Advent 2009, Week One, Day Six

It has become commonplace to say: ‘A crisis is a terrible thing to waste.’ And in both cases the saying

applies. Yet even so, as a McKinsey study has warned, changes taken in response to crises are less likely to succeed than those taken from a position of strength. The point here is not to close the debate but to open it and to ask: why, in the face of world poverty and the threat to the environment today is there not the same urgency about innovation and what can we do to ensure that the most effective paths are chosen. And at the heart of that question is not simply a concern about technology but about justice. Is that not the meaning of the warnings of Jeremiah and Luke?

 

 

Advent 2009 A World In Waiting

Week One – A New City

Day Six – Innovation

There will be signs in the sun, the moon, and the stars,

and on the earth distress among nations confused by

the roaring of the sea and the waves. People will faint

from fear and foreboding of what is coming upon the

world, for the powers of the heavens will be shaken.

Then they will see “the Son of Man coming in a cloud”

with power and great glory. Now when these things

begin to take place, stand up and raise your heads,

because your redemption is drawing near.

Then he told them a parable: “Look at the fi g tree and

all the trees; as soon as they sprout leaves you can see

for yourselves and know that summer is already near.

So also, when you see these things taking place, you

know that the kingdom of God is near. Truly I tell you,

this generation will not pass away until all things have

taken place. Heaven and earth will pass away, but my

words will not pass away.

Be on guard so that your hearts are not weighed down

with dissipation and drunkenness and the worries of

this life, and that day does not catch you unexpectedly,

like a trap. For it will come upon all who live on the

face of the whole earth. Be alert at all times,

praying that you may have the strength to escape all

these things that will take place, and to stand before the

Son of Man”.’ Luke 21: 25-36

 

Once again we are presented with an Advent reading that paints a picture of destruction. The passage read in Luke speaks of cosmic chaos. It is Act Two of a drama portrayed by Luke. Act One is about the destruction of Jerusalem: ‘Jerusalem will be trampled down by foreigners until their day has run its course.’ There is plenty of destruction in today’s economy, globally and in the City. Businesses, whether small or large have either collapsed, or been dismantled, taken over or been semi nationalized. Indeed, some of the world’s giant firms whether in the world of finance – Bear Stearns, Lehman Brothers, Merrill Lynch, HBOS, Iceland’s main banks (Glitnir, Kaupthing and Landsbanki), Anglo-Irish Bank in Ireland, Fortis in the Benelux countries, Hypo Real Estate in Germany – or in the world of insurance (AIG) and manufacturing (General Motors, Chrysler). It’s hit the printing industry, the record industry, the fi lm industry and many others. Large and iconic symbols are also in trouble, not least in the newspaper industry (The Boston Globe, The Washington Post, The New York Times).

 

That capitalism is destructive can hardly come as a surprise to anyone who has looked closely at the history of capitalism. It destroys not only existing economic systems but social, cultural and political systems as well. It is frightening. But what does it all mean? For Karl Marx, it meant self-destruction – a long process marked by periodic cataclysms which would eventually bring about the end of a class society. But there was an influential economist, Joseph Schumpeter (1883-1950), who also noted the destructive tendencies of capitalism but gave them a very different interpretation. He used a phrase which, not surprisingly, has resurfaced in the present crisis: ‘creative destruction’. It would do Schumpeter an injustice to reduce his economic thinking to this one catch phrase but it is highly relevant. Where for Marx, it was the proletariat who were the heroes, for Schumpeter it was the entrepreneurs. And where for Marx, the enemy was the bourgeoisie, for Schumpeter

it was bureaucracy, centralization, and the extension of state control.

 

What did Schumpeter mean by ‘creative destruction’? Basically he was applauding the forces of innovation and enterprise. Innovation meant not just new technology and new types of products but also new forms of organization and management, the identification (and stimulation) of new needs, new methods of marketing, etc. No bank bail-outs for him. No ‘too big to fail’ nonsense. Inefficiency and mismanagement should be punished not rewarded. Leaving aside the apparent ruthlessness of such an approach, the notion of ‘creative destruction’ does at least challenge us to take a critical look, not simply a negative or benign look, at the economic destruction that is all around us. A critical look means, of course, not simply indulging in the commonplace that ‘not all destruction is creative.’ It means seeking to understand (a) what is needed to ensure that innovation can be more creative than destructive and (b) under what conditions does creativity and innovation best flourish. To take the first point, a good deal of the destruction in the world of finance has been attributed to innovation, i.e. the development of brilliantly designed financial instruments and vehicles which were meant to control risk but which became so complex and obscure that they were used without being understood. The destruction that ensued was, as Gillian Tett of the Financial Times has observed in Fool’s Gold, not about individual financial institutions that were ‘too big to fail’, but that they were ‘too interconnected to ignore.’ The destruction furthermore affected not just the financial system but people’s lives, their dreams and their future, their informal economies, their patterns of life and leisure, their very survival.

 

One result is that innovation has almost become a bad word. The world of finance has – probably only temporarily – taken a conservative turn, giving priority to control rather than innovation. That sort of destruction leads to the sort of reaction that Schumpeter feared. Looking at the role of State in the years immediately following World War II, Schumpeter commented, in Capitalism, Socialism andDemocracy: ‘The capitalist process not only destroys its own institutional framework but it also creates the conditions for another….things and souls are transformed in such a way as to become increasingly amenable to the socialist form of life.’ Although he insisted he was not predicting the inevitable rise of socialism he did, in one of his final addresses, say: ‘Marx was wrong in his diagnosis of the manner in which capitalist society would break down: he was not wrong in the prediction that it would break down eventually.’

 

The second question raised by Schumpeter’s stress on innovation is whether it is necessarily the case

that innovation and creativity best flourishes in freemarket capitalism. Given that economic activity is the activity of people, individually and collectively, such statements rely in the end not simply on empirical evidence but on assumptions about human nature and society. Where is the proof that innovation needs the sort of competitive environment which only capitalism provides, or that that self-interest and the pursuit of fi nancial gain is the key motive for innovation, or that working against others rather than collaboratively – sharing ideas and discoveries – is the most efficient process? Much depends on the conditions and on the individuals involved.

 

Two of the most dramatic examples in modern times, which involve literally issues of life and death on a gigantic scale were the making of the atomic bomb and the discovery of the human genome. The former was done collaboratively; the latter pitted the private entrepreneur Craig Venter in a race against the publicly-funded Human Genome Project. The issue is not only who won the race – it was close – but which makes the greatest benefits accessible to the greatest number of people. In the end whether the sort of destruction we are experiencing will be creative or not depends on our own choices. For some, this can mean a golden opportunity for taking even more destructive measures which in other times might not be acceptable – closing plants, cutting jobs, dismantling the Welfare State. For others, such as corporate social responsibility consultants, for example the Malaysian-based OWW, it can mean undertaking positive reforms so as to ensure that what is rewarded are activities that benefit rather than harm the environment.

 

It has become commonplace to say: ‘A crisis is a terrible thing to waste.’ And in both cases the saying

applies. Yet even so, as a McKinsey study has warned, changes taken in response to crises are less likely to succeed than those taken from a position of strength. The point here is not to close the debate but to open it and to ask: why, in the face of world poverty and the threat to the environment today is there not the same urgency about innovation and what can we do to ensure that the most effective paths are chosen. And at the heart of that question is not simply a concern about technology but about justice. Is that not the meaning of the warnings of Jeremiah and Luke?

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