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The creative destruction of capitalism

| Sunday, March 28, 2004

To create, capitalism must also destroy.

You don't have to spend hours comparing this year's Fortune magazine list of top 500 U.S. companies with the list from 50 years ago to understand that cruel truth.

The fact that capitalism has to destroy old things in order to create new wealth and higher standards of living for the masses should be obvious to every breathing, thinking adult over 30. It isn't.

Many people - mainly the economic illiterates of mainstream journalism and the economic medicine men of politics who call for things like the outlawing of outsourcing - constantly decry or try to thwart the paradoxical process that economist Joseph Schumpeter long ago dubbed "the creative destruction of capitalism."

Schumpeter used the term to describe the heartless but ultimately beneficial waves of competition, innovation and entrepreneurial ferment that create and destroy and re-create our economic and social world.

Capitalism's creative hurricane is unstoppable. In 250 years, it has transformed us from a nation of sweating dirt farmers to a wealthy post-industrial service economy run by callous-free knowledge workers.

The evidence of the damage capitalism does to society is found in history books and on our main streets. Whole industries were destroyed.

Canals were made obsolete by railroads. Railroads were nearly wiped out by trucks and cars. Computers murdered the typewriter industry. Digital cameras are destroying Eastman Kodak's 100-year hegemony.

Capitalism's mighty wind blows away corner drug stores and topples corporate giants with equal ease. Look at Fortune's list of 10 largest corporations from 1954. General Motors, Ford and General Electric were there, as they are today. So was Esso (now Exxon-Mobil).

But so was mighty Gulf Oil, since 1984 a forgotten meal of No. 6 ChevronTexaco. So was U.S. Steel, now 209th on Fortune's list. Swift meats, today part of No. 85 ConAgra, was No. 5 in 1954. Wal-Mart, today's No. 1, did not exist.

Remember the Great Atlantic & Pacific Tea Company• Government trust-busters once worried it would monopolize America's grocery sector. Today A&P is virtually extinct, thanks to leaner, smarter chains like Safeway and Giant Eagle - which face the cutthroat predations of Wal-Mart and Costco.

Around here, former icons of local commerce like Isaly's, the Joseph Horne Co. and Hechinger's have disappeared. But now we buy what we need at Bruster's, Kohl's and Lowe's, often in greater variety for less. And when poor US Airways joins Pan Am in inefficient-airline heaven, we'll be flying JetBlue or AirTran.

The creative destruction of capitalism is not a pretty or tender process, as Pittsburgh's lost armies of manufacturing workers know too well. But the ever-grinding "churn" of capitalism, which simultaneously destroys and creates millions of jobs each year, ultimately produces more winners than losers in the long run.

It's a shame when the short-term price of progress is paid in lost jobs or fortunes by people you know and love. But capitalism - even the increasingly impure and over-regulated form we practice -- has made hundreds of millions of Americans rich, healthy and spoiled.

Its dual creative-destructive nature shouldn't surprise anyone anymore. Unless you work in protected government places like the U.S. Postal Service, a state liquor store or the Port Authority, it's the way capitalism works and always has.

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