Destructive Creation

AAA

DEFINITION of 'Destructive Creation'

When innovation leads to destruction. Destructive creation was coined as a play on Joseph Schumpeter's famous term "creative destruction", which suggests that innovation leads to changes and economic growth. The term destructive creation was popularized during the financial crisis of 2007-2009, when large banks and insurance companies ceased to exist as a result of financial innovations.

INVESTOPEDIA EXPLAINS 'Destructive Creation'

Financial innovation is a different animal than other types of innovation. For example, when the PC was invented, it replaced the typewriter and increased efficiency; as a result, the economy profited. In other words, there was little downside to this innovation. However, some recent financial innovations could be said to me more destructive than productive. Derivatives, structured investment products and non-conventional mortgages have all fallen under public scrutiny in recent years as innovations that proved to bring more harm than good.

RELATED TERMS
  1. Game Changer

    1. A person who is a visionary. 2. A company that alters its ...
  2. Joseph Schumpeter

    One of the 20th century's great economic and political thinkers. ...
  3. New Paradigm

    In the investing world, a new paradigm is a totally new way of ...
  4. New Economy

    A buzzword describing new, high-growth industries that are on ...
  5. Creative Destruction

    A term coined by Joseph Schumpeter in his work entitled "Capitalism, ...
  6. Old Economy

    A term for the old blue chip industries that enjoyed fabulous ...
RELATED FAQS
  1. How does the risk of investing in the industrial sector compare to the broader market?

    There is increased risk when investing in the industrial sector compared to the broader market due to high debt loads and ... Read Full Answer >>
  2. How can I hedge my portfolio to protect from a decline in the retail sector?

    The retail sector provides growth investors with a great opportunity for better-than-average gains during periods of market ... Read Full Answer >>
  3. What is the correlation between term structure of interest rates and recessions?

    There is no question that interest rates have enormous macroeconomic importance. Many economists and analysts believe the ... Read Full Answer >>
  4. Why should an investor in the retail sector consider the Consumer Confidence Index?

    Investors in the retail sector should consider the Consumer Confidence Index, or CCI, because it measures how consumers feel ... Read Full Answer >>
  5. Which type of retailers tend to perform best during weak periods in the economy?

    Retail is a broad investment sector comprising many different market segments, such as automotive, building supply, grocery ... Read Full Answer >>
  6. What category of retailers will perform most strongly when the economy is doing well?

    When the economy is doing well, the market segments that perform best are volatile segments with products and services that ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Patents Are Assets, So Learn How To Value Them

    Innovation is the key to staying on top. Find out how companies protect their ideas and how to figure out how much they're worth.
  2. Entrepreneurship

    Can Business Evolve In A Green World?

    Learn how global warming is starting to heat up America's corporate climate.
  3. Active Trading

    Which Is Better: Dominance Or Innovation?

    Find out how to assess and evaluate both these values in the market and your portfolio.
  4. Investing

    3 Secrets Of Successful Companies

    Make smart investments by spotting up-and-coming success stories early.
  5. Economics

    A Comparison Between a Default and a Collapse

    Is the Greek default similar to the Lehman Brothers collapse?
  6. Investing Basics

    Who Is The Next Greece?

    Several EU countries are on the potential candidate list, but some municipalities in the U.S. look far more like Greece. Could they be the “next Greece”?
  7. Bonds & Fixed Income

    Dodd-Frank Creates a Liquidity Crunch for Bonds

    While each individual institution is undoubtedly safer due to capital constraints imposed by Dodd-Frank, this makes for a more illiquid market overall. The lack of liquidity will be especially ...
  8. Personal Finance

    10 Jobs to Avoid Right Now

    These jobs may never recover to pre-recession highs, can easily be outsourced overseas or may disappear altogether as technology intervenes.
  9. Economics

    6 Factors That Point to Global Recession in 2016

    We may be on the verge of another global recession.
  10. Economics

    Game Theory And The Greece Bank Crisis

    How can game theory help us understand how the Greece bank crisis will play out? As things come to a head, Greece and the Europeans are trying to hold out.

You May Also Like

Hot Definitions
  1. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  2. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  3. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  4. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  5. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  6. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!