One of the few phrases concocted by an economist which has achieved widespread recognition is “creative destruction” (CD). The best part of a century ago, the Austrian Joseph Schumpeter used the words to describe a process of, according to him, desirable economic change where older industries and processes were eliminated and new ones were brought in. The shock to the economy and society delivered by creative destruction would result, presumably after some time lag, in a real spur to economic growth.
The idea is superficially appealing and indeed has usually received a good press. Whenever a couple of words like “creation” and “destruction” are juxtaposed, however, its worth looking at all four options, not just one cell of the matrix. Destructive destruction (DD) does not sound so nice, and it might be one way of describing war. Destructive creation (DC)could be good, say in situations where the creation of a new way of thinking wipes out old and erroneous ideas (something that happens frequently in science). Creative creation (CC), despite its sound, is not a redundant term. Whenever chain reactions in fresh technological fields take hold, huge possibilities can open up. It is in essence a “creative creation” perspective which underlies the views of those who currently argue for optimism regarding longer term economic growth prospects.
Schumpeter himself was well aware that fancy sounding words can hide acute practical problems and tensions. Those who, from the Tolpuddle Martyrs on, could see their livelihoods damaged by CD were hardly likely to line up in a favorable chorus. What might be positive in technological terms would require management, and some of that might well be political and of the strong arm type (examples of forced industrialization abound, from Stalinist Soviet Union to the so-called “Asian miracles” of the latter part of the 20th century). The famous Austrian himself had to flee from Vienna in the face of another Austrian determined to impose an extremely toxic form of CD, one where the accent was far heavier on the D than on the C.
If we move from the economic/political realm to the political per se, the current epoch in Europe offers plenty of cases where individual politicians seem to be inspired by Schumpeter’s CD. Its as if the entrepreneurial side of politics has taken over, and all kinds of actors see the need/opportunity to offer “new political products”. The extent to which they are “new” of course varies greatly, but in the perception business its appearances which count. Countries with a Mediterranean coastline, including Italy, France and Spain, have been especially entrepreneurial, while several others in the EU have scarcely lagged behind. Given the exceptional complexity of the current challenges, and the stakes at play, its time to look more carefully at what is going on.
Lets start from events of this week in Italy. The Italian Foreign Minister, Luigi di Maio, has formally split from the 5 Stelle Movement (whether that entity still gets the same Michelin rating is open to question) taking several dozen Deputies and Senators of that constellation with him. He claims that this newly baked group, “Insieme al Futuro”, will offer something politically different, though as of now nobody knows what that is. This “act of creation” destroys the parliamentary position of 5 Stelle as the biggest single group. And since 5 Stelle has been supporting the Draghi government, a fresh element of uncertainty is injected into the political atmosphere (since uncertainty is never in short supply in Italy – in fact the body politic may well be the world’s largest producer of that commodity, closely followed by the UK – we can presume Di Maio is not claiming this as a novel idea).
Now the creation and destruction of political formations has long been a thriving industry in the peninsula. Matteo Renzi is a past master, regularly adopting the “inventor’s cloak” as a means of keeping himself in the limelight while simultaneously killing off, or attempting to kill off, other politicians deemed as rivals (in other words, those with similar ideas to his own). The Lega of Matteo Salvini (to the extent he is still in charge) is in fact an attempted refurbishing of the Lega Nord, an effort at re-branding a badly damaged product. Carlo Calenda found the various offerings of self styled center left groupings to be unsatisfactory, and so set up Azione. Slightly further back in time, both Berlusconi’s “Forza Italia” and 5 Stelle itself were clear programs to be “creative”, at the same time delivering hard blows to then existing political formations.
Few would argue that these entrepreneurial efforts have made any useful contribution to economy, society and governance in Italy. Stripped to their essence, all these maneuvers are vehicles to push the personal agendas of those carrying out the CD. Di Maio has indeed been crystal clear about this. His position is now directly opposed to pretty much all the so-called “Principles” for which 5 Stelle was supposed to stand. As a consummate politician (which he has become) he will henceforth respond to circumstances. His outfit is, as far as I can tell, one of 7 political groupings currently claiming to represent the “Center” in Italian politics. Since there is no recognizable leftist entity remaining in Italy, the concept of “Center” is also wonderfully vague. Di Maio and Renzi have thus effectively cleared the field of battle, and it is their personal rivalry which will dominate the short and medium term future of Italian politics.
