Academic journal article Libertarian Papers

The Creative Destruction of Labor Policy

Academic journal article Libertarian Papers

The Creative Destruction of Labor Policy

Article excerpt

THE BENEFITS OF CREATIVE DESTRUCTION in terms of new products and more efficient processes are substantial (Schumpeter, 1950; DeLong, 2000). The person responsible for producing these benefits is the innovative entrepreneur (Schumpeter, 1950). On the other side of the ledger, the main costs of creative destruction are in terms of the effects of job loss. Schumpeter (1950) and DeLong (2000) present persuasive argument and evidence that the benefits of creative destruction are widely distributed in a capitalist society, and in fact primarily accrue to the poor and middle class. (1)

The main costs are borne by those who lose a job because their skills have been made obsolete by creative destruction, especially the job losers who remain unemployed for a long time or whose new jobs are less satisfying or lower paid. Although the changes wrought by creative destruction are arguably not Pareto optimal, the benefits are great enough that a large majority of us would arguably assent to the changes from behind a Rawlsian veil of ignorance (Rawls, 1971), especially insofar as the costs can be made less onerous.

Because the benefits of creative destruction outweigh the costs, wise governments and workers will seek to enable the benefits and reduce the costs. The labor policies enacted by governments and workers can greatly affect the success of creative destruction in two important ways. First, they can make it easier or harder for the innovative entrepreneur to bring us the benefits of creative destruction. Second, they can lessen the frequency or severity of job loss caused by creative destruction.

In the next two sections I discuss government labor policies on a general level, arguing first that flexible policies enable the innovative entrepreneur, and second, that rigid policies hurt the macroeconomy--the latter, ironically, by increasing unemployment. Then in an interlude section, I ask a crucial question: in the absence of rigidifying government job protection and regulation, does entrepreneurial capitalism provide the worker any security? My answer will be that in a well-functioning macroeconomy and labor market, the robust redundancy of job opportunities will provide workers the best possible safety net. After this interlude, there follow four sections discussing four specific policies intended to encourage creative destruction either by enabling the innovative entrepreneur or by obtaining buy-in from worried workers. Finally, I devote three sections to some personal policies that workers themselves can adopt that will increase their benefits and decrease their costs of working in a flexible labor market. In a brief concluding section, I argue that in the long-run of entrepreneurial capitalism, the labor market is not a zero-sum game. In plain English, this means that in the process of creative destruction it is possible for everyone to find jobs or entrepreneurial projects that will allow them to flourish.

1. Enabling the Innovative Entrepreneur

Steve Jobs was one of the great innovative entrepreneurs of our, or any, time. Yet during key moments in his entrepreneurial projects, success depended on his being able to fire workers based on his intuition of who would make 'genius' contributions. (Even in the humble hamburger business, Ray Kroc argued that a good entrepreneur develops intuitions about which workers will be able to do a good job, and which not (Kroc, 1977, pp. 9192).) In the case of Steve Jobs, biographer Walter Isaacson shows (2011) that Jobs's being able to act on intuition was crucial to quickly and efficiently building and keeping a team of "A" players from whom much was expected. Sometimes another type of firing was required, as at Pixar. Jobs had bought Pixar for $5 million, and he invested an additional $50 million before it became profitable. Even though Pixar eventually became an exemplar of successful breakthrough innovation, its survival once required the firing of some "A" players to reduce costs (Price, 2008, p. …

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