In his treatise, Capitalism, Socialism, and Democracy, economist Joseph Schumpeter describes what he calls the “process of creative destruction,” by which new products and services supplant existing ones; for example, the automobile’s replacing the horse and buggy.
Such “destruction,” he stressed, is the natural outcome of business competition, but not so much the competition among existing firms, rather competition from “the new commodity, the new technology, the new source of supply, the new type of organization … competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of existing firms but at their foundations and their very lives.”
One contemporary example of this process is the effect of Amazon on small brick-and-mortar retailers, many of which are now struggling and failing. For those directly affected, it is a painful process; for others, it is disturbing ― so much so that some are condemning Amazon for it. Certainly grief over the retailers’ struggle is understandable, especially for those who prefer them. But condemnation of Amazon?
Schumpeter himself attributed both the “creating” and the “destroying” to capitalism, but here is where elaboration of his theory may be useful. In one sense, Amazon is destroying some competitors. Yet it is important to describe precisely how it is.
Now that Amazon exists, millions of people who once patronized the smaller stores are buying from it instead, taking revenue from one and giving it to the other. Why? Because those buyers have decided that buying from Amazon is more advantageous. They prefer the selection, the convenience, the price. They value saving time and money. They believe they get more for their dollar, euro, pound, or yen. Thus we could just as accurately say that, by virtue of their choice of where to spend, the buyers are doing the destroying more directly than is Amazon. To condemn Amazon is to condemn their customers, without whom Amazon could not exist, let alone “destroy.” To condemn Amazon is to say that the company is bad for being good ― good, in providing something better, at least according to the millions who buy from them.
The horse and buggy industry was once one of the largest in the United States, and preserving it at the expense of automobiles would have reduced some Schumpeterian destruction. But only at the expense of everyone who bought an automobile between then and now instead.
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