The attack on private equity reminds us that people tend to think of creative destruction as damaging to the interests of workers — yet as Ashwin Parameswaran argues, the real problem facing workers may well be that we don’t have enough entry and exit of firms.
This fleeting and illusory stability that benefits the short-term interests of the currently employed workers in a firm leads to the ultimate loss of bargaining-power and reduced real wage growth in the long run for workers as a class. In the pursuit of stability, the labour class supports those very policies that are most harmful to it in the long run. A regime of Smithian efficiency-seeking i.e. the invisible hand, without Schumpeterian disruption i.e. the invisible foot inevitably leads to a system where capital dominates labour. Employed workers may achieve temporary stability via special-interest politics but the labour class as a whole will not. Creative destruction prevents the long-term buildup of capital interests by presenting a constant threat to the survival of the incumbent rent-earner. In the instability of the individual worker (driven by the instability of their firm’s prospects) lies the resilience of the worker class. Micro-fragility is the key to macro-resilience but this fragility must be felt by all economic agents, labour and capital alike.
The central problem with our current economic model is that it has enabled efficiency-seeking while crippling “the invisible foot,” thus enriching incumbents and improving their bargaining position.