Creative Destruction Vs Destruction of creativity

In our country, we often see that there will be always a section of people who oppose projects which would be bringing welfare to the society. We see people against expressways, bullet trains, large industries, thermal/nuclear power plants and what not. In Kerala and West Bengal, people had even opposed Computers, Farming machinery etc. So the question we often ask ourselves is why a few people are opposing newly introduced technologies / industrialization etc.

Opposing innovations that brings a new way of life/ society is nothing new nor India specific. Many things that we take for granted today were ferociously opposed by people and the then kings/ elite when they were first introduced. Following are a few examples.

a)        Francis 1, ruler of Austria-Hungary in 1802, banned construction of all factories in Vienna.

b)       The same man opposed putting Railway lines and never allowed it to happen in his life time. The whole Nation ‘moved ‘by horse drawn carriages till 1860 s.

c)      Printing press was banned in Ottoman Empire for nearly 300 years from 1445 AD to 1727 AD.

d)      Tsarist Russia in 1849 banned any cotton and woolen spinning mills in an around Moscow.

e)      In China, for nearly 150 years from 1426 AD to 1567 AD, overseas trade was banned and all ship building activities were made illegal.  

(Reference- Why Nation fails- by Daron Acemoglu and James A Robinson)

These are a few examples from history where the then rulers didn’t want certain ‘progress’ to happen and instead preferred status-quo. This may seems to be counter-intuitive, as governments of present day are actively promoting infrastructure development and industrialization. Let’s try to examine what were the exact reasons and motivations and why these Kings had taken such a decision at that point of time.

These Monarchs were living in a pre- Industrial age where they held absolute powers and was propped up by a set of elites who were mostly feudal lords and wealthy land owners. The economy was mainly agrarian and both political and economic institutions of that period were ‘Extractive’ (a term coined by Political Economist Daron Acemoglu) in nature. According to him, these leaders’s primary motive was to maintain status-quo and ensure political stability (so that they can rule forever). Any technology, they feared, which would unsettle this ‘social stability’, would adversely affect their absolute powers.

The innovations and technologies of these natures often result in what Joseph Schumpeter called Creative destruction. They change the way in which people participates in any economic activity and hence end up with new winners and losers. For example, when spinning and weaving was mechanized in late 18th century, thousands of people who were doing these jobs by hand were left unemployed, even though it resulted in hundred times productivity increase and thereby cloths becoming much cheaper. However, these ‘job losers’ got organised and started destroying these textile machineries and opposed all such mechanisation. They were called Luddites and this term is still used for people who are seen opposing any technology innovations.

 While their concern is understandable, what we often fail to understand is why the kings and queens were opposing Railways and modern technologies in general. This is mostly because rulers, particularly autocrats were also fearful about creative destruction in politics. This happens as technology and innovations creates new set of elites and power centers whereas old elites will be a net looser. These ‘Neo elites’ will have a different political aspiration and may not be satisfied with the existing political arrangements there.

For example, in a Pre- industrialized agrarian economy, it was feudal lords who owned lands were the elites who wielded much political influence and were supporting the dictators like Tsar (of Russia).  If industries or railways come, factory owners, managers, new set of capitalists, patent holders ( of innovation products ), Bankers,  etc will grow as a new class of elites who are unlikely to tolerate feudal attitudes, behaviors and patterns of relationships.

These neo middle class are also likely to agitate for more inclusive forms of political institutions which would be representing their interests and want more participatory role in decision making and legislation. They are unlikely to tolerate despotic behaviors of their kings and queens and would not like themselves to be treated as mere 'subjects'. The then elite might have understood and anticipated the nature of this Creative destruction. Hence they were deeply worried about implications of railways, factories, printing press etc and sought ban on them.

However, ordinary people at large are also not very enthusiastic about newer technologies and innovations. There are a few Cognitive biases that we have it in us, forces that are at play that stops us from fully embracing changes without any hesitations. These Cognitive biases are well studied by Nobel laureate Daniel Kahneman along with Amos Tversky. 

a)      Status-quo bias- Given a choice, people are most likely to prefer status quo than a change.  We are fearful about changes and prefer to be in present status which is familiar to us than an unfamiliar future.

b)      Loss aversion- We are more worried towards losses and are ready to take more risks to avoid any potential losses. Meanwhile, we are less attracted towards any possible gains and hence try to avoid any losses to make unsure gains.

The practical implications of these cognitive biases are very much apparent in our day today life. Because of this Loss aversion bias, people ferociously oppose things which end up them in net loses. Meanwhile the potential gainers would often take an indifferent attitude and would not be very supportive   despite they know that that they are going to the beneficiaries. For example, constructing a road will deprive villagers their land hence they oppose, while the future motorists would be less enthusiastic to support the road project. This kind of conflict would be in full play for all such ‘development’ projects and newly introduced technologies.

The men who are yielding levers of power are likely to consciously choose a developmental model which will strengthen their support base and increase their chances of getting re-elected. (In earlier times, these kings wanted to remain in his seat). They will not be allowing anything which they perceive that would end up in creative destruction which will threaten their power.

In any society, progress, economic growth and development at large is depends on this ‘Ease of Creative destruction’. If the ruling elite and people at large are uncomfortable with creative destruction, and prefer Status-quo instead, Nation cannot progress and its citizens are likely to remain poor and lead a low standard of life. However, it is the dynamics of political processes, inclusivity of institutions, open and free markets and incentive structures that decides how much the present day elites and skeptics can stall Creative destruction from happening and remain static. Regressive taxation, weaker property rights, anachronistic laws,  feeble contractual enforcement, monopolists and extractive institutions, absolutist government etc act as roadblocks for Creative destruction to happen.

However, charismatic and articulative leaders, public policy activists, thought leaders, authors,  etc helps in spread of new ideas and hence changes do happen. That is why, democracies, in comparison with autocracies, provide more enabling environment to have creative destruction to happen and hence are more likely to grow fast, even though that may not be the case always.