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Creative destruction is the process by which new technologies outcompete existing ones, making them obsolete. A classic example of creative destruction is automation making many weaving jobs obsolete during the Industrial Revolution. Economists generally view creative destruction as the engine of economic growth under capitalism. Acemoglu and Robinson emphasize that, under extractive institutions, elites tend to stop creative destruction because it threatens their power. This prevents economic growth.
Creative Destruction Quotes in Why Nations Fail
The Why Nations Fail quotes below are all either spoken by Creative Destruction or refer to Creative Destruction. For each quote, you can also see the other terms and themes related to it (each theme is indicated by its own dot and icon, like this one:
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Chapter 3
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Opposition to economic growth has its own, unfortunately coherent, logic. Economic growth and technological change are accompanied by what the great economist Joseph Schumpeter called creative destruction. They replace the old with the new. New sectors attract resources away from old ones. New firms take business away from established ones. New technologies make existing skills and machines obsolete. The process of economic growth and the inclusive institutions upon which it is based create losers as well as winners in the political arena and in the economic marketplace. Fear of creative destruction is often at the root of the opposition to inclusive economic and political institutions.
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Chapter 6
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The Romans inherited some basic technologies, iron tools and weapons, literacy, plow agriculture, and building techniques. Early on in the Republic, they created others: cement masonry, pumps, and the water wheel. But thereafter, technology was stagnant throughout the period of the Roman Empire. […] There could be some economic growth without innovation, relying on existing technology, but it was growth without creative destruction. And it did not last.
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Chapter 15
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Growth under extractive institutions will not be sustained, for two key reasons. First, sustained economic growth requires innovation, and innovation cannot be decoupled from creative destruction, which replaces the old with the new in the economic realm and also destabilizes established power relations in politics. Because elites dominating extractive institutions fear creative destruction, they will resist it, and any growth that germinates under extractive institutions will be ultimately short lived. Second, the ability of those who dominate extractive institutions to benefit greatly at the expense of the rest of society implies that political power under extractive institutions is highly coveted, making many groups and individuals fight to obtain it. As a consequence, there will be powerful forces pushing societies under extractive institutions toward political instability.
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Creative Destruction Term Timeline in Why Nations Fail
The timeline below shows where the term Creative Destruction appears in Why Nations Fail. The colored dots and icons indicate which themes are associated with that appearance.
Chapter 3: The Making of Prosperity and Poverty
...creates winners and losers—and established elites often oppose it because they stand to lose from creative destruction (the process by which new firms and technologies replace old ones). For example, both landholding...
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...centralization in order to achieve economic growth. In general, they can’t create long-term growth or creative destruction because they don’t incentivize innovation. Moreover, extractive political institutions are generally unstable, because elite groups...
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Chapter 4: Small Differences and Critical Junctures: The Weight of History
...build inclusive institutions in the 19th century. Absolutist Chinese monarchies halted commerce as soon as creative destruction threatened their power. In India, the caste system and English colonialism created strongly absolutist, extractive...
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Chapter 5: “I’ve Seen the Future, and It Works”: Growth Under Extractive Institutions
...long-term growth because they don’t incentivize innovation and they give elites the power to stop creative destruction . This is why the Soviet economy just stopped growing after it finished reallocating untapped...
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Chapter 6: Drifting Apart
However, every wave of economic growth in Venice also caused creative destruction , which decreased the elite class’s profit margins and threatened its political power. Elite families...
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Technology also didn’t advance much during the Roman Empire because elites feared and sabotaged creative destruction . According to a famous anecdote, the emperor Tiberius killed a man who invented unbreakable...
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Chapter 7: The Turning Point
...worried that it would put knitters out of business. This illustrates how “the fear of creative destruction ” froze human living standards for most of recorded history. Innovation threatens elites’ power and...
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...cities greater representation and passed laws amenable to the manufacturing industry. The government now enabled creative destruction rather than stopping it.
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Chapter 8: Not on Our Turf: Barriers to Development
...on extractive economic institutions, like the Ottoman and Russian Empires, fought industrialization because they feared creative destruction . Second, societies without a centralized state couldn’t create the basic institutions needed for industrialization...
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...In short, he opposed innovation and focused on maintaining extractive institutions because he knew that creative destruction would challenge his power.
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...and extractive—state. Merchants and the public had no political power, and the emperor fought against creative destruction and technological change.
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...incentives to innovate, but most don’t, whether because of extractive institutions, absolutist rulers who fear creative destruction , or a lack of political centralization. But societies with inclusive institutions, or where citizens...
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Chapter 10: The Diffusion of Prosperity
...America. In Eastern Europe and the Ottoman Empire, absolutists opposed industrialization because they knew that creative destruction would threaten their profits and political power.
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Chapter 15: Understanding Prosperity and Poverty
...and Robinson continue, but this growth isn’t sustainable. First, real growth depends on innovation and creative destruction , which elites resist. Second, under extractive institutions, the powerful inevitably become wealthy, so the...
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