The great Austrian economist Joseph Schumpeter coined the term "Creativedestruction," which is considered to be most in line with economic realities but does not fit into the framework of mainstream economic analysis. One of the big reasons is that "creative destruction" is based on pessimism. Both Karl Marx and Werner Sombart see "creative destruction" as a tragedy of "digging your own hole and jumping by yourself", an insurmountable "self-destruct system".
Schumpeter's pessimism was slightly better, and he felt that creative destruction would eventually "bury" the capitalist system, and there was a very respectable thing in it, called "entrepreneurship." The so-called entrepreneurial spirit is to use new technologies and new models to "impact" the goods, organizations and services that exist in the original market. Their victory means the defeat of others, they are the source of "creative destruction", Schumpeter believed, "they are heroes of the cycle of tragedy".
Modern economists have abandoned Schumpeter's "cycle of capitalist tragedy" and focused on "innovation and entrepreneurship." In the traditional economic growth model, only the model of the input of factors of production, in Solow, confirms the importance of technology. In Paul Romer's endogenous growth model, technological innovation is the most important variable. However, none of them thought beyond Schumpeter. In Schumpeter's view, innovation is initiated through "new entrants" and then replaced by "old guys".
In Solo's neoclassical model of growth, technology is exogenous, meaning that it does not know how technology came about, perhaps "falling from the sky". Paul Romer was not satisfied with this treatment, treating technology as an innovative idea inherent in economic agents. Once a new idea is generated, it has positive externalities, and its spillover effect can greatly improve efficiency, not only for innovators, but also for related and unrelated people. Therefore, we must set a "rent" for this good thing, and we need a "patent system" to protect the "source of endogenous growth - innovative ideas", otherwise, everyone will choose "free riding" and "cottage", and no one in the whole society is willing to innovate, and the entrepreneurial spirit will shrink.
Now, Philippe Aghion is on the scene.
One
First, Aguion believes that "creative destruction" is optimistic, not pessimistic. He believes that creative destruction will lead to explosive growth that changes the course of humanity. Before 1820, human economic growth was actually stagnant, and the history of mankind after the Industrial Revolution was a completely different economic growth trajectory. Human material production is accelerating, all because of the "creative destruction" brought about by technological innovation.
Second, Aguion wrote a very important paper with collaborator Howitt in 1990, AModelofGrowththroughCreativeDe-struction. The core point of this paper is that innovation is a process of "wrestling" with old things. Unlike the previous sages, innovation is not a positive externality as soon as it comes out, but is ignored, attacked, and stifled by the old stakeholders. And innovation is constantly cracking down on old technologies and old interests. Everyone is a relationship of "fighting" and "struggling".
The power of creative destruction
Philippe Agion, Selina Antonin , Simon Binell / By
Yu Jiang Zhao Jianhang / Translation
CITIC Publishing Group Co., Ltd
November 2021
Innovation is a tidal wave process. When the basic innovation is up, the application innovation does not keep up, then the first stage of the wave represented by the basic innovation ("wave 1") is a stage of being insulted, ignored and even excluded. The steam engine was invented in 1712, but it was not used on a large scale until 50 years later, when per capita GDP in England began to accelerate in 1830, when the steam engine had replaced human and animal power on many machines on a large scale. Initially, it was seen as a "quirk", a new thing, and people only craved a faster horse. Jobs's iPhone isn't mentioned in The Power of Creative Destruction, but it's a good example. In 2007, the first generation of iPhone came out, and it was also regarded as a "niche product" and "strange tricks" by Nokia, the hegemon of mobile phones at that time, but in 2011, 4G networks began to appear, and human beings entered the era of high-speed networks, iPhone4 became the entrance to the mobile Internet, and a large number of app applications appeared on the iPhone. Facebook, Meituan, Uber, airBNB, etc., appeared like stars and profoundly changed human life. The long and rapid growth of the iPhone was an endless oppression and humiliation of Nokia, and the greatest giant of the feature console era soon fell down. Originally, it was the leader of 4G networks and the largest patent holder of mobile phones.
Third, when the basic innovation is not strong enough and has not yet been widely used, in the case of the total amount of social resources remaining unchanged, the productivity of a large number of resources entering the innovation industry is low, and the productivity of the whole society is lower than in the past. Therefore, at this stage, the "secular stagnation" rhetoric is very popular.
