One of our regular readers and occasional commentators, Doug Garnett, happens to have expertise about media.
After he read Jill Lepore’s article, he reacted to it and added several other commentaries. He also links to Clayton Christensen’s rebuttal to Lepore.
This link is an amazing article which I urge you to read. It links together “creative disruption” with the complacency of our nation’s elites about the deindustrialization of the nation and the human toll it created.
Here is a small excerpt from a fascinating article:
A little backstory may help here. Prof. Christensen is now the most prominent heir of Joseph A. Schumpeter’s twin definition of capitalism as the source of all meaningful innovation in life, and of innovation as “creative destruction.” For both of these thinkers, the entrepreneur is the fountainhead of new value, and capital must be pulled out of less productive uses and allocated to the entrepreneur, who is the privileged source of all future of wealth-creation. In Schumpeter’s view, governments, publics, regulations, communities, traditions, habits, faculty senates, teacher’s unions, zoning boards, homeowner’s groups, professional organizations, and, last but not least, business corporations, do not create value but interfere with its creation. All that is solid must be melted into air for the entrepreneur to be free to innovate and thus transform. The resulting wreckage and waste is part of progress, and must not be reduced through regulation. This is true for shuttered factories, and also for high levels of inequality: both are part of liberating the entrepreneur to create the greater wealth of the future.
Although years of reading Prof. Christensen makes me think he’s personally humane, his theory is the business world’s single most powerful rationalization for disrupting every type of humane condition, such as job security, tax-funded public infrastructure, or carefully nurtured, high-quality product lines. Prof. Lepore was right to state, “Disruptive innovation is competitive strategy for an age seized by terror.” Disruption feeds on major and also minor terrors, like being left behind by a change deemed unavoidable, or being excluded from debate about the costs and benefits of undermining entire regional economies by offering tax breaks to companies that offshore production.
One outcome of the theory of disruptive innovation has been the shocking complacency of the U.S. political class about the national devastation wrought by deindustrialization. We have a “rust belt,” and ruined cities like Newark and Detroit, and wide areas of social and economic decline amidst enormous wealth, because business and political leaders were taught by consultants like Prof. Christensen that capitalism must destroy in order to advance. Journalists might come along and chronicle the horrible human costs of the decline of the steel industry in, say, Youngstown, Ohio (see the Tammy Thomas sections in George Packer’s The Unwinding (2013). But by the time someone like Mr. Packer arrived, decline has been baked into the regional cake.
The theory of disruptive innovation was arguably head baker, for it taught politicians in Youngstown and elsewhere that industries like steel and their unionized employees had been judged by an impartial market to be uncompetitive. Consultants would routinely opine that the only logical response to falling profits was the mass layoff and/or factory closure. In The Disposable American (2007), Louis Uchitelle pointed out that layoffs were not wars of necessity but wars of choice, and yet to say that deindustrialization expressed a cultural entitlement rather than an economic law was to stick one’s finger in the dike. Slowly but surely, Youngstown and everyplace like it no longer had economies that supported a broad, stable middle class. In addition, like Beckett’s Godot, the renewal to which this disruption was to lead never actually showed up.
Thus Prof. Lepore’s critique of disruptive innovation tapped into a pervasive, long-term anger about ruin in America and an anger at the corporate and political classes that deemed ruin necessary.
Thank you, Diane. Great article.
It really is so simple. If you are a legislator and you prefer to have the money roll in, the path of least resistance is to support “creative destruction”. Businesses and entrepreneurs take care of everything. Who needs to govern or solve problems? I’ve come to the conclusion that our elected officials really aren’t interested in solving problems (education is an excellent example of this attitude) or supporting working people, their are very few classy photo ops or big checks for doing so.
You’re right, Shirle. The path to solving long standing problems lies in utterly destroying the struggling institutions no matter the human costs. the old is labeled as stagnant or status quo and thus disposable.
The sad irony of the current deadly “status quo” where we see an apparently unstoppable charter/voucher/choice disruption is that it came into existence because it so loudly and negatively denigrated the old actually functioning and slowly improving traditional “status quo.”
The new status quo of the corporate reformers is a disaster.
They are advancing but they are losing.
Failure on failure.
They are losers!
They are hurting children.
Doesn’t it eat itself, though, eventually? If people don’t have any money to spend they won’t be able to support all these disruptors.
Doesn’t their target market get smaller and smaller? If you’re 22 with 100k in student loan debt the interest alone eats up your future income. If you’re a 22 year old 20 years ago and had a publicly funded college education your future income can be spent in other ways. You buy a house and appliances and cars and the great wheel ‘o commerce continues to spin.
