Sunday, April 2nd, 2000
Life section

New Economy

Going with the flux

What does a successful company - or state - do when the rules of the games have been changed?

destruction: Senior Minister Lee Kuan Yew used the term in his talk to IT players and investors in Silicon Valley early this month.

Governments and their people would have to be bold to not cling on to past successes but instead let "creative destruction" take place to chart new paths, he said.

He pointed out how enterprise, globalisation and rapid advances in IT in the United States were creating a new economy of sustained growth and low inflation.

"The strength of the American system is that it has always embraced change and creative destruction," Mr Lee said.

Asia would have to learn from the US.

"That which did us good in the phase that was, will not do us good in the next 20, 30 years. We start changing mindsets now."

In his speech at the Administrative Service Dinner last week, Deputy Prime Minister and Defence Minister Dr Tony Tan repeated Mr Lee's call for Singapore to abandon economic and business models and practices which had served the country well, in order to transit from the old economy to the new.

He also used the term "creative destruction", quoting SM Lee.

It is such a colourful soundbite, you cannot blame my colleagues for highlighting it in The Straits Times reports in both instances.

The term goes a long way back, to the first half of the last century when the Austrilan-American economist and social theorist Joseph Schumpeter (1883-1950) coined it to describe a defining characteristic of capitalism.

He argued that "a gale of creative destruction" sweeps through capitalist society, because capitalism fosters innovation, and as innovation brings about new products, new jobs, new technologies and new industries, old products, jobs, technologies and industries are inevitably destroyed.

People caught in the old suffer, but those in the new gain. The net gains for society, though, are new and lower-cost products for consumers.

The democratic welfare state evolved to tame the destructive side of capitalism while promoting its creative side, and had served Western countries well for the last 60 years.

But the recent forces of globalisation and advances in IT have rendered impotent all the taming devices.

The US went through a wave of painful downsizing and restructuring in the '80s and early '90s.

But looking back, the whole process can be seen as one of creative destruction of the old, while embracing the new boldly.

Between 1980 and 1995, the US saw 44 million jobs disappear from the private sector. But 73 million new jobs were created.

Without trying to protect them, the US kept its 12 million government jobs, too.

In contrast, Europe protected 12 million governmental jobs, but in the same period lost five million jobs in the private sector.

Interestingly, nearer home, in 1998, when he was still Malaysia's deputy prime minister, Anwar Ibrahim pronounced in a paper that the economic crisis had unleashed "a gale of creative destruction" across Asia.

"It is creative destruction that will cleanse society of collusion, cronyism and nepotism,'' he asserted.

While the global economy was rushing into the third industrial revolution, Asians were still trapped in the second. "We have become dinosaurs trying to live beyond the Jurassic age," he said.

TODAY, as economists see the new networked economy as behaving more like a biological system than the machine of the industrial era, they are prescribing creative destruction as a way out for
companies trapped by their own success.

Companies which are successful are like organisms which have adapted maximally to the ecosystem and found harmony and equilibrium.

But in an ecosystem of disruptive flux which is characteristic of our age, as we move from the second in dustrial revolution to the third harmony and equilibrium can very quickly lead
to rigor mortis.

For flux topples the incumbent and creates a platform for more innovation and birth.

Flux cannot be inhibited either, since "innovation is disruption and constant innovation is perpetual disruption" in the words of Kevin Kelly in his 1998 book New Rules For the New Economy.

In such a state of flux, a successful company, or a successful state like Singapore, will have to learn to destroy that which did it good in the phase that was, but will not do it good in the new phase.

This can be unsettling and often disruptive to large sections of society, as Dr Tony Tan said in his speech.

But economists and social theorists are saying there is no other way.

Archive 1

03/12/00 Nice work if you can get it

19/11/00 Simple emotions stalls paperless future

04/11/00 A club of pretencious class

21/10/00 Canby's passion for cinema

16/09/00 Clint still a draw at 70

09/09/00 The inspiring Keppel Men

09/07/00 Time and love wait for no man

25/06/00 Seizing opportunity in old-economy biz

11/06/00 Bad news to have more papers?

14/05/00 When my hostesses didn't show up...

30/04/00 Bellow's betrayal -- or act of friendship?

16/04/00 Alone, you don't get to grow up

02/04/00 New Economy

19/03/00 The Good Life

06/03/00 Time for creative destruction

20/02/00 Meet the new superhuman

30/01/00 OK, I don't have to be rich

16/01/00 An intimation of timelessness

02/01/00 Let's not forget to meet F2F