Creative Destruction

Last month, Boyes and I reflected on the threat to future growth and development posed by an expansive welfare state. These threats are a clear and present danger and are a clarion call to reflect on individualism and the value of liberty.

Schumpeter seemed to foresee the present dilemna in his argument that the demand for the welfare state was a natural result of economic development and growth. North, Wallis and Weingast present an argument in Violence and Social Orders that open access societies are distinguished from limited access orders by the density and complexity of organizations - including government organizations and that the welfare state is complementary to sustaining open access. This argument is a provocative one and centers on the dynamic of redistribution that would appear to be inherent in the income inequality that accompanies the market order. Last month Boyes wondered if the political system (democracy) would inevitably lead to the welfare state. This raises the issue of path dependency and will provide the foundation for a future discussion.

Ken Autetta's recent analysis of the rapid evolution of reading has me leaning toward a sympathetic view of North's et al argument. The forces of Smith and Schumpeter appear to be racing ahead of the State - at least in this example.

I find the example of reading significant due to my reading of North's argument that beliefs and learning are a (the?) key ingredient in adaptive efficiency. I see the informal belief systems that support society as shaped by a process of learning that we do not understanding.

Having said that, while we might not understand the process of learning, reading is at the heart of a full comprehension of how learning emerges and evolves.

Autetta's reading of the attack on transactions costs by technology exemplifies two elements of creative destruction - first the conflict between current rent holds seeking to maintain rents and innovative entrepreneurs attacking those rents in the pursuit of future rents from a changed landscape. Second, productive entrepreneurial activity stimulates productive actions that lead to both growth and learning.

I wonder, are Auletta and I too optimistic?

The iPad, the Kindle, and the future of books: newyorker.com