Waves Of Creative Destruction Research Articles

On the relationship between inequality and entrepreneurship

Research SummaryWe reexamine and explore the modern view of inequality against entrepreneurial market process theories, which leads us to three key assertions. First, we question the validity of income inequality as a proxy for true inequality (i.e., inequality of individual well‐being), observing nonlinearity between the two constructs. Second, we explore the entrepreneurial microfoundations of growing and shrinking inequality in market societies, arguing that individual inequality is primarily the outcome of abnormal gains from disequilibrating creative destructive processes. These shifts are temporary, however, as equilibrating (arbitraging) entrepreneurship competes away monopoly profits. Growing inequality trends, then, are seen primarily as the result of increasingly large, but also shorter, waves of creative destruction. Finally, we reconsider the issue of the injustice of inequality through this market process lens.Managerial summaryWe contribute three arguments to the debate over economic inequality. We are (or ought to be) concerned over differences in individual well‐being, not income. Studies of income inequality can be misleading. We argue that a key and so far overlooked source of economic inequality is entrepreneurship. Disruptive entrepreneurship (via innovation) redistributes economic resources away from the present industry, reallocating them in a more unequal redistribution, with the successful disruptor capturing an unequal share of resources. Imitative entrepreneurship, however, tends to mitigate this inequality, competing away abnormal profits while expanding new products’ diffusion among consumers. Finally, we observe that economic inequality may not be as unjust as previously thought, and we caution against corrective policy that might inhibit entrepreneurship.

The Disruptor Array

To understand this approaching wave of creative destruction, two basic concepts are helpful: exponentiality and simplification. First, on exponentiality, humans tend to think in linear terms. That is, we notice a rising trend generated by the early stages of steady growth but don’t extrapolate to the point at which progress will go parabolic (if it continues at the same rate). As Ray Kurzweil, noted inventor, author, and now Google’s director of engineering, told a Singularity University audience in August 2014, “People tend to dismiss a disruptive technology when it’s only 1% of a solution, ignoring the fact that it’s doubling every few years and will be at 100% in a very short time.” Second, on simplification, it’s important to understand that in many cases, the real disruption will come not from bigger, “badder” machines but from simpler, smaller ones. “A typical high-end sports car like a Mercedes S550 has around 1,600 moving parts; a Tesla [electric car] drive train has 19,” says Alex Daley, editor of Casey Extraordinary Technology newsletter in Stowe, Vermont. “A Predator drone is far simpler to build and maintain than an F-35 fighter jet. Big, single-purpose manufacturing robots are being supplanted by fundamentally simpler 3D printers. At every point in the manufacturing process, the steps are being simplified and digitized, as software replaces hardware.”

The Relationship between Inequality and Entrepreneurship: A Conceptual Model and Preliminary Tests

Inequality has recently been a topic of great social, political, and academic interest. We explore the entrepreneurial microfoundations of inequality, in terms of income and of quality of life. Specifically, we draw on the seminal work of Schumpeter and Kirzner to develop a two-process economic growth model that helps to explain the growing and shrinking trends of inequality. We argue that inequality is primarily the outcome of abnormal individual gains from successful entrepreneurship, as entrepreneurs create large shifts in the distribution of wealth in creative destructive processes. These shifts are temporary, however, as other arbitraging entrepreneurs take advantage of new innovations and compete away monopoly profits. Growing inequality trends, then, are the argued to be primarily the result of increasingly large (magnitude), but also shorter (duration), waves of creative destruction. Our primary contribution is conceptual. However, we also provide preliminary empirical support for our model from US state-level panel data over a six-year period.

