• Jun Park

New Economy : Thinking Schumpeter

Creative Destruction may be the title of a popular game, but before that, it was part of Joseph Schumpeter's Capitalism, Socialism and Democracy first published in 1942.

One of the quotes that resonated for the last decades was the inherent engine of growth through the disruptive process of transformation and the incessant pursuit of growth and new form of enterprises.

Capitalism ... is by nature a form or method of economic change and not only never is but never can be stationary. ... The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers' goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.

This is how Schumpeter described the concept of capitalism, one of the items that seems to make so much sense today is that it can never be stationary.

As CNN's headline pointed out, "Welcome to the Worst Economy"

The Coronavirus has in fact, put people's livelihoods, freedom of movement, and lives have been put on pause as we deal with this pandemic. As we see the economy collapse, hundreds of thousands around the world are entering into the worst economic downturn in history.

While I don't think Schumpeter ever thought that it was a form of Creative destruction, there are parallels that we should consider. But I am not here to talk about the the history, or its applied cases, this is about something more tangible. Something that has been spoken from in the past by former Democratic Presidential Candidate, Andrew Yang.

A Tax

He aimed it as a Value-added tax on e-commerce and data, calling it the new Oil.

Something is true, in today's market, oil prices seem to confirm Yang's statement, as the new reality is forcing social distancing, we see an incredible rise in e-commerce and web-traffic, making this statement even more true than it ever was.

One of the most predictable trends during this crisis is that e-commerce will rise, and the companies that are raging in this new economy are not as big contributors as they should be to their respective economies. Take another predictable trend, automation will only increase as this pandemic continues to motivate less human interaction.

Take Amazon for example has been used as an example as they paid 0$ in U.S. federal income tax on more than 11.2 billion in profits in 2018. (CNBC).

As we enter the worst economy, a depression, it is well known that the vicious cycle is in an oversimplified manner the lack of investment, the lack of return on investment, and therefore less and less capital to invest. In order to turn the tide, many economies have used activities such as protectionism and war as common mechanisms to promote productivity.

So, let's go back to data is being the new oil. Let's go back and see how Amazon paid $0 in federal income tax.

Is there an engine of growth, that for the last decades has taken advantage of the lack of necessity by governments to capitalize, that needs desperate modernization in the new reality.

A Value-Added Tax for e-commerce sales, and / or a Tobin Tax to start looking accounting into the economy other economic losses that are letting slide such as environmental impact on health of communities, which is also a well known existing phenomenon.

Even consider that even Billionaires call for higher taxes in order to contribute more, it is asking to take more money from them because the system is broken. (Business Insider)

The new engines of growth are the ones that have been around, but that have been using every possible accounting strategy to reduce their taxes.

The time has come to fix what is broken and take time to take a look at how he consider value.

Even John Maynard Keynes who gave the modern definition of the GDP (Gross Domestic Product), today's most common indicator of an economic well-being, stated that this should not be used as a marker for anything other than just to measure what it does, the aggregate measure that includes the value of goods and services produced in an economy over a certain period of time.