What does creative destruction in economics refer to?

Creative destruction in economics refers to the process through which innovation leads to the decline or demise of older industries and the creation of new ones. This concept, introduced by economist Joseph Schumpeter, highlights how economic growth often involves the transformation of markets as new products, technologies, and business models emerge.

When a new innovation is introduced, it can disrupt existing markets by rendering older products or services obsolete. For instance, the rise of digital photography led to a significant decline in the traditional film industry. This process is essential for economic progress, as it fosters competition and encourages businesses to adapt, innovate, and improve efficiency.

The focus on innovation and its role in driving economic change is what makes this concept so pivotal to understanding the dynamics of free-market economies, where new ideas and technologies constantly shape and reshape industry landscapes.