IBM and Creative Destruction

One of the fundamental aspects of successful capitalism is the principal of creative destruction. In a capitalist system, businesses that are hampered with flawed business models, substandard management, unproductive labor or changing markets, among other things, pass away in a sometimes agonizing fit of destruction. New businesses, with a better take on what the market is willing to buy on an ongoing basis and how to produce that profitably, spring up and thrive. It’s the business version of earth to earth, dust to dust and the circle of life.

Even though we all know this story and can intellectually recognize that it is a required component to make a capitalistic economic system work, when push comes to shove, or more realistically, padlocks come to factory gates, things get a lot tougher. When long-standing, treasured companies die, such as Maytag, it is traumatic, especially for the local communities.

If they are big enough or politically well connected, governments sometimes step in and prop up dying businesses. In the last year we’ve seen multiple examples of this in vehicle manufacturing, insurance, financial services and banking. But even while entire economies are distorted by artificial means, the market keeps changing and creative destruction keeps happening.

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