One implication of creative destruction is that you want entrepreneurs and businesses that are very good at “creative” and you don’t want governments hindering “destruction.”
The world needs robust productivity growth more than ever… If firms do not increase their productivity, economies don’t, either. …Customers and employees are typically the biggest and most immediate beneficiaries of productivity growth. Productivity growth is a win-win for all. This research finds that a relatively small number of firms making bold strategic moves generated the majority of productivity growth… This was a more concentrated, dynamic, and sporadic pattern than existing literature tends to highlight, with progress on productivity being defined by a few firms moving a mile rather than many firms moving an inch. …Fewer than 100 firms in our sample of 8,300—a group that we have dubbed Standouts—accounted for about two-thirds of the positive productivity gains in each of the three country samples we analyzed. …To give a sense of how important a single firm can be, just another dozen or so of the largest Standouts could have doubled productivity growth in their entire country. The number of firms that were responsible for the largest drags (negative contributions of at least one basis point) on productivity growth—we call them Stragglers—was even smaller. Only 55 Stragglers accounted for 50 to 65 percent of the firm-level productivity drag in the three country samples.
Speaking of stragglers, notice the right side of Exhibit 6.
This is why it’s not good to have bailouts. Weak and poorly managed firms drag down the overall economy.
If this doesn’t exhaust your interest in the topic of creative destruction, I invite you to peruse my three-part series here, here, and here.
Dan Mitchell is co-founder of the Center for Freedom and Prosperity and Chairman of the Board. He is an expert in international tax competition and supply-side tax policy.
