Chaotic Growth

The most favorable interpretation I can place on the market fundamentalist's "creative destruction" is that it represents a feedback process. In a competitive market, those who have new ideas may have an opportunity to make money. That potential opportunity encourages innovators to bring their ideas to market. The success of some entrepreneurs encourages other entrepreneurs. Thus, the market feeds on itself, bringing forth a never ending sequence of new ideas and products.

Of course, what is new may not be an addition to what exisits; rather, it may replace something older. Thus, automobiles undermine buggy whip makers. Automated factories replace hands-on assembly lines. Changing fashons reward the latest fad, while pauperizing yesterday's style leaders. (In this last case, no economic or social "progress" is made; things just change.) This is the "destruction" in Schumpeter's phrase.

The market fundamentalist view combines two things: innovation and greed. It makes the claim that these two things are best served when combined. Less dogmatic economists do not deny that innovation can occur independent of market forces. But, is this the way things really are?

While 20th century History cannot be finally evaluated here and now, I believe very large trends and examples make the market fundamentalist thesis unlikely. For example, the nuclear industry everywhere was financed by governments. The biotechnology industry got its seed money from the government, and continues to do well where funded by government grants and subsidies. The airline industry did well until deregulated, after which it became unprofitable. The telephone industry seems to function only when permitted to be a monopoly. Thus, some of the biggest ideas that have changed the lives of ordinary people everywhere are the result of government investment and oversight. Entrepreneurial activity in those and many more cases amounted to finding a way to snag lucrative contracts or preferred status for government projects.

According to market fundamentalists, one of the clearest cases of market growth involving "creative destruction" is the semi-conductor and computer industries. The Capitalists believe they invented and popularized those new technologies, thus bringing on the Information Technology revolution. In support of that story, we have the work of William Gates III, and the well known spread of the PC from which he profited mightily. But the popular story ignores the actual facts of the case.

The roots of the modern computer are in now-defunct Bell Labs and NASA programs. The transistor was invented at Bell Labs, then owned by AT&T, and was at first ignored because it did not immediately solve any telephone problems. The earliest pioneers in transistors were the Japanese, who produced the battery-powered "transistor sister" in the 1950s, sneered at by Americans as a toy. In the mid-1950s, with the discovery and development of ferrite magnets, computer manufacturers found that transistors were compatible drivers of digital magnetic memories, and soon developed transistorized computers. The transistor had to take a detour through the computer before it came back as an improvement to the telephone system in the early 1970s. That eventual improvement was the UNIX system, which was developed at AT&T on a DEC PDP-8 mini-computer, by some out-of-favor guys. The DEC computer was made possible by the intergrated chip (IC), which had been developed at Fairchild in the early 1960s for use in rocket guidance systems. The IC made possible the notorious Apollo computer which almost made it to the Moon in 1969 without crashing. Without the IC, computers were too big and bulky for use in the space program. Taken together, small, IC-based computers were efficient platforms for the UNIX system, which eventually found a use running telephone switches in the long distance system. UNIX is the forerunner of today's LINUX system, and is at the core of the Internet.

The personal computer industry was a bit player in all the foregoing, arising among a few hobbyists in the mid-1970s. While APPLE got a strong start at that time, it was the introduction of the IBM PC in 1982 that crystalized and catalyzed the market. In fact, businesses are usually slow to adopt new technology. IBM's production of the PC blessed it, and businesses were then quick to adopt it. Almost all the growth and profits in the computer industry since the 1970s are the result of government and business computer uses. The domestic - truly personal - computer has been, and still is, a money loser, which is why companies concentrating on home users just go broke. APPLE computer survived by finding a niche among devoted, well-heeled users who actually do very little computing. APPLE's success is PR and hype, image not innovation.

