By Maggie Winslow
Creative destruction is the term the economist Joseph Schumpeter used to describe how capitalism stays vital and strong through constant evolution. Innovation allows for the replacement of old industries with new one, creating new markets and employment opportunities. There is actually a revolution within the system where new technologies and sectors replace old ones. Schumpeter writes in Capitalism, Socialism and Democracy, “The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers, goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.”
One of the remarkable things about capitalism is that it can evolve and change to fit new constraints and situations.
The world is in a time of crisis. Climate change is changing the face of the globe and is leading to potentially severe environmental and social disasters. Many areas of the world are running out of fresh water. Non-renewable resources are being rapidly depleted, including fossil fuel stocks. Environmental toxins are starting to have more noticeable effects on our health.
At the same time, although the economy is retrenching, consumer confidence is at its lowest point in twenty years, which could lead to a prolonged recession. Why is consumer confidence so important to a healthy economy? Because 70% of the nation’s GDP comes from consumer spending. As people curtail their spending, production slows, workers are laid-off, unemployment levels creep up and spending is further reduced, leading to more unemployment.
Depending on consumer spending to keep the economy strong is problematic even in good times. Many of these goods are made with resources that are being used faster than they can be replaced. There cannot be endless growth in production and consumption in a finite world. At some point, consumption will have to slow if we want to maintain the ecosystem services that allow for the earth to stay healthy and provide for human needs for clean water and climate stability.
At this point in time, many Americans can’t afford to keep spending. With the recession and increased economic insecurity, many families have less disposable income to spend on anything but the necessities. Many families have been buying on credit for a couple of decades and the credit crisis has slowed that down and halted it in some cases.
It is not so much that people need these goods as the jobs created through the production and consumption of these goods. Politicians are never promising to provide more stuff if elected, but to provide more jobs. A drop in consumer confidence isn’t a problem due to the fact that people will have less things, but due to the increase in unemployment that will result from lower consumption levels.
What we need is an economy where we create the employment without needing to create so much stuff. We need a new economic sector that protects and improves the natural foundation of our economy, rather than depleting it.
An important area where this change in focus must occur is the energy sector. A movement away from fossil fuels and towards energy conservation and renewable energy production promises to create thousands of jobs while making our planet more livable. (see links below)
Moving to a more energy-efficient and renewable-energy based economy is not counter to capitalism. It is capitalism at its finest. Fossil fuels have received enormous subsidies and tax breaks for the last 50 years. It is time to level the playing field. Give renewable energy resources the same advantages given to fossil fuels in the past and then let the market take over. Thousands of jobs will be created in the process.
We will be forced to change our ways at some point in the future. How much better to make a smooth transition to a more efficient and renewable economy than an abrupt one that could involve even more economic and social turmoil.
Related news stories:
A November 2, 2008 article in the New York Times finds that the development of renewable energy technologies and equipment is creating jobs in the Heartlands. [Link here]
An October 2008 study by another U C Berkeley professor, David Roland-Holst, finds that thousands of jobs can be created in California though the promotion of energy efficiency and innovation. [The study can be found here]
A 2011 study by David Roland-Holst finds that increased fuel economy standard will create jobs in California. [Link here]
A 2008 study by the California Air Resources Board also finds that reducing California’s greenhouse gas emissions, as required by AB 32, the Global Warming Solutions Act of 2006, will create jobs and help the California economy. [Link here]
Maggie Winslow is Professor of Economics and Interim Dean, Presidio Graduate School.