This is called “eating your seed corn”, what these geniuses are doing 🙂
I hate to use the dreaded “p” word, but it’s also REALLY privileged to think that lower income people will embrace risk. They don’t embrace risk. They’re cautious. There’s a good reason for that. They can’t afford to lose. If Bill Gates makes a risky bet and loses he lives to fight another day. If low income people make one and lose they fall off the edge of the earth.
Maybe they realize that holding onto what they have is safer, and they require more security than fully employed disruptive genuises who start consulting businesses telling people to throw everything they know in the trash and adopt whatever crackpot ideas strike his fancy.
That’s not dumb on their part. It’s smart.
And yet they justify the high rewards because of the risk they took. Who is taking the bigger risk–the guy who has $1000 and bets $500 or the guy who has $100 and bets $50? Those with more always point to the higher dollar amounts they are risking. Funny how they always seem to have more.
None of the industries that moved production out of the US were unprofitable. They just were not profitable enough for an ideology and political economy based on infinite greed and nothing else.
Another ideological component has been the need to “discipline” – a euphemism that is better translated as “crush”- labor, which is also a process of engendering fear, fear of job and health insurance loss, fear of enemies, real or (mostly) imagined.
Fearful people are easier to manipulate by powerful interests, and that’s a major reason for the industrial-scale fear mongering we’ve been subjected to over the past two decades, so much so that we’ve become habituated to it, and have come to seek the governance and “protection” (the kind of “protection provided by a Tony Soprano) of those who cultivate it.
The additional major business thread that influenced moving production out of the US started in the 1970’s with emphasis on “shareholder value”. By the 1990’s, nearly every executive was incentivized primarily to increase shareholder value.
That shift mean that where companies used to be expected to be “good citizens” – operated for the benefit of their customers, their employees, their executives, their vendors, and their investors/shareholders.
The shift to “shareholder value” focus meant that moving production overseas increased executive bonuses even though it lost jobs and often has undercut significantly the long term value of the company.
The measure used to determine “success” matters tremendously – as do popular (and destructive) theories like “disruption”.
Yes, “shareholder value” is another one of those euphemisms that attempt to mask the reality of class warfare.
It has also led to the epidemic of “control fraud,” where managers commit illegal and/or highly unethical acts in order to juice the stock price, which leads to an increase in their compensation. The trillions spent in recent years on corporate share buybacks, often financed with debt, is a case in point.
@Michael Firorillo: I disagree. There are many reasons why firms relocate their manufacturing to another nation. In 2008, Volkswagen moved an operation to Chattanooga, Tenn. Their decision was based on costs, taxes, possible labor union problems(Tenn is a right-to-work state), utility costs (TVA electricity is lower cost, than other parts of the USA), etc .etc.
All corporations, whether USA based or international, have a fiduciary responsibility to their shareholders. When profits can be increased, by relocating, companies will do what is necessary.
Germany has strong labor unions. That’s part of the reason it has a strong economy.
Germany isn’t alone. In fact, Germany is far behind other countries on the top 18 list. Among the top 18, the US was ranked #17 with 13-percent, less than half of the ratio in Germany.
Union membership for other developed democracies, in 1986/87 were:
http://www.nationmaster.com/country-info/stats/Labor/Trade-union-membership
What’s interesting is that many of the countries that rank high in happiness also rank high in labor union membership.
#1 Norway is the overall happiest country in the world.
#2 Denmark
#5 Finland
#9 Australia
#10 Sweden
#13 Austria
The U.S. was ranked #14 (that vote must have come from the blue states where the majority that voted for Hillary live)
Note that in Finland, the teachers unions is powerful.
In Finland, all educators belong to the same union
Yep.
“More than 95% of teachers in Finland are unionized, paying 1.2% of their gross salary to support the Trade Union of Education in Finland, OAJ.
“The organization aims to influence policies that benefit educators, much as the state’s largest teachers union, the Wisconsin Education Association Council, does in Wisconsin.
“But in Finland, the OAJ negotiates on the national level with employer groups to create 14 universally binding agreements that spell out everything from minimum salaries to working hours for teachers and the length of the school year (currently 190 days).”
http://archive.jsonline.com/news/education/union-role-strong-in-finland-education-s536tlj-134546558.html/
A strong teachers’ unions gives grassroots, local power to teachers to do their job from the bottom up through the teachers instead of from the top down by those who are blinded by greed that worships at Milton Friedman’s Altar of Avarice.
They don’t have a fiduciary responsibility to make money at all costs. We have seen the results of that mentality.
