Illustration of creative destruction: lots of Fortune 500 companies disappeared over the last 60 years
What sets apart each of these groups of companies?
Group A: American Motors, Brown Shoe, Studebaker, Collins Radio, Detroit Steel, Zenith Electronics, and National Sugar Refining.
Group B: Boeing, Campbell Soup, General Motors, Kellogg, Proctor and Gamble, Deere, IBM and Whirlpool.
Group C: Facebook, eBay, Home Depot, Microsoft, Office Depot and Target.
Mark Perry, writing at Carpe Diem, explains: Fortune 500 firms in 1955 vs. 2014; 89% are gone, and we’re all better off because of that dynamic ‘creative destruction’.
One of those groups was on the Fortune 500 list in 1955 and one group didn’t exist then.
Prof. Perry finds that only 12% of the companies that were in the Fortune 500 list in 1955 are still there in 2014. The others were absorbed into another company, shrank in relative size, or went out of business.
You see, the push to provide consumers what they want at the prices they are willing to pay leaves behind companies that can’t keep up. Companies that don’t keep up with technology change just go away.
That produces wonderful benefits for you and me, as consumers. We constantly get more, better, cheaper, and faster products.
An entertaining thought to ponder is that if you don’t like Facebook, eBay, Apple, Microsoft, Amazon, Wal-Mart, Google, or some other huge company, don’t worry too much. If they don’t hustle exquisitely fast and stay hyper creative, some upstart company will come along and replace them. If someone else figures out how to do what they do better or faster or cheaper, they will be outta’ here.
We call that creative destruction. It may be painful for companies that are disrupted, but it is wonderful for you and me. It is only possible with economic freedom, combined with a heavy dose of political freedom.