The esteemed Austrian economist Joseph Schumpeter coined the term "creative destruction" in the 1940s to describe the way technological progress improves the lives of many, but only at the expense of a smaller few. Creative destruction occurred during the industrial revolution when machinery and improvements to the manufacturing process such as the assembly line pushed out craft and artisan production. While the economy as a whole benefited from such improvements, those craftsmen who were displaced saw their jobs destroyed, never to return.
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.
Take, for example, the automobile which destroyed the horse and equestrian transportation industry. While buggy makers and horse trainers saw their jobs disappear, many more new jobs were created in car factories, road and bridge construction, and other industries. In the 19th century, when textile workers lost their jobs to mechanized looms, there were riots by the so-called Luddites who feared that the future was grim for labor. Elevator operators, once ubiquitous, were replaced by the automatic elevators we use today. In the 2000s film producers were replaced by digital cameras. Eastman Kodak, which once employed many tens of thousands of workers, filed for bankruptcy and no longer exists.
The recent information revolution and technologies such as computing, the internet, mobile telephony, and information technology have once again begged the question of whether jobs and industries will be destroyed. There are now economists who debate mainstream thought. They argue that this time may be different—namely, the destruction component may outweigh the creation. Perhaps, we may even see a backlash by a contemporary wave of 'Luddites.'
Industries That May Be Disrupted By This Latest Round of Creative Destruction
Today, technology is progressing at a record pace, and the fear is that many of the workers losing their jobs simply will not be able to find new employment in the IT economy.
The following is an incomplete list of industries that will be or already have been affected by this latest round of creative destruction. It serves to illustrate just a few industries that are prone to disruption.
- Travel websites such as Expedia (EXPE), Kayak, and Travelocity have eliminated the need for human travel agents.
- Tax software such as TurboTax has eliminated tens of thousands of jobs for tax accountants.
- Newspapers have seen their circulation numbers decline steadily, replaced by online media and blogs. Increasingly, computer software is actually writing news stories, especially local news and sporting event results.
- Language translation is becoming more and more accurate, reducing the need for human translators. The same goes for dictation and proof-reading.
- Secretaries, phone operators, and executive assistants are being replaced by enterprise software, automated telephone systems, and mobile apps.
- Online bookstores such as Amazon (AMZN) have forced brick-and-mortar booksellers to close their doors permanently. Additionally, the ability to self-publish and to distribute e-books is negatively affecting publishers and printers.
- Financial professionals such as stockbrokers and advisors have lost some of their business to online trading websites like E*TRADE and robo-advisors like Betterment. Robinhood is a free online brokerage service that is subsequently stealing market share from traditional online brokers. Many banks are giving customers the ability to deposit checks via mobile apps or directly at ATMs, reducing the need for human bank tellers. Payment systems like Apple Pay and PayPal make even obtaining physical cash unnecessarily.
- Job recruiters have been displaced by websites like LinkedIn Indeed.com, and Monster. Print classified ads have also been replaced by these sites, while sites like Craigslist have replaced other kinds of classifieds.
- Uber, Lyft, and other car-sharing apps are giving traditional taxi and livery companies a run for their money.
- Airbnb and HomeAway are doing the same for the hotel and motel industry.
- Driverless cars, such as those being developed by Google (GOOG), may prove to replace all sorts of driving jobs, including bus and truck drivers, taxi drivers, and chauffeurs.
- Drone technology may revolutionize the way products are delivered, and Amazon is trying to make that a reality. Drones may also replace pilots in a number of specializations including those pilots in the film, crop-dusting, traffic monitoring, and law enforcement sectors. For years, fighter pilots have been replaced by drones on numerous military missions.
- 3D printing is growing rapidly, and the technology is becoming better and faster. In a few years, it may be possible to manufacture a wide variety of goods on-demand and at home. This will disrupt the manufacturing industry and diminish the importance of logistics and inventory management. Goods will no longer have to be transported overseas. Assembly line workers have already been largely displaced by industrial robots.
- Postal workers first saw bad news with the widespread use of email reducing the volume of everyday mail. High-tech mail sorting machines will eliminate even more jobs in the postal service.
- Fast food workers recently protested to raise the minimum wage. Fast food companies responded by investing in computerized kiosks which can take orders without the need for humans. Retail cashiers have also been displaced at supermarkets and big-box stores with self-checkout lines. Toll-booth attendants have been replaced by systems like E-ZPass.
- Radio DJs are largely a thing of the past. Software now chooses most of the music played, inserts ads, and even reads the news.
- Educational sites such as Khan Academy and Udemy, as well as Massively Open Online Courses offered by leading universities for free, will greatly reduce the need for teachers and college professors over time. It is plausible that today's children will receive their undergraduate education largely online and at very little cost.
- Traditional television distribution is being upended by digital distribution outlets such as NetFlix (NFLX) and Hulu. People are dropping their cable or satellite TV services opting to stream online instead. Spotify and iTunes have done the same for the recording industry: people now choose to download or stream on-demand rather than buy records.
- Libraries and librarians are moving online. References like Wikipedia have replaced the multi-volume encyclopedia. Librarians used to help people find information and conduct research, but much of that can be done individually over the internet nowadays.
- Farmers and ranchers used to make up over 50% of the U.S. workforce. Today less than 2.5% are employed in this sector. Yet, more food than ever is being produced in America due to the automation in agriculture and food production.
The Bottom Line
While many industries and jobs will be lost to technological advancement, it remains to be seen whether there will be new jobs created that can be filled by those who lose their jobs. Hysteresis isn't a common outcome of new technology, that much is certain. The problem today is that many of the jobs being replaced by technology are not inherently technological—and therefore those workers may not have the technical skills needed. It will be those individuals who can interface with technology who are likely to succeed – those with computer programming skills will be more richly rewarded than those who can accomplish physical labor. This next wave of creative destruction may, in fact, bring more destruction than creation.