“Innovation”: creativity; novelty; the process of devising a new idea or thing, or improving an existing idea or thing. Although the word carries a positive connotation in American culture, innovation, like all human activities, has costs as well as benefits. These costs and benefits have preoccupied economists, political philosophers, and artists for centuries.
Nature and Effects
Innovation can turn new concepts into realities, creating wealth and power. For example, someone who discovers a cure for a disease has the power to withhold it, give it away, or sell it to others.1 Innovations can also disrupt the status quo, as when the invention of the automobile eliminated the need for horse-powered transportation.
joseph schumpeter coined the term “creative destruction” to describe the process by which innovation causes a free market economy to evolve.2 Creative destruction occurs when innovations make long-standing arrangements obsolete, freeing resources to be employed elsewhere, leading to greater economic efficiency. For example, when a business manager installs a new machine that replaces manual laborers, the laborers who lose their jobs are now free to put their labor into another enterprise, resulting in moreproductivity. In fact, in many cases, the number of jobs available will actually increase because the machinery is introduced.
Henry Hazlitt provides the example of cotton-spinning machinery introduced in England in the 1760s.3 At the time, the English textile industry employed some 7,900 people, and many workers protested the introduction of machinery out of fear for their livelihoods. But in 1787 there were 320,000 workers in the English textile industry. Although the introduction of machinery caused temporary discomfort to some workers, the machinery increased the aggregate wealth of society by decreasing the cost of production. Amazingly, concerns over technology and job loss in the textile industry continue today. One report notes that the introduction of new machinery in American textile mills between 1972 and 1992 coincided with a greater than 30 percent decrease in the number of textile jobs. However, that decrease was offset by the creation of new jobs. The authors conclude that “there is substantial entry into the industries, job creation rates are high, and productivity dynamics suggest surviving plants have emerged all the stronger while it has been the less productive plants that have exited.”4
'via Blog this'
No comments:
Post a Comment