Glossary · Economic ideas
Creative destruction
Creative destruction is how new products, firms and technologies replace old ones: the economy grows by tearing down what came before.
Also called: Schumpeter’s creative destruction, disruption, disruptive innovation
Counted by Epoch AI. Ten years earlier, in 2015: 29.
In plain words
In 1900 the streets of New York were full of horses, and whole trades lived off them: stables, carriage makers, blacksmiths, hay farmers. Within a few decades cars swept most of that away, and created far more jobs in factories, garages, gas stations and road building. That churn is creative destruction.
It happens all the time: streaming replaced video rental stores, phones replaced cameras, maps and music players, online shopping squeezed department stores. Each wave brings cheaper, better things and new jobs, and also closes firms and ends careers.
The economist Joseph Schumpeter, who made the phrase famous in 1942, called it “the essential fact about capitalism”. Growth, in his view, comes less from doing the same things more cheaply than from doing new things.
Example
Kodak: inventing the thing that sank it
Kodak dominated photography for most of the 20th century, earning its money on film and on printing pictures.
- In 1975 a Kodak engineer, Steven Sasson, built the first digital camera. The company kept betting on film, which earned most of its profits.
- Digital cameras took over in the 2000s; then phones replaced most cameras altogether.
- Kodak filed for bankruptcy in 2012. By then people were taking more photos than ever, on devices made by other companies.
Photography didn’t die: it exploded. What died was the old way of doing it.
One level deeper
Schumpeter saw entrepreneurs as the engine: they bring new products, methods and markets, earn high profits for a while, and are then copied or overtaken. Old firms rarely lead the next wave, because the new thing undercuts what earns them money today.
Philippe Aghion and Peter Howitt built the idea into mathematical models of growth; they shared the 2025 Nobel prize in economics with the economic historian Joel Mokyr for explaining how innovation drives growth.
It shows up in the data as churn: many firms are born and die every year, and the companies in stock indexes keep changing. It is also why bubbles often form around real new technologies, like railways or the internet: the technology wins, but many of the companies betting on it lose.
A wave in progress: notable AI models each year
New AI models that the research group Epoch AI counts as notable, by year of release: 29 in 2015, 109 in 2025. Which firms and jobs this wave will create, and which it will destroy, is still being decided.
The numbers behind the chart
| Date | Notable AI models |
|---|---|
| 2000 | 2 |
| 2010 | 10 |
| 2020 | 50 |
| 2021 | 79 |
| 2022 | 91 |
| 2023 | 119 |
| 2024 | 99 |
| 2025 | 109 |
Why it matters
It is the main source of long-run growth: most of what makes us richer than our great-grandparents is new products and new ways of making things.
It explains why jobs are lost and found at the same time, often in different places and by different people.
It is a reminder that today’s giants are not permanent, and that even a winning technology can ruin many of the companies that bet on it.
A common mistake
Myth: New technology destroys jobs, so there will be fewer jobs.
In fact: It destroys particular jobs, often painfully, but so far new ones have taken their place: the share of American workers on farms fell from about 40% in 1900 to under 2%, and people found other work. Whether every future wave will follow that pattern is debated.
Questions people ask
Who came up with creative destruction?
The Austrian-born economist Joseph Schumpeter made it famous in Capitalism, Socialism and Democracy (1942), building on earlier ideas by Werner Sombart and Karl Marx.
What is an example of creative destruction?
Cars replacing horses, streaming replacing video rental stores, digital photography replacing film (Kodak went bankrupt in 2012) and email replacing most letters.
Is creative destruction good or bad?
Both, for different people. It raises living standards over time, but the workers, owners and towns tied to the old way lose. Much of the debate is about how to share the gains and soften the losses.
Read more on BigCapital
About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- Notable AI models (Epoch AI): Epoch AI, 'Data on AI models' (notable_ai_models.csv).
- Epoch AI keeps adding models as they become notable, so the counts for recent years can rise in later updates.
- This page explains a term. It is not investment advice.