How does this relate to newspapers?

The Internet will eventually replace newspapers for many of the reasons that socialism will eventually replace capitalism (see previous post).

Media consolidation over the past 20 years has pushed out small firms and, with them, most voices. Most daily newspapers today monopolize their respective cities and are owned by a handful of corporations. In 2006, McClatchy bought Knight Ridder, effectively merging the first- and second-largest newspaper publishers in the U.S. Twelve of the newspapers McClatchy acquired in that deal were then sold because they “didn’t fit its longstanding acquisition philosophy of buying newspapers in fast-growing markets.”

At least that’s how McClatchy tells it. A more critical source might say that the sales were the result of shareholders’ demands.

The decision by newspaper publishers to turn their businesses public during the 20th century was the first nail in the coffin for the industry. Without the competition now provided by the Internet, profit margins hovered around 30 percent year after year. After a while, shareholders came to expect it. The industry coasted.

Industries fall victim to creative destruction when they start taking their privileged positions for granted.

In order to stay relevant, industries should seek not to make money, but to meet their consumers’ needs and wants. If they do, they will make money.

Example: Blockbuster and Hollywood Video were in the business of making money, not supplying movies. If they were really in the business of providing entertainment, they would have been innovating the whole time. They would have come up with Netflix.

I leave you with the words of Bill Moyers, former White House Press Secretary, journalist, and a leading authority on the American media:

“Virtually everything the average person sees or hears outside of her own personal communications is determined by the interests of private, unaccountable executives and investors whose primary goal is increasing profits and raising the company’s share price…The greatest challenge to the conglomeration of the media giants and the malevolent mentality of the partisan press is the innovation and expression made possible by the digital revolution.”

Knight Ridder Agrees to Sale

The McClatchy Company: Overview

Bill Moyers on Journalism and Democracy

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April 22, 2010 at 2:48 pm Leave a comment

Introduction to Destruction

The oldest form of creative destruction can be attributed to the Hindu god Shiva, who reveals the cycles of death and rebirth essential to the Eastern mystical worldview.

The economic concept of creative destruction came much later, and was developed mostly by Joseph Schumpeter (1883-1950).

In explaining creative destruction in his 1942 book Capitalism Socialism, and Democracy, Schumpeter put forth some eerily prophetic ideas. Though he agreed with Marx that the capitalist system would eventually collapse, he had his own ideas about how it would go down.

Schumpeter theorized that capitalism would eventually become so successful that it would become the subject of a widespread intellectual backlash. There will be no “communist revolution,” he wrote; rather, social democrats would rise in popularity and win elections, ultimately forming a democratic majority. The actions of these elected leaders would give rise to a welfare state that, in turn, would abate the class wars that characterize modern capitalist societies.

Here’s a simplified breakdown of the process, provided by Swedish economists Magnus Henrekson and Ulf Jakobsson:

1. The bulk of innovations will be made in large corporations.

2. Large corporations will be increasingly predominant in the economy.

3. New and smaller firms will play a declining role in the economy.

4. The concentration of ownership will grow over time.

5. The general public, not least the intellectuals, will grow increasingly hostile towards capitalism.

6. Socialism will eventually replace capitalism.

It’s important to note that although Schumpeter predicted the fall of capitalism, he did not advocate it. “If a doctor predicts that his patient will die presently, this does not mean that he desires it,” he wrote. The fact that Schumpeter’s theory did not align with his own interests lends even more credibility to a forecast that already appears to be materializing.

The Concise Encyclopedia of Economics

Where Schumpeter Was Nearly Right

April 21, 2010 at 6:56 pm 1 comment

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