 years since Ronald Reagan was elected president, there has never been more widely expressed antagonism and anger toward the practitioners of corporate-raider, leveraged-buyout, excessively compensated CEO, shareholder-value capitalism than there is now.
Hmmm, I wonder if the writer is thinking about OWS? Or just the simmering populist outrage, of too many people having to endure, far too many campaign promises, that remain unkept ...
I guess "Vultures" have their place ... seeing as they still survive to present day.
I guess "Vultures" are filling some sort of evolutionary niche too -- picking on the bones of those too weak to defend themselves, from the Vulture's next circling "committee".
But is that really something for a Nation aspire to -- vulturing, destruction, dissolution?
Shouldn't a society aspire to creating jobs, building a better world, instead of simply setting a sterile goal of "a return on investment"?
Who would become a teacher, a writer, a photographer -- if ROI were the only criteria?
Besides, we all can't become Vultures, can we?
... and in their world, if you're not part of "the wake" of vultures
-- Then you know what you're called? ... er, um, Dinner.
Watch out, when Mitt Romney's brand of investing comes to your town, because your job, and the job of your neighbor Fred, just might be "what's next" in their cost-cutting sights.