How to navigate in Schumpeter’s Gale

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New technologies do not always replace old ones. The Concorde has long been scrapped, while the Boeing 747s are still flying. (Representative image)

By Sanjay Dangi

Modern capitalism operates on creative destruction. No, not video games. I refer to the theory advanced by Joseph Schumpeter in his 1942 book, “Capitalism, Socialism, and Democracy”, which says that technological advances (now called Schumpeter’s Gale) will eventually push established industries out of profitability in favor of new industries that offer cheaper and more efficient alternatives. By its own prophecy, the theory should have been replaced with something better. He still stands, ironically.

Although most of the textbook examples come from the first industrial revolution (trains and cars replace oxcarts, machines replace looms), this is also very evident in our time. Our parents went through the transition from typewriters to computers, and we ourselves saw the cell phone replace several gadgets in one go: alarm clock, radio, camera, voice recorder, etc. Email platforms like Flock and Slack are killing emails. And something will eventually kill them too. He created new professions barely a decade ago. In my childhood, I would not even have imagined such a profession of professional video player, yet a nephew of mine could still become one. Fortunately for me, the job of giving sound advice is immune!

What we need to know is the dark side of creative destruction. It’s truly destructive – destroying livelihoods that depended on old technology, throwing mid-career people out of work and plunging deep into poverty. Entire regional economies can be ruined, creating vast rust belts. No wonder, then, that it often meets resistance from workers and those who depend on them for votes. But should we?

Creative destruction empowers the customer by giving them better choices. I remember the long lines in front of phone booths to make long distance calls in the 90s. With all of my interstate contacts now just a click away on my cell phone, I certainly don’t intend to go back. back. The elders will remember standing on the trading floor shouting out their buy and sell instructions (with a high probability of being misheard) and then following the physical transfer of the share certificates. Online commerce and demat certificates just got so much easier. It is also the way forward to save our planet, by closing inefficient coal plants in favor of renewable energies.

Yet, as a worker, whether self-employed or salaried, creative destruction is a bit like a black swan – you always know when it’s happening. But as the scientist Louis Pasteur put it so well, “fortune favors the prepared mind”. Here are some tips I learned that might help you.

Always be prepared to unlearn. What worked yesterday may not work today. Young people don’t want to take cash or wait for change. Redeem the old galla for a QR code. If you’ve learned how to make a hero from the “just in time” manufacturing model, you’re unlearning it the hard way now.

It pays to learn from young people and stay at the cutting edge of technology, but it is not enough. Schumpeter’s gust of wind doesn’t just come from technology. Social trends also play an important role, whether it’s about putting an end to abusive practices or expecting companies to be more environmentally conscious. It is often technological advances that lead to social change.

Reinvent yourself. You might be on a fluid career path and expect to become a CEO. That’s what many MBAs in supply chain management, finance and HR thought in 2019. They all have to unlearn things after the pandemic disrupted supply chains, payments and the culture of office.

Either they reinvent their careers or they get laid off. Continuous improvement of skills is the only way forward. Part of that comes from keeping up with the latest news and in-office training. For the rest, you may need a class or two. If you have studied computer science, you may want to stay ahead of the developments in artificial intelligence.

Don’t be over-invested. Much of the destruction is due to this – too much capital invested in outdated technology. This is one of the reasons why factories in Mumbai never recovered from the strike of 1987.

Among other reasons, they had not invested in modernizing factories over the decades and struggled with inefficiencies and production capacities that could not keep up with demand, even though manpower issues. could be resolved. Supportive government policies (such as the scrapping policy of 2021) can help carriers with aging fleets replace them, but the government cannot always be expected to come up with policies before it. not be too late.

Always cover. Good investment advice is also good life advice. People who held onto Kodak and Gamestop stocks even as the market went digital first and then online can tell you about missed opportunities. No matter the reddit shenanigans – physical stores selling downloadable games won’t be a thing, no matter how nostalgic. You might be betting on coal mining stocks as they skyrocket, but in the long run, the government wants coal where it belongs – underground. Some of this money could be invested in stocks of wind or solar energy companies, where you will gain long-term value. Or maybe not – as far as you know, cola could make a dramatic comeback. New technologies do not always replace old ones. The Concorde has long been scrapped, while the Boeing 747s are still flying.

Try to put yourself on the safe side. To disturb or to be disturbed is the motto of creative destruction. If you row against the Schumpeter gale you will find your sails in tatters. Netflix is ​​a prime example of a change of course: it has gone from a DVD rental business to an online streaming platform over time, while rival Blockbuster has sunk in titanic fashion. Predicting – or even surfing – the next big wave isn’t always easy. But there is no other alternative but to try.

The author is a director – Authum Investment and Infrastructure Ltd., and a financial investor in many startups. The opinions expressed in the article are the personal opinions of the author and do not reflect those of Financial Express Online.

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