About three weeks ago I was sitting in my room minding my own business, listening to the rain pitter-patter gently against my window, when it hit me. Without warning. On the forehead.
It was water, and it was leaking through my ceiling.
Unlike most people, whose first thought upon discovering that their roof was leaking and would soon collapse would likely be FML, my first thought was, “Well, Dr. Schumpeter, let’s hope you were right.“
(I am not like most people.)
I thought of Joseph Schumpeter in that bleak and soggy moment because he was the economist responsible for popularizing the hypothesis of “creative destruction,“ which was unfortunately about to be very relevant.
The idea is that as firms are “destroyed,“ i.e. go bankrupt, all the stuff that was formerly tied up in the firm, like labor, equipment, natural resources, intellectual property, etc., is now free to be put to more productive and efficient use elsewhere in the economy, thus “creating“ better products and services.
Now, I’m pretty leery of creative destruction; it’s been used implicitly or outright to defend a whole lot of economic destruction, very little of it creative. Every time a trade barrier falls, a factory closes down or a job gets exported, creative destruction is lurking somewhere in the justification given by the power elite.
People can always get another job someplace else, and that someplace else will of course be more in line with the Will of the Market and thus represent a more efficient provision of resources. It doesn’t matter that the man who could take care of his family making TVs and earning $50,000 a year plus benefits got laid off and has to take a part-time job at BestBuy for $22,000 a year selling the very same TVs now made in China; the rising tide trickles down from the supply side to lift all boats above the dew on the “green shoots” in this new morning in America … or something like that.
So it was with great hesitancy that I tentatively embraced the principle over the past three weeks.
The story could be a really long and complicated morality play involving basic engineering principles (don’t build flat roofs), meteorology (rain collects on said flat roofs), the benefits of routine maintenance (said rain leaks through said flat roof onto floor of unsuspecting college student), the importance of acting quickly (said rain collapses said roof onto said floor moments after said college student moves computer out from under said leak) and the perverse incentive structure of landlords and contractors (said landlords and contractors … you get the idea).
But I’ll spare you the details: In simple terms, my roof collapsed unleashing an unholy maelstrom of water-logged sheetrock, putrid insulation and befouled water which forced me to spend the next two weeks sleeping on the living room couch (not a pull-out) and working from the kitchen table.
That’s the destruction part.
The creative part came slowly. But after 14 days, a new ceiling, a few goes with the carpet cleaner and a couple appointments with the chiropractor (couch ≠ bed), my room is cleaner, less cluttered and more structurally sound than it was when I moved in.
So there you have it, creative destruction in action; my room was destroyed by outside forces and what was created from that destruction is more efficient and will lead to higher productivity.
QED, bitch.
But here’s the catch: I had a living room couch.
I had the couch to sleep on, the kitchen to work in, the garage to store my stuff, the friends to help me move back in, the landlord to waive two weeks rent … what I had was a social safety net.
There was a support structure to turn to while my room was turning into the Putah; I could scrape by, however uncomfortably, without worrying about a whole lot.
But more important than that, my fate wasn’t tied to my room’s fate so directly that after my old room was destroyed I couldn’t survive without it.
There are two things to thank for that: mobility and education. I lacked significant others and location specific responsibilities, which enabled me to relocate in the first place. That is, I wasn’t tied down by a family or a restrictive health plan or a mountain of debt. And my education, skills and training were adaptable, so I was able to be more productive in my new digs than I was before.
These points are extremely important, especially right now.
Because right now, there’s a shit load of destruction going on, and while there’s a chance for some of it to be creative, there’s a whole lot of economic, social and personal pain threatening to exacerbate the recession unless we backstop it with a safety net and provide the tools for people to move forward.
I mean look, it doesn’t matter if, say, GM goes under; GM as a company deserves to die a gruesome, oily death. But what does matter are the workers who’ll be completely fucked if GM goes down hard; their mortgages, car payments and food budgets, their health care, child care, college funds and retirements, everything about their lives is woven into GM.
But if as a nation we had a solid set of protections, like guaranteed health insurance, child care, housing, food allowances, transportation, pensions and college savings, then firms like GM aren’t a problem. It won’t matter if CircuitCity or Gottschalks eat it or if systemic chimeras like GM or AIG fail so long as workers can count on the safety net today and retraining and relocation tomorrow.
Ultimately, this makes capitalism more efficient; it allows the failure of firms to take place without causing the failure of people. It creates a more fluid, versatile labor force that can respond rapidly to changes in the economy.
So rather than being a drag on economic freedom and entrepreneurship, providing people with a robust social safety net and opportunities for retraining would vastly improve our nation’s economic vitality, and more importantly, our people’s quality of life.
But that would make us socialist, so it’s totally stupid and lame.
K.C. CODY would like to see creative destruction at work on Texas. Discuss at kccody@ucdavis.edu.