Creative destruction , a term popularized by Joseph Schumpeter, is the market process whereby bad is eliminated, the better replaces the good, and past performance gives way to new strategies and victors. No firm is forever, and financial loss is a characteristic of capitalism, as is the more used term profit.
Energy is the story of creative destruction. Coal gas and later coal oil replaced a variety of animal and vegetable oils, including whale oil, camphene oil, and stearin oil. Crude (mineral) oil then displaced manufactured (coal) oil, just as later natural gas would displace manufactured (coal) gas.
Coal itself displaced primitive biomass (burned plants and wood) and other forms of renewable energy, such as falling water and wind. Fossil fuel was a concentrated, continuous-burn industrial-grade energy.
The intensity of fossil energy can be understood as a stock of the sun’s work over the ages, not a dilute flow from the sun (solar, wind)–or a low-density mass from limited years of sunshine (biomass).…
Enron’s revolution-always approach to energy in its latter years was Schumpeter on steroids. Adding to the company tumult was another complicating factor: Enron’s business model was dependent on political, not free-market, capitalism.
In early 2001, Enron founder and chairman Ken Lay proclaimed a new corporate vision: to become the world’s leading company. But this goal was not about beating oil majors like ExxonMobil or Chevron at their game. It was about mandatory open-access with gas and electricity transmission to trade the commodities; reducing tax bills with solar and wind investments (what GE does today with what was once Enron Wind); developing infrastructure in risky countries with government-guaranteed financing; and more.
Enron’s Business Guru
Lay’s super-Schumpeterian view of business strategy drew upon Peter Drucker’s The Age of Discontinuity, which Professor Lay taught to his graduate economics students at George Washington University in the early 1970s.…
Ed. Note: Occasional posts at MasterResource include big-picture entries on key social science thinkers that are relevant to understand dynamic market capitalism versus its opposite, political capitalism. This entry examines a leading twentieth-century thinker whose work continues to frame many debates in applied economics and political economy.
Brilliant, blithe, eclectic, and obsessive, the immaculately attired, aristocratic scholar [Joseph Schumpeter] captured the essence of entrepreneurial capitalism and introduced the terms “creative destruction” and “business strategy.”
– Robert Bradley, Capitalism at Work: Business, Government, and Energy, p. 100.
“I set out to become the greatest lover in Vienna, the greatest horseman in Austria, and the greatest economist in the world. Alas, for the illusions of youth: as a horseman, I was never really first-rate.”
…– Joseph Schumpeter, as recalled by student M.