On the World
Observation / Complements and Substitutes
NEVATHIR
January 22, 2018
Against economists' arbitrary favoritism for perfectly competitive markets, Karl Marx keenly documented the creative and destructive power of capitalism during his time and recognized the essential element of technological innovation that forever revolutionizes capitalism itself. Karl Marx possessed a negative attitude toward capitalist overproduction and disequilibrium to the extent of proposing a communist agenda to overthrow capitalism and market socialism entirely. Moderns benefited from Schumpeter learned to appreciate the light side of creative destruction and to mitigate the dark side of progress.
The publication of Schumpeter's Theory of Economic Development convinced the public that the critical value of technological innovation to economic growth is vital for wealth creation and general welfare for all people under capitalism. While moderns gradually recognized dangers arising from creative destruction, like financial-tech bubbles, as well as the need to manage them, Schumpeter's thesis remains instructive against overly suppresive state intervention over markets, capitalist | private or socialist | public.
Creative destruction elevates modern economy not limited to private markets. The backbone of digital oligopolies, the Internet, originated from USA government-financed research and experimentation. While private sector grabbed the lion's share of its benefits, public sector was also revolutionized, especially regarding to government transparency.
Entrepreneurship, according to Schumpeter, accounts not only for the emancipation of the power of innovation through goods and services, production organization, technology, and market expansion, but also for the health and sustainability of capitalist economy. Moderns disagree with his claims that creative destructions suppress entrepreneurship and that capitalist transition to socialism is not a choice but necessary. The detailed dynamics of innovation economy is yet to be theorized beyond documentation.
Here we provide a clearly observed legal/regulatory mechanism for innovation dynamics and creative destruction along with the survival of firms. Complements and substitutes are familiar mechanisms for building a innovative ecosystem. Yet the common description is unsatisfactory for not being able to determine which innovative firm survives market selection.
A obvious example is how Microsoft terminated Be with exclusive deals. While market fringes like Chromebooks and Linux laptops survived Microsoft expansion, Be went defunct because, along with technological reasons, Microsoft forced PC manufacturers to choose between the two. The unavoidable consequence follows for almost every PC manufacturer sold much better with Microsoft than Be.
At national scale, it's largely due to Marxism for the popularization that survivors might be adequately selected with legal/regulatory means. However, identical mechanism also safeguarded the prospects of prospering Chinese digital markets against Western onslaught. Government may be a great complement to national enterprises against foreign substitutes.
It's one of the most challenging objectives for economic policymakers to balance between globalisation and nationalism. Yet a reliable legal/regulatory order to complement innovation ecosystems is largely a distant hope, not practical agenda. Chinese success may provide a great lesson for worldwide economic development and robust growth.