William Gates III, Steve Jobs and Larry Ellison became fabulously wealthy icons of the computer industry. Perhaps because many people wish to have such luck, they idolized those fellows and others like them. But it would be inaccurate to attribute fundamental innovation to any of them. The gadgets and software they brought to market were developed elsewhere. For example, it is well known that most of the ideas in the APPLE McIntosh system were invented at the XEROX Research Park. Those very wealthy men were interested in making money, and applied themselves to it. Mr. Gates, for example, shrewdly retained ownership of the DOS system, which catapulted him to a controlling position in PC development.  Mr. Gates benefitted from an accident of history: IBM management was convinced the PC would be a short-lived toy. Mr. Ellison, CEO of ORACLE, tied his fortunes to business software from the start, and has done well by outsmarting or buying out his competitors. ORACLE's relational database software was the practical implementation of ideas created elsewhere. The arrival of the Internet in the mid-1990s catapulted ORACLE to the top, because it ran on the SUN MICROSYSTEMS computers most commonly used as newtork servers. Until the 1980s, IBM had dominated all of the computer hardware and software uses in which Gates, Jobs and Ellison later made fortunes.

IBM dominated the computer industry by applying a simple rule: let the other guy go first. IBM frequently invested in technology start-ups. If they succeeded, or were likely to succeed, IBM either bought them out or killed them. MICROSOFT uses the same methods to dominate and control PC software. In other words, it does not pay to be first: inventors and innovators will be throttled or shunted aside, or die trying to promote their unwanted ideas and products. Phineas T Farnsworth - remember him? - invented television, which was promptly demonstrated by AT&T in 1926. Television was first put into national use by NAZI Germany after 1935. Electronics industry manipulator, "General" Sarnoff, managed to grab TV from AT&T, so RCA/NBC had a lock on the early development of commercial television. That same Sarnoff fellow managed to undermine Lee Armstrong, who invented FM radio and eventually committed sucide. Neither Armstrong nor Farnsworth benefitted materially from their inventions.
 

So, it seems to me greed and avarice are one thing, and innovation is another thing. It probably helps to have some technical competence when introducing new technology to the world. It helps a lot to be a shrewd in the ways of business and a ruthless self-promoter. But, those skills and attitudes are only useful in making money and building a business empire. They are only tangentially the aptitudes required to develop a new idea into useful products. They are probably not at all the intellectual and emotional makeup of someone who invents an idea or innovates a product.
 

Markets encourage people who are, in the first place, avaricious. Some creative people may fall into this category, but I think the general rule is that creativity stops where the market begins. I believe people who win Nobel Prizes, write great novels, make memorable movies and do other noteworthy things are not usually wealthy. Most of the people I've known associated with the University are more interested in intellectual and cultural values than commercial success. Everyone wants to live comfortably, but only a few academicians are willing to give up the intellectual life in favor of La Dolce Vita. This is most evident in companies that originate from academia and gradually evolve into commercial entities. At first, such businesses are unusually quiet, academic and collegial, but little by little develop into brassy, stratified corporate cultures. The change in behavior reflects a change in values: from a search for truth to a search for money.
 

I think one of the most prominent attitude markers is dress and attitudes about dress. In the money-seeking world, what one wears and how one looks is highly valued. I sat on a hiring committee a long time ago, which approved the winning candidate for a technical position on account of a classy suit. It almost didn't matter that at least one of the other candidates was more competent. On the other hand, in academic circles, I believe personal appearance is not highly censored or correlated with success. Creative people are commonly thought to be incurably eccentric.
 

Is there "creative destruction?"  Yes, indeed: businesses start and fail all the time. Times change. But the factors that eventually bring about change in our lives are, I believe, independent of market activity. In that sense, markets are not creative. Inventors and innovators just "do their own thing," irrespective of markets. Some of what they do is discovered by the avaricious, who see a way to make a buck from it. While avarice and innovation may be useful to society in their distinctive ways, they seldom work together as J.A. Schumpterer seems to suggest. In fact, they are the quite distinct life styles of very different people, who accidentally co-operate to bring about change.