Monday, January 24, 2011

Borders and creative destruction

Creative destruction - this article is a nice illustration of Joseph Schumpeter's insight.

Douglass North writes about the importance of adaptive efficiency to the process of economic change. This flexibility or lack thereof is an essential ingredient in the path of economic growth, improving economic welfare and progress. Trial and error and the associated willingness to embrace risk and uncertainty is on of the foundations of an institutional framework that allows for liberty and responsibility.

So, unlike the US auto and financial services industry, we can see in the retail book industry a nice view of the forces of creative desctruction.

The Washington Post observes:

Borders, they know, is struggling to survive. It recently suspended payments to book publishers. Dozens of its stores across the country, including several in the Washington area, have closed. For many in the industry - and for this group of Borders regulars - the question is not whether the chain will go under, but when.

"How many record stores are there these days?" Minor said after the meeting, resigned to the eventual end.

A Borders spokeswoman declined to comment or make


North reminds us that the process of change is ubiquitous and that efforts to slow down, derail, or prevent change lead to very perverse and often unintended outcomes. We are in a positive to view this in the US auto and financial services industries.

However, retail books allows us to see the alternative - creative destruction at play with relative little effort by outside forces - the government, labor unions, NGOs to slow down, derail, or prevent the changes that are sweeping though individual behavior in dealing with information and thought.

Michael Rosenwlad writes:

Borders, which helped a generation of readers learn the pleasure of diving into a book for hours at a stretch, now competes for the attention of readers who dip into a few pages on an iPad, open Facebook, read some more, then tweet random thoughts. Printed books don't need a power outlet or a data plan, yet for some people, their utility seems to be fading.

Here is the essense of emergent and evolutionary orders, at times the speed of evolution accelerates at a dizzying rate. And we see this in retail books, and perhaps a wide swath of retailing in general.

The key is the end of the above quote - utility changes. As time moves on individuals see fulfillment, satisfaction, happiness and information in a variety of new ways. Our lives are infinitely improved due to digitalization and this poses huge benefits to consumers and huge threats to producers.

I see the future of technology as a force that drives middlemen (Borders between the author and the reader) to explore new, creative, alternative, innovative ways to improve individual utility and to make lives better.

Thankfully the government, labor unions or NGOs (among some of the myriad rent seeking, centralized organizations) have overlooked this powerfully positive process.

Rosenwald writes about his process

It started with Amazon. Launched in 1995 by Jeffrey Bezos, the company aimed to be the biggest bookstore on the planet, and it shipped books anywhere at prices so cheap that it lost money on many sales. The jokes came fast: Amazon dot bomb, some people called it. Amazon dot gone, others said.

But it turned out that Amazon knew what it was doing, building an infrastructure that eventually displaced Borders - then known as the more bookish of the chains - as the preferred way to get the right book into the hands of the right customer. Amazon built software that suggested other books to customers, based on their orders. As Amazon got better at such tactics, "Borders lost that patina they had, that special place of a bookstore, and they became just another discount retailer," said Albert Greco, senior researcher at the Institute for Publishing Research.



So, while entreprenuars like Steve Jobs and Jeff Bezos are forward thinking trying to identify the future utility patterns of consumers (a risky, uncertain process that is at the heart of a trial and error society) Borders was slow to react. And, as Bill Gates titled one of his books - Business at the Speed of Light - the rate of change in many if not most areas of live does not allow much forgiveness for organizations that are slow on the uptake. This is also true for workers - in the event an individual fails to anticipate future needs their employment is endangered. For example, book clerks in retail stores might be advised to consider updating their skill sets or examining their talents for alternative types of jobs.

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