The most representative is the Nobel Prize-winning economist Robert Fogel, whose most important work is to argue that during the American Civil War, northern capitalism using the machines of the Industrial Revolution was less productive than the southern plantation slave economy. Obviously, this is ridiculous. He can't see the "productivity paradox" that emerges in Wave 1 – just as the labor productivity of a 12-year-old school "school bully" is certainly not as good as that of a 12-year-old coal mine child laborer, but the productivity of a primary school bully will "explode" after the age of 22. The latest confused economist is Robert Gordon, who claims in The Rise and Fall of American Growth that "the Internet has brought about less progress than railroads." According to his calculations, the Internet is very bland in terms of productivity. Apparently, he also calculated the productivity of Stage 1 of the Internet Revolution, and then made inappropriate comparisons to draw rash conclusions.
We return to Aguión. When Wave 1 extends to Wave 2, innovative applications begin to accelerate, and many people have begun to accept such innovations with practical scenarios. Subsequently, the entire economy felt innovation. Innovation forms a huge economic scale, which is Wave 3. In the wave 2 stage, innovation began to hit the "old forces" of enterprises and jobs, "destruction" is more and more shocking, destruction is greater than creation, nokia and other companies have fallen. People blame Jobs for destroying too many jobs alone. By the 3rd stage of the wave, "innovation" created more jobs, creating more than destroying. When the founder of Meituan, Wang Xing, rang the bell on the listing, he did not forget to thank Jobs and his invention of the iPhone. There is no doubt that Wang Xing and the whole society have enjoyed the innovation dividend of Wave 3.
Interestingly, Aguion said that at the stage of Wave 1 and Wave 2, unlike Schumpeter or Romer, they are all outsider innovations, in fact, old companies will also carry out cutting-edge innovation. After Jobs's Apple hit Nokia, the Internet giants at the time, Google and Tencent, saw the power of the mobile Internet represented by the iPhone and quickly innovated along the mobile Internet route. The former developed the Android mobile phone system, and the latter developed the killer app WeChat based on mobile social networking. Therefore, innovation is not entirely initiated by new entrants, and incumbents will also observe, think, and innovate. But it is true that many companies far from the frontier do not innovate, and they all die. Therefore, innovation in wave 2 will show great inequality.
Following Aguion's line of thought, the government should be a guarantee government in the second stage of the wave, making the necessary relief for those "losers". Keynes found a large number of skilled unemployment in the 1930s. Leonsev discovered in the 1950s that machines were constantly replacing manpower, and he pessimistically believed that unemployment would increase in the future. Now, there is a new pessimistic cycle, the combination of the digital economy and automated robots, once again there is a problem of large-scale substitution of labor, whether to levy more taxes on the digital economy, whether to tax robots has become a focus issue. History has proved that people are flexible, difficulties are only temporary, they have great evolutionary adaptability as a whole, but in the wave 2 stage, the government is needed to intervene, and the government is needed to smooth out the "discomfort" at this stage, which is the responsibility of the government.
Two
In Wave 3, inequality will be alleviated. Because innovation through the three stages to really improve the social production efficiency, the production of more social wealth. In fact, the benefits of innovation will certainly spread to the whole society. Taking the services of ordinary barbers, many innovative companies get more profits, employees get more income, resulting in the price of barber haircuts near the enterprise will also rise, thus increasing the income of these innovative departments that have not occurred for the time being. What's more, governments can tax the "extra" wealth generated by innovation, alleviating the pain of employees of failed businesses and helping them weather the storm. Therefore, a suitable standard social security system and a relief subsidy system are what the government should do.
Aguion used a new saying that the government should be an investment-oriented government and be responsible for innovation.
Many people will say that innovation should mainly rely on enterprises or markets, how can it rely on the government? The essence of innovation is that those heroes with an entrepreneurial spirit drive innovation. They are businessmen, scientists, inventors、...... They are a large group of geniuses. Genius, on the other hand, is not produced entirely in proportion to the size of the population, but in proportion to the size of the well-to-do family. The implication behind this is that the government's goal is to pursue an olive-shaped society, to make the middle class larger, to make education fairer, and to increase the entrepreneurship of the population from the source. In addition, the government should also help universities and research institutions to carry out "non-short-term utilitarian" research and increase the thickness of basic research, which will also promote the occurrence of "Wave 1" as soon as possible, because Wave 1 corresponds to a breakthrough in basic innovation, which has a high degree of uncertainty and is difficult to complete completely through enterprises.
