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Joseph Schumpeter was the Austrian economist who popularized the term “creative destruction.”

May 2019 Michigan Economic Outlook

May 13, 2019
By Robert A. Dye, Ph.D., Daniel Sanabria

Michigan’s Schumpeter Moment

Joseph Schumpeter was the Austrian economist who popularized the term “creative destruction.” Schumpeter used the term to describe how an economy evolves through the business cycle. Some parts of the economy are lost at the end of the old business cycle as new parts are created that propel the economy forward in the new expansion. Michigan’s automobile industry is in the midst of Schumpeterian creative destruction. As the auto industry evolves at an increasing pace, there will be significant churn in the Michigan economy. It is obvious that vehicle assemblers will need to change systems as automobile technology evolves away from its reliance on the internal combustion engine. The rise of China as a global economic power may also require the Detroit Big Three to evolve from industry leaders to industry followers in at least some aspects of automobile production and sales. As new vehicle platforms are developed, there will be a push to significantly reduce the labor-hours needed to assemble a vehicle and this will have implications for Michigan’s labor market. Workers will need to be nimble and trainable. Fortunately, new production, mechanical and software systems will also create new jobs for Michigan’s workforce. Parts suppliers will need to be nimble. If all electric vehicles end up dominating the market, entire systems, such as engine transmissions, will go the way of the horse and buggy. Michigan’s Schumpeter Moment will not hit all at once. But it is in fact already happening and it will continue to have a profound impact on the state for many years to come. It may be more accurate to say that many parts of the Michigan economy are at the start of a Schumpeter decade. The UAW contract negotiations this year may be particularly contentious as both sides try to navigate the churning environment.

For a PDF version of this report, click here: May 2019 Michigan Economic Outlook

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