Capitalism means creative destruction. Can the developing world cope?

The characteristic and defining characteristic of capitalism is “creative destruction” – a phrase coined by the great Austrian economist Joseph Alois Schumpeter who described it as “the process of industrial change which continually revolutionizes the industrial structure from within, destroying the old, and always creating a new one.” From the invention of the Spinning Jenny, to the steam engine, to the airplane, the Internet or, say, the Internet of Things (IoT), robotics , virtual reality – the water in the mill of the 4th industrial revolution, creative destruction has been a constant thematic realm of capitalism If capitalism is correlated with development, then what does the latter mean in the context of destruction? What is the status of nation-state building?What choices do “late industrializers” (less developed or developing countries) have?

These are broad but interrelated questions. Think development first. If income growth and purchasing power parity (PPP) are seen as salient indicators of economic growth and development (two distinct categories) and substitutes for either, what would they mean? in the context of the 4th industrial revolution induced by creative destruction? I’m no economist, but I would hazard a guess: when technologies are constantly and systematically changing at an unprecedented rate, economic growth and development become a corollary of the pace of technological change and its adoption. The obvious inference here is that the measures of PPP and revenue growth would then always remain in motion. Of course, there are other variables to consider, but technology, these days, remains the major game in town, so to speak. This, in turn, means that only countries that stay ahead of the “technology frontier” remain relevant players. Where does this leave developing and least developed countries?

Like Laggards is the answer. Can these nations stay in the proverbial game and grow? These nations basically have two choices: the first is to be technology adopters and to be early adopters or late adopters. (This would depend on their institutional matrices, depth and absorptive capacities). But late adoption or even the early variant in a context of unprecedented technological change would mean, to use a term from economics, an “unstable balance” negatively impacting their growth and development. How then can developing countries have their proverbial skin in the game? By being at the forefront of technology, as innovators and pioneers. But none of this is a function of mere technological or human capacity. Essentially, staying ahead of the technological curve means a mental and intellectual revolution that calls for thinking beyond the “frontier of possibilities”. What does it mean? Does it mean breaking down mental constructs and possibilities about what is possible?

To use rather vulgar examples, only then can developing countries produce Elon Musks (who not only redefined the auto industry but disrupted it forever by leaving the world’s oil producers scratching head), or Mark Zuckerbergs (who redefined how we communicate and express ourselves) or even Henry Fords of the world (who by virtue of the then innovation of mass production made the availability of an automobile possible for the lower classes averages). But how can crossing the possibility frontier become a reality in the developed world? By virtue of a conceptual revolution and a gaze that even considers outer space as an entity to be explored”, for example. It would also break the mold of conventions and traditions. (I am not advocating the total abandonment of convention and tradition, only those elements which inhibit creativity and the impulse to do what is bold and beautiful).

In some cases, it could even imply or signify insanity. But madness is the price of creativity and genius. The great technological innovator or creator can either roam the streets, raving and ranting, or produce something bold and beautiful that benefits society and humanity. It is only then that Mars or Venus become possible exploration grounds. Do the developing countries and their peoples have the necessary madness in them? It’s hard to say, but genius shouldn’t be the prerogative of a single culture. But some things can be learned from that culture and some things not learned.

This is the essential requirement of creative destruction. Where does all this leave the nation-state? The entity – essentially a bounded container of peoples defined by geographical borders – which used devices such as protectionism, autarky, import substitution, trade controls in the past, then liberalized these regimes in the name of the economic growth and development of its respective peoples has transformed over time into a “regulatory state”. It was not only capital that was sought and some of its rough edges sought to be contained, but also technology and its transfer. With technology as embedded capital now and the rate of technological change occurring at a breakneck pace, the nation-state is left in turmoil. At a time when a company hires the best talent from anywhere in the world, what does it mean to hire locally? In a time when someone with broadband or data connectivity can work in a cave, what does “full employment” mean? In an age where financial capital follows the rate of return, what does a strictly domestic portfolio of financial assets mean? The examples can go on and on.

Essentially, these developments and the staggering importation mean that globalization is not dead and is not going to die. As in his previous avatars, this will happen and happen in waves despite resistance and “double moves”. There is therefore an “imperialism of capitalism” at work from which no state is immune. It even has geopolitical implications.

Territory would be one aspect that a state might want to retain as a factor of power, but the nation-state that remains relevant and ahead in the technological game wins the “Great Game”. All in all, therefore, technological determinism is very real. But that does not and should not mean that the world becomes one giant chat room defined by homogeneity.

The world, however diverse, should stay that way. Cultures or wholesome aspects of cultures must remain alive, along with the corresponding traditions. But is it possible? Can creative destruction be synthesized with cultures and what they have to offer? Or would the “Instagram effect” – crowd out cultures where virtual reality creates another reality – where haute couture and haute couture in and from the high street of Paris, for example, determine what a young man or a young woman would wear, say in Kashmir, and does it thereby affect her cultural outlook? There are no easy answers here. The pull of capitalism is strong. There are practically no more economical alternatives. But if the natural and inevitable result of capitalism and its concomitant creative destruction were a uniform and homogeneous world defined by consumption and consumerism as values, it would be a bland and tasteless world.

(Disclaimer: The views of the author do not represent the views of WION or ZMCL. WION or ZMCL also does not endorse the views of the author.)