Of course, this also puts forward "demands" on the government, which must be a government based on the rule of law, not a government tied to interest groups, not a government manipulated by lobbying forces. It needs to be open, transparent, monitored and accountable. The government should also be an investment-oriented government, especially in national education, in basic research, and frankly, in "Wave 1".
Three
Now let me talk about another lesson I have about this book: the importance of taste.
In simple terms, what underpins the foundations of economics? How should bottom economics observe the most important propositions of this era?
French economists clearly occupy the most important propositions of this era: inequality and innovation. Piketty's Capital in the 21st Century is one of the most important economics books of the 21st century. He "hit" the ideological pain points of this era and triggered the inner resonance of countless ordinary people. Innovation is the loudest slogan in the era of the digital economy, and it is another ideological pain point, which has pushed countless ordinary people to build their own small businesses. Aguion, also French, combines these two themes, and he seems to have a biological sense of communion, and his way of portraying innovation is dynamic and biological. The way he describes the game of market players is dynamic and biological. His attitude toward the government is also dynamic and biological. That is, government is not portrayed as an immutable external force, but as a species that should "operate" in tandem with markets, enterprises, competition, and the diffusion of knowledge, and government is also an evolved species. This species evolves to fit markets, businesses, and societies.
Economics is the study of rational human behavior. But the essence of man is an evolutionary nature, and the worst part of economics is to "fragment evolution" so that they don't know what is the source of rational behavior that shapes human behavior. Economics only studies how to do things right, not what is right.
Taking the famous "Giffin utility" of economics, the British economist Robert Giffin studied irish potato sales and found that when the price of potatoes rises, demand should have fallen, but instead it has risen. Why is that? Because Ireland lacks what biologist E.O. Wilson calls "biodiversity." In order to increase the so-called potato production, the Irish introduced a single potato plant, without genetic diversity, particularly vulnerable to epidemics, a "attack" of the pathogenic Phytophthagore water mold, which almost destroyed all potatoes, caused a famine, led to the starvation of 1 million people, making potatoes the "Giffin commodity" in the mouths of economists at that time: although the price rose, people had to buy more and hoard.
The same principle appears in the "species" of government, if it is a hereditary system, a lifelong system, or a limited access order, there is no class flow in the entire government system, there is no intellectual diversity, there is no empathy diversity, there is no diversity across classes, there is no diversity in information interaction. Then it will be destroyed by some kind of "virus", no matter how noble and correct the "breed" it claims to be. Like koalas or cheetahs, they have low levels of genetic diversity and are always on the brink of extinction.
Aguion's phased panoramic description of the wave of innovation also has, in my opinion, a biological temperament. Innovation emerges like a "genetic variation", where new genes are introduced into the gene pool, but new genes do not necessarily survive immediately, or grow immediately. It depends on the drift and selection of the gene. If adaptation problems can be overcome and these genes are not cleared, the mutation persists and spreads, positively affecting genetic diversity.
If we look at some economists again by this standard, the same great economists of the Austrian school, Mises and Hayek, predicted the failure of the Soviet-style planned economy, but the two tastes were not the same. Hayek was a little taller. Mises's regulation of man is a "transcendental rule"; his view of government is an "eternal demonic character". In his case, man is not an evolved species, a physical population with the same basic attributes; nor is the government an evolved species, an "unrepentant demon." So Mises's "liberalism" is a kind of liberalism that lacks original thinking, and eventually becomes a kind of postureism. Hayek, on the other hand, recognized that the Soviet model was a system in which bureaucrats held all market information (in fact, lacked "biodiversity"). The market economy and democracy do not have such a "hard wound". By the same token, the Chicago School, though it has many dogmatic parts, is significantly better than the old Keynesian School. Because the old Keynesian move is just some "agitation" and does not increase "genetic diversity".
Finally, I would like to honour the memory of E.O. Wilson, the author of Sociobiology: The New Synthesis, the recently deceased eminent scholar, who has endured many misconceptions.