Home Ford Model T The Economic and Social Impact of Nondisruptive Creation

The Economic and Social Impact of Nondisruptive Creation

The Economic and Social Impact of Nondisruptive Creation


Consider these examples: Netflix versus Blockbuster, Amazon versus booksellers and Main Street retailers, and Uber versus taxis.

They come from different industries, but they have three key factors in common:

First, they’re all cases of disruptive creation.

Second, they all reflect a clear win-lose situation.

And third, they all impose painful adjustment costs on society.

On the positive side, consumers win big-time. That’s why people gravitate to disruptive offerings, be it Netflix, Amazon, or Uber.

For a product or a service to disrupt, it must deliver a leap in value (typically underscored by a new business model); or the industry wouldn’t be thrown into disarray, and purchasers, whether they be businesses or consumers, would see no reason to shift from the incumbent offering to the new one.

But growth here is achieved in a win-lose way. The disrupter’s success comes at the direct expense of existing players and markets.

Which brings us to the second commonality: Disruptive creation imposes a clear trade-off between winners and losers. In some cases one wins and everyone else loses. That’s because the leap in consumer surplus provided by the disrupter can nearly wipe out the existing industry and its incumbent players.

Although the disrupter is hailed as a winner in the press, and purchasers and investors flock to it, this win-lose approach triggers the third commonality: painful adjustment costs for society, often hidden by the euphoria and glamour that surround disruption.

Take Amazon. It didn’t merely displace Borders’ 1,200 stores and countless independent booksellers and take a huge chunk out of Barnes & Noble’s sales. It is doing the same to Main Street retailers and department stores nationwide.

As Amazon wins big-time with strong growth, most of these other players have been losing big-time with an alarming rate of store and mall closings and bankruptcies across America. The human costs of Amazon’s disruption include tens to hundreds of thousands of lost jobs, not to mention the visual effect of forlorn, boarded-up stores, which subtly wears on people’s psyches and tarnishes the vibrancy of a community.

Retail jobs may not be glamorous, but they provide livelihoods for millions of people.



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