In today’s issue:
- Darwin’s approach to economic theory
- Creation and destruction in the energy transition
- AI: friend or foe?
Did Charles Darwin explain biology or economics best?
Creative destruction, the concept popularised by economist Joseph Schumpeter in the 1940s, is the way in which innovation drives economic growth.
It’s the natural process of dismantling existing structures to make way for new ones.
This phenomenon is deeply rooted in the principles of evolution, as outlined by Darwin, and applies not only to biological systems but also to markets and industries.
At its core, creative destruction involves the continuous replacement of outdated technologies, products, and business models with more efficient and innovative alternatives. This process, while often painful in the short term, is crucial for long-term economic growth and societal progress.
The energy industry is a prime example.
Over the centuries, we’ve witnessed a progression from wood to coal, then to oil and gas, and now to renewable sources like solar and wind. Each transition brought about significant disruptions but ultimately led to more efficient and sustainable energy solutions.
More specific examples stand out in my mind too, such as:
- The shift from whale oil to kerosene for lighting in the 19th century
- The replacement of horse-drawn carriages by automobiles in the early 20th century
- The ongoing transition from internal combustion engines to electric vehicles.
These changes not only transformed industries but also reshaped entire economies and societies. But they came at a cost – for example, the UK’s transition away from coal in the 1970s and 80s cost over 250,000 jobs.
Today, market focus has shifted very clearly to artificial intelligence. It’s been spoken about a lot, but that reflects its significance and potential impact. AI is here to stay. And it is certainly the greatest force for creative destruction since solar, wind, batteries and electric vehicles (EVs) disrupted the energy and auto industries.
For some sectors, it is a terrifying reality that awaits. KPMG fired 13,600 staff just before announcing a partnership with Microsoft to leverage AI. Four in ten senior KPMG auditors expect AI to cut headcount even more.
Research by Oxford University says accountants have a 95% chance of losing their jobs as machines take over – an implausibly high number, but these are the figures being thrown around now.
AI is having a huge impact on the energy transition too. It’s being used to help improve energy efficiency, manage the intermittency of renewables, and improve power trading.
But for most people, it’s a fear, a risk, a challenge to the career paths we imagined.
When thinking about AI, it reminds me of a recent quote from Nike management, as they face up to increasing competitive pressure from new and resurgent brands like Hoka or New Balance. Nike’s culture comes straight from the elite athletes it sponsors – it’s all about competition, winning, striving to be the best, and facing up to every battle.
After a difficult year for the business, the company said it has been the toughest fight in recent years, but it is “one of our biggest opportunities. Our teams focused here FIRST when navigating our comeback… Adversity creates sharper focus, leading to innovation and new growth. We will continue to address these challenges head on.”
That’s the attitude we’ll see with AI, with companies running towards the fight and embracing the ways AI can help us. Because while it is a threat in some ways, it’s an opportunity in many others.
Indeed, PWC says AI could be a “15 trillion-dollar game changer”.
According to Sam Altman, CEO of OpenAI, “AI is going to be the greatest force for economic empowerment and a lot of people are getting richer than we have ever seen.”
Sundar Pichai, CEO of Google, agrees, stating that AI “will do more for humanity than fire.”
If you agree, you will want to read a report that my colleague Sam Volkering has put together on the three companies he thinks stand to benefit the most from the AI revolution.
- One company currently controls the rollout of AI across cars, robots and phones
- The second is solving a problem at the centre of AI… and at the heart of civilisation
- And the market for the third company could explode 73 times higher in over the next decade.
To find out what they are and why they’re such exciting opportunities…
Capital at risk. Forecasts are not a reliable indicator of future results.
Until next time,
James Allen
Contributing Editor, Fortune & Freedom
