Managing Creative Destruction

I have just gotten the hang of Facebook, and now people are moving to Twitter.

What the hell is wrong with Facebook? Why do I have to learn a whole new deal?

We are in the middle of so much change as a nation, I think it’s making us all a tad bit crazy.

Alvin Toffler predicted this in his seminal Future Shock. Future Shock has hit many in our society who don’t know what to do once they get laid off. They aren’t equipped with the skills to become entrepreneurs, to navigate the crazy laws and regulations that make it so hard to be a small-businessman, let alone figure out the best way to get low-priced healthcare or to create a product or service that is marketable.

For an economic stimulus to work, the government needs to make it easier for the small-businessman to survive and to prosper. It’s not just about tax cuts. And it is not just about sending money to the states. It is understanding our new economy and how to help our citizens to manage change.

Companies are outsourcing their work, not necessarily to India, but to independent contractors. That way they don’t have to pay their health insurance or their retirement benefits. That is just a fact of life. Companies are doing this so they can survive long-term.

As a result, you have a lot of people who don’t have the crutch of the big company to rely on anymore. While that can be liberating for some, it is terrifying for most. For those who are terrified, they are simply overwhelmed by the choices before them, and they shut down, sink into depression and wait for the phone to ring or the unemployment check to come.

The process of change, dizzying as it may be, does have an upside. The economist Joseph Schumpeter called it “creative destruction,” a process of transformation that accompanies radical innovation. In Schumpeter’s vision of capitalism, innovative entry by entrepreneurs was the force that sustained long-term economic growth, even as it destroyed the value of established companies that enjoyed some degree of monopoly power.

But right now, many Americans are feeling the pain of destruction, not the thrill of the creative. And, as a result, Democrats are winning points by attacking the free market and several tenets of the capitalist society.

Barack Obama calls for more government. Nancy Pelosi calls for more taxes on the job-creators. Almost every Democrat condemns free trade. They all seem to have an easy answer: The government can manage creative destruction.

But when government tries to manage capitalism, it inevitably screws it up. Higher taxes won’t help create jobs. More government takes away private-sector investment. Protectionism leads to even less trade.

These are prescriptions we can ill-afford. Trade is already down 18 percent from last year.

Instead of trying to manage the process of creative destruction, the government should think of ways to make our citizens more prepared for the change that will likely come. Simplify our laws and regulations so that the new entrepreneurs can succeed. Make it easier for individuals to buy affordable healthcare insurance. Give better incentives for small-business owners to save for their retirements. Rebuild the infrastructure, not only with roads and bridges, but also with broadband and Wi-Fi, and with a new, smarter, cheaper electricity grid. Prepare each citizen with the tools he needs to compete for the long term, so he can not only learn, but so he has the capacity to relearn and then relearn again.

We cannot do away with creative destruction, nor should we try to, because it is the fountain that keeps our economy from stagnating. Instead, we should better prepare the people to embrace change through simpler, smarter, more rational government, lower tariffs and more options to achieve the American Dream.

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