Creative Destruction

Simon Naitram

May 1, 2018

5 minute read

“Just because something works doesn’t mean it can’t be improved.” ~ Princess Shuri, Wakanda

It was somewhere during my third watching of Black Panther that I realised what attracted me to Wakanda The Economy. It was the willingness to innovate, the desire for constant improvement, the idea that there’s always a better way. Overseen by a child or not, Wakanda’s technological advances were never-ending.

Why is Barbados, unlike Wakanda, so resistant to innovation? Is it simply that we are deeply afraid of change?

Creative destruction is the monster that drives innovation. Creative destruction is the process by which a new firm, idea, or technology replaces old firms that use old ideas and outdated products. A single firm’s innovation could wipe out an entire industry. It’s like Cronus castrating his father Uranus, only to be overthrown and imprisoned by his own son Zeus.

For example, why have all the video tape and DVD rental stores disappeared? Netflix! Despite starting as a DVD subscription service, Netflix’s innovative streaming service has wiped out that entire industry all across the world.

This direct act—new firms replacing old firms or old industries—accounts for about 25% of total technological advances. So where does the other 75% come from? The fear of creative destruction. Firms who are very afraid of being the target of such epic coups will reinvent and re-imagine their entire product by innovating. This fear drives firms to brilliance.

Continuing the example, traditional media companies are so afraid of this Netflix Effect that they must provide all of their shows online, rather than just on TV. A show like Game of Thrones is produced by cable network giant HBO. Even in America where cable is king, only 38% of viewers planned to watch Season 7 of GoT on HBO’s channel. Everyone else wanted to watch it online!

How often does this happen in Barbados? Not often enough! We can measure creative destruction by the sum of new firms created and old firms destroyed. I’ve got data only on new firms created in Barbados from CAIPO, but already the picture isn’t very pretty.

First take a look at company incorporations. These are new firms likely to be big enough to make an impact. This is where we would like to see loads of new firms being created as evidence of creative destruction. From the data, it’s pretty apparent that the ‘creative’ part seems to have stagnated for the last 20 years.

Why has this happened? Why does creative destruction seem to be absent? Here are the explanations I can think of, and how they might be assessed:

Maybe we don’t have enough entrepreneurial spirit.
The evidence says otherwise. The number of business names registered is a good indicator of entrepreneurial activity. These are likely to be small businesses created by people who are willing to take the initiative and take on the risk of starting their own gig. Throughout our period of productivity stagnation, the number of new business names registered each year has kept rising.

Maybe we don’t know how to turn small businesses into big ones.
This is difficult to prove or disprove. If true, however, we should at least see small businesses trying to become big, fully-fledged corporations—even if they fail.

Maybe we don’t provide them with appropriate funding, incentives, policies, and regulation to succeed.
This seems like a very real possibility. Funding for small and medium enterprises is scarce, particularly from traditional banks. This forces external and non-traditional bodies like the Inter-American Development Bank and the Caribbean Development Bank to step in and offer financing to fill this gap. But policies and regulations to encourage competition from new firms should be easy enough to put in place, right? They’re not.

Is it that we don’t know what policies should be put in place?
This seems very unlikely given the existence of the National Strategic Plan of Barbados 2005-2025, the Barbados Growth and Development Strategy 2013-2020, and even the new Barbados Sustainable Recovery Plan 2018. We know what to do.

Is it that we can’t get it done?
Successive governments have implemented rules and laws as silly as being unable to enter government buildings with sleeveless shirts, or the prohibition on camouflage outfits. It seems unlikely that our governments don’t have the capacity to implement strategic policies and regulations embedded in formal documents, especially when we’ve agreed they would benefit our broader society.

Is it that we just don’t want to do it?
The plot thickens. Why might the government not want to implement policies that make existing businesses and industries vulnerable to competition from innovative newcomers?

Well, creative destruction is a destructive force. It requires the demolition of businesses and industries when they do not innovate. Do you think Cronus was happy that Zeus imprisoned him? Do you think video rental shop owners are thrilled to be out of business today? Each of these, given a chance, would defend themselves. Even though innovation makes our lives undoubtedly better, it harms a small but often very powerful minority: existing business owners.

Business owners protect themselves in one of two ways: either by innovating to push themselves ahead of the pack, or by resisting policies that would open them up to competition. If they resist free and fair competition, then we lose out twice: first on innovative ideas from new competitors, and second on the innovation that existing firms should be investing in to protect themselves.

We stand at a critical juncture. A failure of productivity for the past two decades has been accompanied by an absence of creative destruction. If you think that creative destruction has been actively obstructed to protect existing companies, then you must begin to deconstruct the barriers that protect the powerful. Only through the meritocracy of creative destruction can we continuously generate the innovation that will make our lives better.

Standing up to the powerful is hard. T’Challa is defeated by Killmonger in the challenge for the title of Black Panther. Two women who love their country, Wakanda, argue about the best way to respond. Adhering firmly to tradition, General of the Dora Milaje army, Okoye, says that love for country means you must “serve your country”, regardless of the situation. In vivid contrast, Nakia’s response evokes a much deeper emotion, and is a loud call to action: “No, I save my country.”

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