I have been wondering about the validity of Creative destruction[1]. The concept has held true for a long time. Product and process innovation has led to new production units replacing the old in turn causing disruption in the labour markets. Labour associated with old manufacturing processes and/or products lose their jobs but new jobs are gained in the new production processes and/or products. In the time between loss and creation of jobs there will be a spurt in unemployment. The expectation is that the unemployed learn the skills to employ themselves in the new processes and/or products created. The bottom line is to improve productivity of labour and utility of the product to the consumer by creating new processes and/or products. But all throughout history labour has revolted against this creativity. And all throughout history the labour has been proven wrong in the long run. Creative destruction has undoubtedly led to improvement in living standards and economic well-being.
The question that I have is whether this relation will continue into the future. Until now people (labour) have been using machines (capital) to produce goods. But what if capital can produce goods without our help. There would be no need for labour. Labour will be replaced by capital without the need for them to upgrade their skills to adapt to new processes and/or products. This is what is being observed now with the advent of Artificial Intelligence (AI).[2] It is not as easy as saying all people will lose jobs immediately and the machines will take over completely soon. The structure of employment will change among other things. The jobs market might be characterized with few top level and middle level jobs and large number of low level jobs.[3] The disruption in labour market might be observed more in the developed or the so-called modernizing economies rather than in less modernizing economies.
Coming back to the original issue of creative destruction, I doubt whether the modernizing world will be able replace jobs in the long-run. I had initially thought that we might have to get used to long periods of high unemployment rates i.e. high natural rate of unemployment but it might not be in single digits any more not due to frictional but incessant structural changes. Some countries, for example Switzerland, have already begun to see the impact of continuous technological improvements on employment. They have implemented Guaranteed Minimum Income schemes, where, as the name says, families are guaranteed minimum income by the government to counter the loss of income because of loss of employment [4]. To conclude, this time its different and creative destruction will not have a familiar outcome this time around or maybe there will only be destruction without creation in the long-run.
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