Capitalism means creative destruction. Can the third world handle it?

The defining and defining feature of capitalism is “creative destruction” – a phrase coined by the great Austrian economist Joseph Alois Schumpeter who described it as “the process of industrial mutation that ceaselessly revolutionizes the industrial structure from within, incessantly old is destroyed, and incessantly creating a new one.” From the invention of the Spinning Jenny to the steam engine to the airplane to the internet or say the Internet of Things (IoT), robotics, virtual reality – the grist to the mill of the 4th industrial revolution, creative destruction has always been a theme field of capitalism. If capitalism correlates with development, what does this mean in the context of creative destruction? And where is the nation-state construction? What choices do ‘late industrialisers’ (less developed or developing countries) have?

These are broad but interrelated questions. Think about development first. If income growth and purchasing power parity (PPP) are seen as the primary measures of economic growth and development (two different categories) and as proxies for both, what would they mean against the backdrop of the 4th Industrial Revolution caused by creative destruction? I’m not an economist, but I’d take a guess: When technologies change continuously and consistently with unprecedented change, economic growth and development become the outgrowth of the speed of technological change and its adoption. The obvious implication here is that measures of PPP and income growth would then always be in flux. Of course, there are other variables to consider, but technology remains the main game in town today, so to speak. This in turn means that only those countries that stay ahead of the ‘technology frontier’ remain relevant players. Where are developing and least developed countries?

If stragglers is the answer. Can these countries stay in the proverbial game and grow? These countries basically have two choices: the first is to be technology followers and either be early or late adopters. (This would depend on their institutional matrices, depth and absorbency thereof). But late adoption or even the early variant against the backdrop of unprecedented technological change would mean, to use an economics term, “unstable equilibrium” that would negatively affect their growth and development. So how can developing countries have their proverbial skin in play? By being at the forefront of technology, as innovators and pioneers. But none of these are a function of mere technological or human capital. Essentially staying ahead of the technological curve means a mental and intellectual revolution that calls for a mindset that goes beyond the “limit of possibility.” What does this mean? It means shattering mental constructs and possibilities about what is possible?

To use some rather vulgar examples, only then can developing countries produce Elon Musks (who has not only redefined the auto industry, but has forever disrupted it, leaving the world’s oil producers scratching their heads), or Mark Zuckerbergs (who once again defined how we communicate and express ourselves) or even Henry Fords of the world (who, thanks to the innovation of mass production at the time, allowed the availability of a car for the middle class). But how can overcoming the frontier of possibilities become a reality in the developed world? On the basis of a conceptual revolution and a vision that even looks at space as an entity to be explored’, for example. It would also break the mold of convention and tradition. (I’m not advocating the massive jettisoning of conventions and traditions, just those bits that hinder creativity and the impulse to do the bold and beautiful).

In some cases, this can even involve or mean madness. But madness is the price of creativity and genius. The great technological innovator or creator can roam the streets, rant and rant, or produce something bold and beautiful that benefits society and humanity. Only then will Mars or Venus become possible exploration grounds. Do developing countries and their people have the necessary madness in them? Hard to say, but genius shouldn’t be the prerogative of one culture. But certain things can be learned from this culture and other things that are not learned.

This is the essential requirement of creative destruction. Where does all this leave the nation-state? The entity – essentially a bounded container of peoples defined by geographical boundaries – which in the past used devices like protectionism, autarky, import substitution, controlled trade and then liberalized these regimes for the sake of the economic growth and development of the respective peoples changed over time of time in a ‘regulatory state’. Not only was capital sought and some of its rough edges tried to be contained, but also technology and its transfer. With technology now embedding capital and the speed of technological change unfolding at an astonishing pace, the nation-state continues to falter. In an age where a company hires the best talent from around the world, what does it mean to hire locally? What does ‘full employment’ mean at a time when a person with a broadband connection or data connectivity can work from a cave? What does a strictly proprietary portfolio of financial assets mean in an era where financial capital tracks returns? The examples can go on endlessly.

Essentially, these developments and the staggering imports mean that globalization is not dead and will not die. As in his previous avatars, despite resistance and the ‘double movements’ it will come and happen in waves. There is then an ‘imperialism of capitalism’ at work from which no state is immune. This even has geopolitical implications.

Territory would be one aspect that a state would like to retain as a power factor, but the nation-state that remains relevant and at the forefront of the technological game wins the ‘Great Game’. So, all in all, technological determinism is real. But this does not and should not mean that the world becomes one giant chat room defined by homogeneity.

The world, however diverse it may be, must remain that way. Cultures or the beneficial aspects of cultures must remain alive, as do corresponding traditions. But is this possible? Can creative destruction be synthesized with cultures and what they have to offer? Or would the ‘instagram effect’ – displacing cultures where virtual reality creates a different reality – where haute couture and high fashion in and off the high street in Paris, for example, would determine what a young man or woman would wear in, say, Kashmir, and thereby be or affect her cultural vision? No easy answers lend themselves here. The appeal of capitalism is great. There are hardly any economic alternatives left. But if the natural and inevitable result of capitalism and its attendant creative destruction were a unified, homogeneous world, defined by consumption and consumerism as the values, it would be a dull and tasteless world.

(Disclaimer: The opinion of the writer does not represent the opinion of WION or ZMCL. Nor do WION or ZMCL endorse the opinion of the writer.)

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