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Creative destruction

Creative destruction is the theory that suggest economies are strengthened by new companies that destroy or diminish existing companies.

Expanded Definition

Creative destruction was a term coined Joseph Schumpeter to describe how capitalism works. According to theory for capitalistic societies to advance new companies with new infrastructure, products or services must arise and displace or destroy existing companies. This is a continual ongoing process of reinvention. According the model the usual victims are monopolies where the lack of competition due to their extreme competitive advantage has diminished their innovation. E.g. Auto manufactures and the rise of automobile destroyed many railroad companies. Creative destruction is a normal and healthy aspect of a capitalistic economy and according to the theory should not be hindered from progressing. If creative destruction is not allowed to occur the economy becomes bloated and inefficient.

Creative destruction can often be politically unpopular as many workers can get displaced and have their skillsets be useless for finding new jobs. Economic downturns can accelerate the process by bringing weaker firms to their demise opening new opportunities. Many of the world's strongest firms are born in touch economic times.

The term is often couple with phrases and buzz words such as new paradigm by many aspiring companies and start-ups who hope to change how business is done.

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