Creative Destruction and How it impacts on our lives.

So often in the news we hear of some formerly successful industry going bust. Trade unions and industry groups lobby hard for their industry to be saved through government intervention. A recent example in Australia and globally has been bookstores. I remember my excitement when the first Borders opened in the Brisbane CBD. I could buy a mocha caramel-latte at Gloria Jeans, choose from a range of specialty books that were never offered in Brisbane before. Having an interest in management literature, it wasn’t long before a had a large library of business titles and career development books.

Books would cost between $20-30 and textbooks could be up to the cost up $100. Now ten years on, Borders has gone bust and rumor has it that the building will become one of those ghastly Apple stores. Sorry, couldn’t resist. This is where creative destruction comes in. The Oxford economic dictionary describes creative destruction as, “A model of economic growth driven by quality-improving innovations that make old technologies or products obsolete.”

That pretty much describes my once beloved Borders, obsolete. I now have two new superior ways of buying books, first, Better World Books and second Amazon kindle. For my studies I have only bought one new textbook in 2 years. Others, I have bought secondhand on Better World books. Technology has allowed me to connect with bookstore all over America where slack students have foolishly sold their old textbooks allowing me to buy them for between $10-$20. Amazon Kindle has allowed me to purchase new books at a fraction of the price I would have paid at Borders.

This technological innovation has dramatically increased my consumer surplus. Not only in quantity but in quality. I recently was preparing for a job interview as a Business Analyst and realised I didn’t have sufficient skills using Microsoft Excel. In the bad old days, I would have driven to the bookstore, not found a book that really covered what I wanted and would have settled for some more basic book about Excel with a few accounting formulas in it. Instead, I went to the Amazon Kindle store, within five minutes I had a book called Business Analysis in Microsoft Excel 2010. I could read reviews about the book confirming the books quality and ensuring the author handled the topic well. This book covered everything I needed, there would have been almost no chance of me finding such a book in a bookstore in Australia.

From a bookstores point of view had they had such a book it would have sat on their shelf for months waiting for an econ nerd like me to come in, if I had come in at all. The price would have been significantly higher to cover the much higher costs of having that inventory sitting on their bookstores shelf for so long. So technological innovation increased the quantity of products I could choose from and lowered the price. Creative destruction.

4 thoughts on “Creative Destruction and How it impacts on our lives.

  1. Great post! I absolutely love my Kindle too but I actually spend more on books now than I did before, because it’s allowing me to read a lot more and it’s become much easier to find and buy books!

    As an encore, check out this Mises Daily article on the related topic of e-book pricing, explaining them from the viewpoint of the subjective theory of value.

    In the end, book prices will probably continue to drop, but not for the reasons commonly thought of, ie decrease of the cost of production. Rather it will be due to the increasing supply and competition in the book industry due to it becoming ever easier for non-professionals to write and distribute them. IMO of course..

  2. Prices on Kindle are going up at the moment. When the physical book is being discounted, it is sometimes cheaper to buy the paper version.

    I doubt if it will last. Consumer resistance from people like me will sort them out. That’s the beauty of markets – thousands of individuals each making their own decisions and causing creative destruction.

  3. There are reprots that Kim Il-jong is dead. Now’s there’s the opportunity for some creative destruction- anew system in North Korea! I don’t think any new leader will be a major improvement, but we can hope!

  4. Thanks, Galudwig, will check that out when I get home. DavidLeyonhjelm, I agree that ebooks can only be a downward pressure on book prices. I bought John Quiggin’s book Zombie Economics for $15. I’m sure in a store here, it would probably be about $35 for a paper copy.

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