Sunday, September 19, 2010

Stop watching movies on your computer or phone---Don't you care about the employees at Blockbuster? You are SOOO uncaring!!!

This article (NYTIMES: Why Bricks and Clicks Don’t Always Mix) offers an excellent illustration of Creative Destruction.
""NOT so long ago, in 2005, Blockbuster seemed invincible. However you preferred to rent movies — in stores or online — the company was ready to accommodate you. At the time, Netflix could offer only one way of obtaining a movie (the mail) and one way of returning it (the mail). It was clicks, with no bricks.
Of course, we now know that Netflix has done just fine. In January 2005, its shares traded in the $11 range. On Friday, they closed at $140.46, giving the company a market capitalization of $7.35 billion.
As for Blockbuster, which was spun off from Viacom in 2004, it’s now a penny stock, and its woes are as visible as the “Closing” banner in the window of a store in your neighborhood. The company recently warned that it might file for Chapter 11 bankruptcy protection..."
 Creative Destruction is an important process in a market economy that allows societal resources to move from one use to another, with relative ease, based on changing market conditions. It is how we get new and improved goods and services.  But there is a price to be paid for it. Two things come to mind.
   One: With the free movement of physical and financial capital we get alot of things produced that perhaps should not be produced.  I always ask for examples in my economics class and the number 1 item mentioned by students is the Snuggie! We all have wandered around a store and thought "who buys this stuff?".  Do you have any good examples from your own experience? Let me know.
   Two: This is more serious.  When an industry goes away so does the financial and physical plant investment from the entrepreneur AND the jobs that existed in that industry.  Harm is inevitably imposed on some as resources morph to an alternative use.  If workers skills are not fungible then they will become structurally unemployed.  If, due to rapid technological change and implementation, this process is accelerated, then numerically more people are affected.  Some suggest this is a part of our unemployment problem right now. 
    I am guessing while the stories of negatively affected workers touch our hearts we are not willing to give up, say our cell phones, for to help them...Take out your phone, look at it, and think of the number of workers who lost their jobs due to the massive consolidation of industries compacted into your phone.  You watch T.V. on it? Does that hurt TV manufacturing/support/repair? Do you listen to music? Does that hurt stores that sell music /CD's and the devices to play music on? Do you use the GPS? How does that affect mapmakers and sellers?  Do you make calls? Does that hurt telephone makers, installers and operators and....The list goes on.  Your phone is a Creative Destruction machine!!!
  The bright side is we get improved "stuff" and new jobs in new industries created by the "destruction".  Yes, jobs are lost but new ones come along to replace them. 
   Creative Destruction has its benefits, which we should maximize, but it does have its costs. How do we minimize the costs, if we should even do so...What do you think?  Any ideas....
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