Open Page

Creative destruction in full flow

illus: for TH open  

As Alexa plays ‘Radio Killed the Video Star’, think of the products lying in their graves now or are in need of some life-saving surgery. Cable TV killed antenna TV but it is in turn now getting stabbed by media service providers such as Netflix and Hotstar. Smartphones have almost replaced keypad phones. Timely resuscitation of the latter by adding features such as 3G/4G support and enhanced memory have managed to sustain their support among people, who would like to know what’s happening around the world and yet not get overwhelmed by it.

Economics gives us a term to understand this transition of products happening in the market — Creative Destruction. Inspired by Karl Marx, J.A Schumpeter defined the ‘gale of creative destruction’ as a “process of industrial mutation that incessantly revolutionises the economic structure from within, incessantly destroying old ones, incessantly creating new ones.”

According to Schumpeter, without disruptions in the market there would be no development. In his analysis, he gives us the concept of circular flow. Circular flow is when the economy is in a stationary equilibrium, which is basically a static setting where economic activities follow a repetitive course. In order for further development to take place, it is essential to break this circular flow. And here comes the role of entrepreneurs with their innovations.

Today, electric vehicles (EVs) present one of the best examples of creative destruction. The alarm set off by radical changes in the global climate system has provided a wake-up call to leaders all over the world. They see EVs as a crucial element to minimise environmental casualties from the pursuit of human endeavours. They see it as an essential element of sustainable development.

Strategically, EVs have presented India with a rare opportunity to emerge as a global leader in the climate forum as well as a chance to unshackle itself from the hardships that oil have been creating ever since it went hyper-commercial. The evolution in the automobile industry riding on the internal combustion engine has been an interesting process.

Motor cars came on to the scene in the 19th century. The German engineer Karl Benz invented it in 1885. Later Henry Ford in 1908 came up with the Model T, which was relatively affordable. Demand for motor cars accelerated after the First World War and with it, the value of gasoline, or what we commonly call ‘petrol’. Oil went on to be called black gold. In fact, control over oil was one of the factors that determined victory in the First World War. And the oil industry as we know it began with the discovery of commercially viable oilfields in the United States in the mid-19th century.

The advent of motor cars destroyed the economic feasibility of bullock carts and horse-drawn carriages. Journeys became comparatively faster and safer than before. Distances that could be covered easily increased manifold. Besides, carts and carriages were labour-intensive for they required careful maintenance of horses and oxen. The animals had to be bathed and fed from time to time. Creative destruction of these found many peasants becoming unemployed.

Of course, the automobile industry opened up new opportunities, but in the short run, because of lack of adaptability amongst workers, there was a prevalence of structural unemployment. After the Great Depression, horse-drawn carriages more or less went out of vogue.

Thus, an old economic structure was gradually replaced by a new economic structure. And as Schumpeter said, the success of an innovation makes other entrepreneurs follow the original innovator in ‘swarm like clusters’. True to this, today we have companies such as Toyota, Renault-Nissan and Volkswagen, which are performing better than the original innovators in terms of sales. Will a rational consumer miss carriages over cars today? Heck no! Despite pollution, oil wars and road congestion. In terms of economics, this is development.

However, it seems that the dominance of traditional fossil fuel-based cars is coming to a slow end. Its agent of destruction is the electric vehicle.

It is important to note here that EVs are not a new invention. They go way back to a time when the Model T was not yet around; for that matter, Henry Ford was not yet born. The credit for inventing EVs goes to different people. In 1828, Anyos Jedlik created a small model car powered by an electric motor. Similarly, in 1834, Vermont Blacksmith Thomas Davenport and Professor Sibrandus Stratingh created their own models.

But it was only after 1895 that they started enjoying active consumer support. In cities such as London and New York, electric battery-powered taxis became available. But their popularity didn’t last in the face of competition from the oil-based car. EVs back than had slow speed and low range, and there was the problem of power inadequacy. Its market was restricted to the affluent sections.

In the early 20th century, oil was cheap and the introduction of the Model T, which was affordable to middle class Americans, cut short the success of the EVs of that era.

Thus, if a century ago oil-based motor cars creatively destroyed EVs, in the present time the tables have been turned yet again. In fact in India, NITI Aayog has proposed that by 2030 only EVs should be sold. While the game is on, let’s wait and watch!

Our code of editorial values

This article is closed for comments.
Please Email the Editor

Printable version | Jan 22, 2022 11:11:29 AM |

Next Story