Tue, May 08, 2007 - Page 9 News List

The silver lining to impending doom

High anxiety leads to more intense pursuit of innovation, so warnings about environmental catastrophe may have unexpected positive effects

By G. Pascal Zachary  /  NY TIMES NEWS SERVICE , NEW YORK

Across the world, doomsayers are smiling. The mounting signs of climate change have forced onto center stage the challenges of reducing carbon emissions and quickly adapting human activities to thrive in higher temperatures and more unpredictable weather.

Alas, the bad news about climate change is good news for business.

A curious feature of capitalism is that threats, or more precisely, the human response to them, are economically and technologically stimulating.

Or, to put it another way, "Necessity is the mother of invention."

There will always be doomsayers, and fantasies about the end of human society are a staple of Hollywood and science fiction. But these days, a lot of smart people are seriously contemplating the looming destruction of human society, whether through a cascade of natural disasters, nuclear wars, uncontrolled terrorism, novel pandemics or, of course, climate change. Because I attended the Woody Allen school of futurism and generally find humanity poised between the horrible and the terrible, I always remember the childhood story of the boy who cried wolf.

Cry too often about ill-formed threats and you lose all credibility. But there are good reasons to believe that crying wolf is exactly what the brightest innovators ought to be doing, and not only in response to the challenge of climate change. As a general matter, high anxiety will lead to more intense pursuit of innovation.

In the history of economics, the ultimate wolf-crier was Joseph Schumpeter. An Austrian economist who taught at Harvard, Schumpeter in 1942 coined the term "creative destruction" to describe what he viewed as the engine of capitalism: how new products and processes constantly overtake existing ones. In his classic work, Capitalism, Socialism and Democracy, he described how unexpected innovations destroyed markets and gave rise to new fortunes.

The historian Thomas McCraw writes in his new biography of Schumpeter, Prophet of Innovation: "Schumpeter's signature legacy is his insight that innovation in the form of creative destruction is the driving force not only of capitalism but of material progress in general. Almost all businesses, no matter how strong they seem to be at a given moment, ultimately fail and almost always because they failed to innovate."

Schumpeter's concept of creative destruction is justly celebrated. The economics writer David Warsh calls it the most memorable economic phrase since Adam Smith's "invisible hand." Peter Drucker, the late business guru, went so far as to declare Schumpeter the most influential economist of the last century.

Clearly, any quick survey of technological change validates Schumpeter's essential insight. The DVD destroyed the videotape (and the businesses around it). The computer obliterated the typewriter. The automobile turned the horse and buggy into an anachronism. Today, the Web is destroying many businesses even as it gives rise to others. Though the compact disc still lives, downloadable music is threatening to make the record album history.

"Schumpeter's central idea is just as important now as ever," says Louis Galambos, a business historian at Johns Hopkins University. "The heart of capitalism and its claim as an efficient economic system over the long term is the role that innovation plays."

Schumpeter brilliantly realized that innovation -- so often extolled as the purest expression of the human spirit -- has a dark, violent, even nasty side. Every innovator, in short, makes a declaration of war. And every successful innovation is a destroyer. To be sure, in these wars only technologies die, not the people who stand behind them. Yet people suffer nevertheless. Richard Fisher, president of the Federal Reserve Bank of Dallas, said in a speech last month that he knew firsthand of "the painful adjustments that economic advancement inflicts upon displaced workers."

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