Emmanuel Macron is almost certainly the biggest disciple of Schumpeter. He believed that both the French economy and the French body politic required a thorough ravaging, saw the chance in 2017 to shatter both the old Socialist party and the traditional right, and swept to the Presidency under a thoroughly opaque umbrella labelled “La Republique en Marche”. After the first quinquennat, his approach to this year’s Presidential election was to double down on CD. With no political program at all, he simply diabolized his rivals, effectively declaring them to be “politically incorrect” and beyond the pale. Since in politics you always need a slice of luck, the conflict in Ukraine has been very convenient. While his political adversaries were whinging about economic and social conditions in France itself, Macron could flaunt his (self imagined) status as an international diplomat (fortunately at the same time as France was holding the revolving Presidency of the European Council) and pretend that he was defending “values” and national security.
The results of the very recent legislative elections have likewise helped him. Why? Because when you do not have a program (but pretend you do), it is extremely useful to be able to blame an obstreperous Assemblée Nationale for hindering the execution of the (non existent) program. Since, unlike our Italian friends, Macron is subject to a 2 term limitation, he has no need to think about a future in national politics. So his real challenge now is to cultivate his own personal career. That might be in the private sector, it might be in the international public sector (or ideally, multi post holding permitting) in both.
For the future of France, it is far harder to read the runes. To be fair to Macron, the situation was pretty grim before he appeared, so the present very somber outlook is not necessarily a dramatic step backwards. He has succeeded with the destruction of a number of French political edifices, yet left little to replace them (it is doubtful that the Movement he has led will have a significant future). Hence there is precious little creation to go along with the destruction. The implicit “sequencing” issue here exposes one of the non explicit assumptions made by Schumpeter. He reckoned the creative forces were underway and that the destructive elements would come later. But when the demolition job comes first, its consequences might mean that the creation never arrives.
Lets turn to Spain. On the surface there has been rather less recent political entrepreneurship in this marvelous country than in Italy or France, yet destruction and creation are ever present in the political realities. Even if we leave aside the interminable juggling for position in Cataluna – and that is a major simplification to make – there has been plenty of action. Vox has appeared in Andalucia with an avowed aim of rolling back all kinds of political and social progress made in this century. The regional elections held just a couple of weeks back in Andalucia yielded a very positive result for the Partido Popular, which is under a new leader and has been trying to repackage its offering after the corrupt immobilism under Mariano Rajoy (much as I love Galicia, the fact is that for much more than half of the last 80+ years, Spain has been ruled by Galicians with nefarious consequences). So in what had long been a stronghold of more socialist inclined groups, there has been no small measure of political entrepreneurship in Andalucia. And an honest observation would be that while some of that has been CD, another bit has sought to lean more in the direction of CC.
One of the groups which flowered in the earlier part of the century, Podemos, has been disappearing from the scene. Pablo Iglesias, its prime mover, has removed himself (temporarily ?!) from national politics. Podemos was an effort to be CC. Its inspiration came from a number of initiatives happening in various Latin American countries in the first decade of the century. Curiously, while right now there is a pronounced turn towards more socially progressive politics in some of those countries (Colombia, Chile are striking instances), and while other progressive groups in the EU appear to be gaining some ground (Austria is a case in point), the Podemos drive seems to have decided “no Podemos”.
The key consequence of these developments in Spain has been to shape the Socialist party as one where clear operational steps to improve the economy, where possible made with relatively broad parliamentary approval (though some key votes have yielded the narrowest of margins), have taken center stage. In the frequently highly toxic atmosphere of Spanish politics, this emphasis on working hard to improve what exists must be considered a very positive approach. Schumpeter can be forgotten.
The C and D combinations can readily be applied to analyze the recent politics of other European countries. In succinct form, Merkelism might be seen as the antithesis of Schumpeter, namely neither C nor D (a circumstance which would not be the first time a German and an Austrian have failed to see eye to eye). In the UK from Brexit on we have been treated to an orgy of DD, where the core thrust has been (contrary to the media emphasis on dealings with the EU) to break the pillars of parliamentary democracy and the peculiarly English version of constitutionalism. The endless disputes relating to political architecture in Poland and Hungary are rich testimony to the apparent attractions of Schumpeter. There is little to be gained by extending the country examples.
While the original idea of our Viennese friend was to emphasize the potential value of an essentially technological or managerial shock to an economy experiencing severe problems of inertia, this note has focused on the political uses, good, bad and indifferent, which the C and D business has been having in today’s European political struggles. There seems little doubt that Schumpeter is back in fashion, perhaps even among some who may never have heard of him and certainly never read anything he wrote. To paraphrase Keynes (whose treatment of Schumpeter when he arrived as a refugee to Cambridge was little short of disgraceful), everyone is a follower of some earlier scribe.
Peter O’Brien, 30 June, 2022
