The term creative destruction was first coined by Joseph Schumpeter in his book Capitalism, Socialism and Democracy in 1942. Joseph Schumpeter was an economist of the Austrian school which advocated a laissez-faire approach to economic policy. He had put up a hypothesis that any innovative technology would destroy the old economy and foster the new economy. Up to now, we have seen the five stages of technological innovation in human history.

The first technological innovation took place in the industrial revolution of 1780. The industrial revolution of 1780 can also be called the cotton revolution. England had set up the textile industry like Manchester. She was importing raw cotton from India and American colonies for their textile industry and thus Britain’s economy started to grow rapidly.

The next technological innovation was the development of the steam engine in 1829. The introduction of the steam engine led to the development of railway transportation, which had given further impetus to the British economy.

The third major technological breakthrough took place in the steel industry in 1875. The revolution in steel production provided cheaper, higher quality material, and was recognized by many businessmen of the day as an investment opportunity. Capitalists of the late 19th century including Andrew Carnegie invested and made millions in the steel industry. The steel industry had revolutionalised the global economy.

The fourth major creative destruction was the discovery of crude oil in 1908 in Iran. It sets off a wave of exploration, extraction, and exploitation that had changed the region’s and world’s economic scenario.

Finally, in 1971, there was the new beginning of information technology which is transforming the whole human life.

The above-revolutionized technology has radically transformed the global economy. Thus once any new technology reached to its plateau, the economy enters into a recession. To come out of the recession, the economy needs another new innovative technology. As this new innovative technology reaches to its zenith, the economy grows rapidly. Thus economy enters into recession and then comes out from it because of the introduction of new technology. Joseph Schumpeter calls this new technology which gives impetus to the economy, the creative destruction.

What Is Creative Destruction?

Mohan Datir

Bachelor of Engineering [ Production ]

Working as State Tax Officer

Maharashtra GST Office, Pune