Destructive Creation

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.

BREAKING DOWN '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. Joseph Schumpeter

    One of the 20th century's great economic and political thinkers. ...
  2. Creative Destruction

    A term coined by Joseph Schumpeter in his work entitled "Capitalism, ...
  3. Catastrophe Hazard

    The risk of loss from a particularly destructive event, such ...
  4. Financial Innovation

    Advances over time in the financial instruments and payment systems ...
  5. Early Majority

    The first sizable segment of a population to adopt an innovative ...
  6. Rate Of Adoption

    The number of members of a society who start using a new technology ...
Related Articles
  1. Economics

    Insights On Creative Destruction and Technology

    Creative Destruction has a way of phasing out old technologies and inviting the new when applied to business models and economics.
  2. Investing

    Understanding Disruption

    Disruption’s concept comes from the term creative destruction, coined by Austrian economist Joseph Schumpeter in 1942, who called it one of the essential elements of capitalism. The term was ...
  3. Investing Basics

    Deadly Habits Of Destructive Traders

    Many traders develop destructive habits that, left unchecked, trigger washout and failure.
  4. Economics

    How Creative Destruction Happens in Real Life

    In his seminal work, Capitalism, Socialism and Democracy (1942), Joseph Schumpeter proclaimed “the essential fact about capitalism” as being a process “that incessantly revolutionizes the economic ...
  5. Fundamental Analysis

    App-pocalypse! 20 Industries Disrupted By New Tech

    Mainstream economic thought says that while those displaced by technology will see their industries destroyed, the industries replacing them will create new jobs that they can fill.
  6. Active Trading

    Which Is Better: Dominance Or Innovation?

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

    The Most Innovative Entrepreneurs Of 2015

    Investopedia provides a list of the most innovative entrepreneurs with the potential to make it big in 2015.
  8. Fundamental Analysis

    The Debt-Service Coverage Ratio (DSCR)

    The Debt-Service Coverage Ratio (DSCR) is a simple way to analyze whether a company can adequately manage its borrowing costs. The ratio helps banks evaluate the credit worthiness of an organization ...
  9. Investing

    How Do Futures Contracts Work?

    Futures contracts are one of the most important financial innovations in history, but they are often misunderstood. Find out this contract is used to transfer risk between different parties. ...
  10. Mutual Funds & ETFs

    Newest SPDR Industry ETF: FactSet Innovative Technology (XITK)

    Get an overview of ETF newcomer SPDR FactSet Innovative Technology, and determine if innovative tech belongs in your investment portfolio.
RELATED FAQS
  1. What is the relationship between research and development and innovation?

    Understand what research and development is and why a company or person would want to conduct it. Learn about how it can ... Read Answer >>
  2. What are some advantages of a market economy over other types of economies?

    Learn what a market economy is, the main assumption behind a market economy and some important advantages a market economy ... Read Answer >>
  3. How are new exchange traded funds (ETFs) created?

    Read about how exchange-traded funds are proposed to the SEC, created with underlying assets, sold to authorized participants ... Read Answer >>
  4. Why should companies invest in research and development?

    Understand why companies should invest in research and development. Learn the specific ways R&D can keep a company relevant. Read Answer >>
  5. What safeguards exist to prevent the abuse of power in a market economy?

    Find out why free market theorists believe that natural safeguards prevent power from centralizing in a capitalist system, ... Read Answer >>
  6. What types of corporations would be expected to have higher growth rates than more ...

    Understand factors that contribute to certain corporations growing at higher rates than other corporations to the benefit ... Read Answer >>
Hot Definitions
  1. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  2. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  3. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  4. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  5. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  6. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
Trading Center