Schumpeter argued that this process of creative destruction reflects new
firms’ abilities to circumvent entry barriers that would otherwise permit
firms to earn high profits in the long run. He also argued that because
creative destruction thrives on innovation, the existence of high profits is
a major incentive to economic growth. Schumpeter was writing during
the 1940s, when the two dominant market structures studied by
economists were perfect competition and monopoly. His argument easily
customers to drivers, for example, are disrupting established
taxicab companies in many cities. Similarly, other apps match
customers with overnight rental accommodations and are
disrupting the established hotel industry. In both cases, debate
currently rages as to whether and to what extent the
“disrupters” in each case should be regulated—or perhaps
even prevented from conducting their businesses altogether.
These cases all illustrate the same general message.
Technological change transforms the products we consume,
and also how we make those products. It continually sweeps
away positions of high income and economic power
established by firms that were in the previous wave of
technological change. It is an agent of dynamism in our
economy, an agent of change and economic growth, but it is
not without its dark side in terms of the periodic loss of
privileged positions on the part of the displaced firms and their
workers.