Economics

Creative Destruction and the Pruning Shears

Choosing between withering on the vine and fruitful new growth.

By 7.3.12

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All of the back-and-forth about Mitt Romney's role at Bain Capital -- along with the moral denunciation about creative destruction -- recalls an experience I had which makes this issue much more concrete and understandable.

Several years ago, as I pulled into the driveway of the house my religious community lived in, I was horrified to see that someone had hacked away much of the green holly bushes surrounding the front and side of the house. Going in, I saw Fr. James washing up from some strenuous labor.

I asked him what happened to the holly bushes.

"I cut them back," he replied.

"You did that? Why did you kill them?"

"I didn't kill them," was his reply. "I pruned them. If you want them to be healthy for the next year, it's important that they not divert their energy into the more extended branches. If we let the branches go, they would threaten the entire bush and we'd have nothing."

Fr. James is a born and bred Midwesterner. I grew up in Brooklyn, and I was out of my depth. What he was saying made sense to me on a technical level, but all my intuitions cried out against it. It looked horrible.

Sometimes what appears to be beaten back and damaged is really healthy and preparing for new growth. This is the case with what economists call creative destruction -- the phenomenon whereby old skills, companies, and sometimes entire industries are eclipsed as new methods and businesses take their place. Creative destruction is seen in layoffs, downsizing, the obsolescence of firms, and, sometimes, serious injury to the communities that depend on them. It looks horrible, and, especially when seen through the lives of the people who experience such economic upheaval, it can be heartrending.

But think of the alternative. What if the American Founders had constructed a society where no industry was ever allowed to go under because it would mean a lot of innocent people losing their jobs? I mean, have you ever met a livery yard owner or a stable boy? How about a blacksmith or a farrier? Do you have among your acquaintances any makers of bridles, saddles, chaises, coaches, or buggy whips?

All of these once-booming forms of employment are either extinct or occupy tiny niches in today's economy. Their doom was sealed on October 1, 1908, when Henry Ford introduced the Model T -- the culmination of a long period of experimentation and advance in automobile technology involving many inventors across many countries. Many of these inventors were tied to what had been to that point a primary means of land transportation over short distances (and over long, until the introduction of the railroad) -- namely, the horse.

This reality does not relieve us of our concern and even social obligation to those caught in the midst of economic progress, but whatever efforts we may devise to ensure their well-being and a secure transition to a new livelihood, the one choice we cannot make is to hold back progress. To do so would mean threatening the well-being of those who remain employed in those new and growing industries.

What policies are best suited to encourage innovation and growth, while fostering a humane economy?

  • Ample and responsive local, state, and national assistance to those displaced by creative destruction, with an aim to retraining and education, with the government as the resource of last resort.
  • Low corporate taxes that encourage investment in new technologies, expansion of existing businesses, and the hiring of new workers.
  • A regulatory climate that combines reasonable protection of air, water, and land with plenty of room for economic growth.
  • A rejection of crony capitalism and bailouts, which only serve outdated technologies and uncompetitive enterprises.
  • Right-to-work laws that ensure the ability of employees to decide for themselves whether or not to join or financially support a union.

We need to think about would happen if we didn't bother to prune those holly bushes and let them dissipate their energy. Of course, people are not branches to be discarded, but there are better and worse ways to respect workers. Attempts that will stall the engines of economic progress will only result in massive unemployment, a stagnating economy, and waste.

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About the Author

Rev. Robert A. Sirico is president and co-founder of the Acton Institute and author of Defending the Free Market: The Moral Case for a Free Economy (Regnery, 2012).