Thursday, August 18, 2011

Internet: Creative Destruction

The internet looks like a Cockaigne (in German: Schlaraffenland:  A place, where, like in the medieval mythical land of plenty, almost anything is free.) Without paying you get search results, news, stock market quotes, videos and a lot more. That is bad for companies who have to sell these things to earn money.  In particular, newspapers & magazines are suffering under the "all is for free" maxim. Many media companies are losing (paying) readers and advertisers.

This might be a pretense for the culture pessimists. Some claim that the Internet generally destroys more income & jobs in the traditional industries than it creates by itself ( The world wide web is therefore allegedly deflationary for the whole world economy, these pessimists claim.

But I think that the culture pessimists are wrong, as always. The Internet is just a part of the technical progress which has been raising the wealth of the world for centuries. The economist Joseph Schumpeter popularized the term "creative destruction". This creative process leads to a legion of inventions & innovations and is the reason that mankind is much wealthier today than decades and centuries ago. Technical progress is the fundament of our wealth.

The invention of book printing for example destroyed the jobs of thousands of monks who copied texts by hand. But otherwise this innovation also created publishing houses & book sellers. And many authors got rich. But more important is that printing (inclusing newspapers  & magazine) made the spread of information possible, which was the fundament of the rise of the western world. Books helped to spread knowledge, the basic of sciences like medicine and the global industry.

Ideas spread faster

The world wide web is still young but it already created huge markets for smart phones, tablet computers, e-book-readers and other Internet connecting devices. But I guess another issue is much more important: The Internet makes information much cheaper; it reduces the cost of information. With the help of the net we discover things we didn`t know existed before. Ideas spread much faster, making the world richer.

This isn`t restrained to sites like! Internet platforms like  Expedia, Groupon,, OpenTable or Facebook are helping other businesses like shops, restaurants and legions of producers to meet potential buyers. Recommendations on or on Facebook create markets for the mentioned products & companies, many of them would have stayed unknown without this help.  With the help of the world wide net shelf warmers, otherwise collecting dust somewhere, find prospective buyers.  People can sell there services everywhere in the world. Every seller & buyer finds a lot more opportunities.

Even for the beleaguered media companies the situation gets better. Some weeks ago the New York Times reported that they now sell a growing part of their articles online (digital subscriptions). The newspapers may loose buyers in their traditional market, but - with the help of tablets and other Internet connecting devices - they can find paying customers elsewhere in the world.

Therefore all these platforms (and who knows what follows Twitter or LinkedIn) help the motor of the world economy run  smoother. The internet isn`t depressive, the opposite is true, it creates a better and wealthier world.

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