Creative Destruction: What's Next?
By Bryan Caplan
Everywhere I look, firms are going out of business. The recession is obviously the proximate cause. On closer look, however, the recession is just stepping up the bankruptcy time table for firms that were already on their way out. In the Amazon Age, why go to Circuit City or Tower Records or Linens ‘n Things? How are high-rent brick and mortar firms supposed to compete against mail-order firms that can operate out of Nowhere, South Dakota?
The answer, for a while, was that peak-earners in their forties and fifties weren’t yet comfortable with Internet commerce. But now the people who were in their twenties when Amazon opened back in 1994 are in their forties, and barely remember the bad old days of schlepping from store to store to find a backpack.
What’s going to happen now? Most people probably accept the economically illiterate view that the empty store fronts will stay empty forever. They don’t understand creative destruction, the free market’s phoenix-like ability to re-invent itself. Something‘s going to be done with all these idle resources once we get out of this recession. The question is: What?
If I knew the future of the economy with any precision, I wouldn’t be blogging about it; I’d be making it happen. (Well, actually I might still be blogging because I don’t feel like starting any businesses, but the question is moot because I don’t know the future of the economy with any precision). Still, it’s interesting to speculate about what creative destruction has in store for us.
1. Idle resources won’t do things that the Internet is doing better all the time. Retail of standardized goods with long shelf-lives belongs to mail order.
2. With plenty of inventory of both commercial and residential real estate, construction won’t revive for years.
3. Retail will focus on what international economists strangely call “non-traded” goods – services and products with short shelf-lives and/or high weight to value ratios. Maybe we’re on the verge of a golden age of restaurants?
4. Low-rent regions of the country will expand to handle Internet orders cheaply. Caveat: Perhaps rents in “high-rent” areas will fall enough to prevent this.
Am I on the right track? What am I missing? Details, please.