Thank you, Charles, your first paragraph ably explained and proved my point in detail. Volkswagen moved some production to Tennessee because the US has become a low wage country, ensuring greater profits for the company. Was Volkwagen unprofitable with its production based in Germany, tormenting those poor, fiduciary-starved investors? Of course not, they just saw more profits here.
As for a company’s fiduciary responsibility to shareholders, since when does that give management the right to bankrupt communities, and often the very companies they run, in order to appease their infinitely greedy shareholders and executives?
I don’t recall shareholders suing management when companies were contributing to their local communities back in the day, claiming that their fiduciary rights were being abused. That’s because we lived under a different social contract then, when workers and communities, not just executives and shareholders, were seen as stakeholders in corporations. Quaint isn’t it?
AEI Education
Jan 5
More
EVENT | On January 16th, AEI will host a keynote address by Secretary of Education BetsyDeVosED as part of a research conference on #BushObamaSchoolReform.
Public school advocates, leaders and families should crash this event. They are deliberately being excluded from events they’re paying public employees to attend, events where PUBLIC schools will be discussed and policy will be set.
50 million children who attend the unfashionable “public school sector” who will be subjected to these ed reform policy plans should have an adult advocate in attendance. They are not represented. They are being systematically and deliberately excluded.
There are 3 charter lobbying groups invited, and DeVos will be stumping for private schools. Not ONE representative for public schools. It’s as if our families and schools don’t exist.
“One outcome of the theory of disruptive innovation has been the shocking complacency of the U.S. political class about the national devastation wrought by deindustrialization.”
The problem with this theory is that the country is not deindustrializing. Instead, the country has automated many jobs in the industrial sector. A recent major university study of this trend revealed that more than 80-percent of the jobs lost in the industrial sector did not leave the country. Those jobs were replaced by robots.
“The United States is the world’s second largest manufacturer, with a Q3 2016 industrial output (nominal GDP, annualized) of approximately $2.18 trillion, a record level. … The U.S. manufacturing industry employed 12.4 million people in March 2017.”
Employment in manufacturing peaked in the late 1970s at almost 20 million jobs and dropped from there to where it is now.
The PsyOps media campaign focused on blaming China and other 3rd world countries for this while totally ignoring the automation of manufacturing.
“Between 1983 and 2005, U.S. exports grew by 340 percent, with exports of manufactured goods increasing by 407 percent over the same period.”
Most of the new jobs replacing the jobs lost in the automating manufacturing sector shifted into lower paid jobs in the service based economy.
IN FACT: “Manufacturing is forecast to increase faster than the general economy. Production will grow 3.0 percent in 2017, and 2.8 percent in 2018. Growth will slow to 2.6 percent in 2019 and 2.0 percent in 2020.
“Five new forces drive this growth. First, is increased productivity. Partly that is due to new technologies, such as 3-D printing. Second is the growing domestic production of domestic natural gas and shale oil. Low gas prices attracted many industries that use it for manufacturing of other products. Both productivity gains and low oil prices reduce the U.S. production costs.”
https://www.thebalance.com/u-s-manufacturing-what-it-is-statistics-and-outlook-3305575
Disruption is a convenient excuse for opportunists to toss any semblance of decency out of the window so capitalists can step on everyone else in their pursuit of ROI. Often times the global economy is used as an excuse for such nilhilism, but a closer examination refutes this idea. Industrialized nations all over the world have felt the pinch of globalization, but the response in the US, which has more billionaires than most other industrialized nations, has been extreme. If we look at labor in other countries, we see that unions are alive and well in northern Europe, which also has the most secure social safety nets. If we look at Canada, we see that union membership remains at about 30% while the union membership has declined to less than 13%. America’s main problem is that is it a country that no longer works for its people. Our representatives work for the 1% and corporations. Regular people can no longer afford to stand on the sidelines. They must reclaim their rights to a secure future through activism and voting. http://www.nationmaster.com/country-info/stats/Labor/Trade-union-membership
These observations add a great deal to the article and Diane’s post. More excellent examples of how business practices are not transferable to the public sphere.
Here is a nice, one paragraph rebuttal of disruption by the U of Virginia president who was fired in 2012 just two years into her presidency
I have been described [by the board] as an incrementalist. It is true.
Sweeping action may be gratifying and may create the aura of
strong leadership, but its unintended consequences may lead to
costs that are too high to bear.
Creative disruption of US universities by leadership is sweeping through the country. The damage to morale, research, tuition, quality of education is vast and appear irreversible. Ăśbermensch-entrepreneur presidents and board members expect profs work like bees for them, and students are there to fatten these creative king and queen bees’ insane paychecks.