Perhaps no other factor has had as large of an impact on the shape of the private business world in modern times than the introduction of new technology. In the private sector, new technology has upturned whole industries and changed the very fabric of our world. It has created much wealth, but the process is not entirely without its drawbacks.
Possibly, the most important work done on the role of technology in the private sector was by the Austrian economist Joseph Schumpeter. He theorised on the impact of what he called "creative destruction" in the business world. This phrase describes the process by which new technology upturns older players in the business world allowing new competitors to rise and create new wealth for the economy. This process brings prosperity, but also disruption.
Centralisation and Decentralization
Technology takes the blame for both the centralisation and the decentralisation of the overall economy. During the 19th and early 20th centuries, new technology led to the creation of large industrial corporations that centralised the economy under their dominance. In the later part of the 20th century and continuing today, newer information technology led to a process of decentralisation in which smaller companies could shape the economy. Both processes have taken criticism.
The differences in fortune between companies that can adapt to new technology and those that cannot can be very dramatic. Companies that use the newest technology in their business practices, and have adopted their strategies to optimise its benefits, are those that tend to dominate the landscape. Repeatedly, the most effective means of beating competitors has been new technology.
Booms and Busts
A period of great economic growth, called a boom, often follows the introduction of major new technology. Because the effects of new technology are uncertain, these booms can also turn into busts when people realise that the positive effects of the new technology were overstated and a market correction is necessary. A recent boom and bust cycle, some argue, occurred in the late 1990s and early 2000s with new Internet companies.
- Library of Economics and Liberty: Creative Destruction
- University of California Berkeley: Economics of Information Technology
- George Mason University: Self-Reliance and Creative Destruction
- CBS Money Watch: The Eeconomic Impact of Information Technology
- Dartmouth College: The Economics of Technology