Joseph Schumpeter in 1942 coined the term creative destruction where innovation renders old economic models obsolete. Technology marches on. Embrace the new or die.
Companies that are slow or fail to adapt die slowly or suddenly. Textiles are an example. In early 19th century New England there were dozens of textile mills around Boston employing thousands. In the 20th century mill owners moved factories to the American south where labor was cheaper and technology more advanced. Then came Asia with modern mills and much cheaper labor. Supply chains became global, globalization a new reality.
America has a long history of innovation, success, and failure. Isaac Singer didn’t invent the sewing machine but he developed the foot treadle that brought sewing to millions of homes around the world. His 1872 factory in Elizabeth, New Jersey employed 10,000 but it came to an end in 1982, leaving behind the ruins of a once successful company.
Singer plant, Elizabeth,NJ
German immigrant Ignaz Schwinn designed bicycles and in 1892 built a factory in Chicago that eventually employed 1,800 workers. Schwinn bicycles were famous worldwide but the company went bankrupt in 1992. Its name, like Singer, sold off to Asian firms. Schwinn’s factory became an industrial relic like many others—Packard Motors, Bethlehem Steel, Hoover vacuum cleaners.
Other innovative US companies have stayed ahead of the competition and prospered. Henry Ford’s car company is doing fine. So is Carrier, which pioneered air-conditioning. Otis, whose first elevator appeared in 1852, employs 72,000 in Florence, South Carolina.
Industrial success can’t be taken for granted. Victory in the race to survive is hard to achieve. George Eastman’s roll film revolutionized photography but Eastman Kodak declared bankruptcy in 2012. Kodak’s neighbor in Rochester, NY, Xerox, pioneered personal computing and its name was synonymous with photocopying, dominating with an 80% market share as late as the 1970s. Today Xerox struggles.
The United States emerged from world war two as an industrial powerhouse with manufacturing accounting for 39% of its work force. But the rise of services changed the equation. Nearly 40% of the US work force today is services while only 9% is manufacturing. Retailer Walmart, founded in Arkansas in 1962, with 1.6 million workers is the biggest US private employer.
It is in technology that America is producing winners. Amazon–online shopping, cloud computing and digital streaming–didn’t exist until 1994. It employs over one million US workers. Google (Alphabet) was created in 1998. It dominates internet search and employs 100,000 in the US, mostly in the Silicon Valley adjacent to San Francisco.
A Google engineering center in the Silicon Valley
Professor Robert Lawrence of Harvard University is an expert on manufacturing. He argues that America will not experience a renaissance in manufacturing. Yes, he argues, there will be new US manufacturing facilities but services will continue to dominate.
Is the United States a winner or loser from creative destruction? Evidence suggests that so far it is a winner. Yes, China is number one in manufacturing but in services it is weak. New US companies—Airbnb, Expedia, Booking.com—continue to innovate and expand their reach worldwide. Visa and Master Card are number one in electronic payments.
The race is on. China is rising but the USA should not be counted out.
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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