Business Strategy for the Technology Revolution: Competing at the Edge of Creative Destruction

This article presents an overview of the Technology Revolution and how corporations compete in an era of economic transformation. We draw on a state-of-the-art forecasting system to outline strategic technological advances that are likely to enter the mainstream and their expected impacts. To better understand how to navigate this wave of change, we examine three corporate exemplars that have thrived by surfing the leading edge of the technology tsunami—Netflix, Apple, and Toyota. Then we integrate what can be learned from these cases into guidelines for technology strategy. Collectively, the forecasts, exemplars, and guidelines should help improve understanding of the rising wave of creative destruction and advance research on forecasting, technology, and strategy.

Organizational Environments and Industry Exit: the Effects of Uncertainty, Munificence and Complexity

Economists and organization theorists have asked which factors are linked to the rate at which firms exit an industry. Yet little research has linked exit rates to changes over time in the key dimensions which characterize an industry's environment. This study examines linkages between exit rates and changing levels of uncertainty, munificence and complexity in an industry. A longitudinal study of the American cement (1888–1980) and minicomputer (1958–1982) industries reveals that uncertainty is the key environmental dimension associated with organizational mortality. Controlling for ecological and macroeconomic conditions, exit rates are associated with uncertainty, but not complexity or munificence. The greater the uncertainty, the higher the exit rates. Two kinds of uncertainty create hazardous environmental conditions: unpredictable changes in demand and eras of ferment bounded by technological discontinuities and dominant designs. Our results indicate that while organizations can deal with different levels of economic munificence and complexity, uncertainty is a significantly more lethal characteristic of organizational environments. The results support Schumpeterian perspectives linking industry turnover to ‘waves of creative destruction’, but suggest more broadly that an organization's ability to cope with uncertainty is a key determinant of its life chances.

Waves of Creative Destruction: Firm-Specific Learning-by-Doing and the Dynamics of Innovation

This paper develops a model of repeated innovation with knowledge spillovers. The model's novel feature is that firms compete on two dimensions: (1) product quality, where one firm's innovation ultimately spills over to other firms; and (2) distribution costs, where there are no spillovers across firms and where learning-by-doing on the part of incumbent firms gives them a competitive advantage over would-be entrants. Such firm-specific learning-by-doing has two important consequences: (1) it can in some circumstances dramatically reduce the long-run average level of innovation; (2) it leads to endogeneous bunching, or waves, in innovative activity.

The Population Dynamics of Schumpeterian Competition.

Academy of Management Annual Meeting Proceedings includes abstracts of all papers and symposia presented at the annual conference, plus 6-page abridged versions of the “Best Papers” accepted for inclusion in the program (approximately 10%). Papers published in the Proceedings are abridged because presenting papers at their full length could preclude subsequent journal publication. Please contact the author(s) directly for the full papers. ArticlesThe Population Dynamics of Schumpeterian Competition.Philip AndersonPhilip AndersonPublished Online:13 Dec 2017https://doi.org/10.5465/ambpp.1988.4980368AboutSectionsPDF/EPUB ToolsDownload CitationsAdd to favoritesTrack Citations ShareShare onFacebookTwitterLinkedInRedditEmail AbstractThe rate of exit from an industry is affected by population density and radical technological breakthroughs, but not by fluctuations in demand. Schumpeterian "waves of creative destruction" exercise independent selection pressure, suggesting that organizational ecology models should include terms representing environmental shocks. Mergers differ from other forms of exit.FiguresReferencesRelatedDetails Vol. 1988, No. 1 Permissions Metrics in the past 12 months History Published online 13 December 2017 Published in print 1 August 1988 InformationCopyright of Academy of Management Journal is the property of Academy of Management and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder’s express written permission. However, users may print, download, or email articles for individual use.KeywordsBUSINESS failures -- ResearchMARKET exitPOPULATION densityTECHNOLOGICAL innovations -- Economic aspectsDEMAND (Economic theory)COMPETITION (Economics)CAPITALISM -- Social aspectsECONOMIC trendsSUPPLY & demand -- Economic aspectsORGANIZATIONAL sociology -- Economic aspectsBUSINESS cycles -- Economic aspectsCONSOLIDATION & merger of corporations -- Economic aspectsDownload PDF