Capitalism means creative destruction. Can the developing world cope up?

The hallmark and defining feature of capitalism is ‘creative destruction’- a phrase coined by the great Austrian economist Joseph Alois Schumpeter who described it as,’ the process of industrial mutation that incessantly revolutionizes the industrial structure from within, incessantly destroying the old one, and incessantly creating a new one’. From the invention of the Spinning Jenny to the steam engine to the aircraft to the internet or say the Internet of Things (IoT), robotics, virtual reality – the grist to the mill of the 4th Industrial Revolution, creative destruction has been a constantly thematic area of capitalism. If at all capitalism correlates with development, then what does the latter mean in the context of creative destruction? And where does the nation-state construct stand? What choices do ‘late industrialisers’ (lesser developed or developing nations) have?

These are broad but interrelated questions. Consider development first. If income growth and purchasing power parity (PPP) are held to be salient metrics of economic growth and development (two distinct categories) and proxies for either, what would these mean against the backdrop of the 4th Industrial Revolution induced by creative destruction? I am not an economist but I would hazard a guess: when technologies constantly and consistently change at an unprecedented change, economic growth and development become the corollary to the rate of technological change and its adoption. The obvious inference here is that metrics of PPP and income growth then would always remain in flux. Of course, there are other variables to consider but technology, in this day and age, remains the major game in town, so to speak. This, in turn, means that only those nations that stay ahead of the ‘technology frontier’ remain relevant players. Where does this leave developing countries and least developed nations?

As laggards is the answer. Can these nations stay in the proverbial game and grow? These nations have basically two choices: one, is to be technology followers and be either early or late adopters. (This would depend on their institutional matrices, depth and absorptive capacities thereof). But late adoption or even the early variant against the backdrop of unprecedented technological change would mean, to use a term from economics, ‘unstable equilibrium’ impacting their growth and development negatively. How can developing nations then have their proverbial skin in the game? By being at the forefront of technology, as innovators and pioneers. But none of these is a function of mere technological or human capital ability. Essentially staying ahead of the technology curve means a mental and intellectual revolution that calls for thinking that goes beyond the ‘possibilities frontier’. What does this mean? It means shattering mental constructs and possibilities about what is possible?

To use some rather vulgar examples, it is only then that developing countries can produce Elon Musks, (who has not only redefined the automobile industry but disrupted it forever leaving oil producers of the world scratching their heads), or Mark Zuckerbergs (who redefined how we communicate and express ourselves) or even Henry Fords of the world (who by virtue of the then innovation of mass production made the availability of a motor car possible to the middle classes). But how can overcoming the possibilities frontier become real in the developed world? By virtue of a conceptual revolution and an outlook that, even looks at outer space as a entity to be explored’, for instance. It would also call breaking the mould of convention and tradition. (I am not advocating wholesale jettisoning of convention and tradition but only those bits that inhibit creativity and the impulse to do the bold and beautiful). 

In some instance this might even entail or mean madness. But madness is the price of creativity and genius. The great technological innovator or creator can either wander the streets, rave and rant or produce something bold and beautiful that benefits society and mankind. It is only then Mars or Venus become possible exploratory grounds. Do developing countries and their people have the necessary madness in them? Difficult to say but genius must not be the prerogative of one culture. But certain things can be learnt from this culture and other things unlearnt.

This is the essential demand of creative destruction. Where does all this leave the nation-state? The entity – essentially a bounded container of peoples defined by geographical boundaries- that used devices like protectionism, autarky, import-substitution, checks on trade in the past and then liberalized these regimes for the sake of economic growth and development of its respective peoples morphed over time into a ‘regulatory state’. It was not mere capital that was sought and some of its rough edges sought to be contained but also technology and its transfer. With technology as embedding capital now and the rate of technological change occurring at a stupendous rate, the nation-state is left scrambling. In an era where a corporation hires the best talent from anywhere in the world, what does it mean to hire locally? In an age, where a person with a broadband connection or data connectivity can work from a cave, what does ‘full employment’ mean? In an era where financial capital follows the rate of return, what does a strictly home portfolio of financial assets mean? The examples can go on and on.

Essentially, these developments and the staggering import mean that globalization is neither dead nor is it going to die. Like in its previous avatars, it will occur and happen in waves despite resistance and the ‘double movements’. There then is an ‘imperialism of capitalism’ at work from which no state is immune. This even has geopolitical implications. 

Territory would be one aspect that a state might want to hold onto as a factor of power but the nation-state that stays relevant and ahead in the technological game wins the ‘Great Game’. All in all then, technological determinism is real. But this does not and should not mean that the world become one giant chat room defined by homogeneity. 

The world, as diverse as it is, should stay that way. Cultures or the salubrious aspects of cultures must stay alive so must corresponding traditions. But is this possible? Can creative destruction be synthesized with cultures and what these have to offer? Or would the ‘instagram effect’- crowd out cultures where virtual reality creates another reality- where haute couture and high fashion in and of the Paris high street , for instance would determine what a young man or woman would wear in, say Kashmir, and thereby affect his or her cultural outlook? No easy answers lend themselves here. The pull of capitalism is strong. There’s hardly any economic alternatives left. But if the natural and inevitable result of capitalism and its concomitant creative destruction would be a uniform, homogenous world defined by consumption and consumerism as the values, it would be a bland and tasteless world.

(Disclaimer: The views of the writer do not represent the views of WION or ZMCL. Nor does WION or ZMCL endorse the views of the writer.)