Saturday, 9 June 2018

Creative Destruction: The High Street 'Crisis' Is Like Trump's Tariffs In Reverse

Many people are bemoaning the so-called high street crisis as being indicative of some kind of prophecy of doom on our retail industry. Now while we can all feel sympathy for the people that lose their jobs because of this, the overall picture is that just the opposite is happening: the closure of the high street shops is democracy's way of saying that better things are happening elsewhere, and that on average, the public is reaping the rewards of an ever-changing society.

This is why it's like tariffs in reverse. Tariffs benefit a small proportion of the domestic population, and hurt the rest of the population, to engender an aggregate loss. High street store closures hurt a small proportion of the domestic population, and benefit the rest of the population, to engender an aggregate gain.

What I'm describing here is standard in economic theory: it is a natural selection-type filter known as Schumpeter's 'gale of creative destruction' (after the economist Joseph Schumpeter). It is the market's way of saying that demand for whatever you are providing, or for the way you are providing it, is declining.

Creative destruction transmits informal signals, not just about who should be selling what, and how, but also about maximising investments, prudent and imprudent capital ventures, selection pressure on innovation and efficiency, new training opportunities, alternative products and improved technology.

Creative destruction is not just a filtering effect on struggling businesses and industries, it is also an opportunity for greater competition, which channels creativity, modernisation and material advance. It does not mean an end to high street stores; it means there is a niche opening for better ones. Competition doesn't just drive drown prices for consumers, and ensure increased efficiency from suppliers - it provides fresh opportunity for would-be businesses to enter the market and add to the value created in society.

Those high street shops, at their best, will not be retailers struggling to compete with more efficient and cheaper online competitors - they will be small businesses like bakers, butchers, patisseries, cafes, restaurants, takeaways and so forth, that are continually able to provide goods and services that people prefer over the bigger retailers, often to enjoy the sense of community spirit too.

Creative destruction involves losses in society as well as gains - but the 'creative' part far outweighs the 'destruction' part - as the threat of bigger competitors acts as a driver for new ideas and opportunities, and continual demand for improved products and services.

To the small minority of politicians who think the so-called high street crisis is their cue to call for state intervention in the shape of bail-outs, subsidies, tax breaks and financial restitution - this is as clumsy as it is foolish. Any political attempts to cushion the blow only serve to distort the vital information signals regarding where capital is best allocated, where labour is best employed, and which businesses and industries are likely to create the most wealth and value in society.
Finally, it shouldn't have slipped your notice that the political buffoons appearing on media outlets recently bemoaning the mass decline in high street retailers are the exact same political buffoons who've been so influential in helping these closures along by imposing literally billions of pounds of increased overheads on these companies through their inflated minimum wage legislations and fattened up taxation on businesses. Statist chickens always come home to roost.