A Canadian won the Nobel Prize for economics and we can learn a lot from his research, writes Peter Watson.
Peter Howitt and his research partner from France published a research paper titled, “A Model of Growth Through Creative Destruction.” The Nobel committee summarized their research as showing how creative destruction drives growth.
The key to “creative destruction” is when innovations replace older technologies. That results in economic growth with winners, and also losers.
Other companies are motivated to improve by working on similar challenges. Their motivation is to capture more of the prize, which is money that comes from profit. Competition can be strong, and most industries have companies who want to take business away from competitors.
There is collateral damage. Losing companies suffer financially, which is the risk shareholders take when investing. Employees can lose their jobs, which can be devastating to them and the communities that rely on the prosperity the company provides.
Many of us believe that when companies go out of business and therefore jobs are lost that is a negative. It can be devastating, and it is negative for those directly involved.
There is an upside. It is part of the normal economic cycle that results in an increasing standard of living.
The key for Canada and Canadian companies is to continue to invest the time, energy and capital needed to succeed in an increasingly competitive world.
Peter Watson, of Watson Investments MBA, CFP®, R.F.P., CIM®, FCSI offers a weekly financial planning column, Dollars & Sense. He can be contacted through www.watsoninvestments.com.
