Most consumers have never heard of "creative destruction." But they still benefit from it - at least, they do when it isn't forced on them.
Popularized by Austrian economist Joseph Schumpeter, creative destruction is an economic theory that says the short- and long-term benefits of entrepreneurial activity and competition far outweigh the short-term losses caused when a new product replaces an old one. Audiotape makers, for example, may lose their jobs to the makers of compact discs, who may lose their jobs to digital technology.
When it occurs organically, it's a beautiful process that begets economic progress and benefits the consumer. When forced on businesses and consumers by the government, however, it does far more harm than good. And that's exactly what's occurring with the federally mandated ban of incandescent lightbulbs.
In 2007, Congress passed an energy bill that placed stringent efficiency requirements on incandescent bulbs. The intent was to phase them out beginning in 2012 and replace them with more expensive but more energy-efficient bulbs, the most popular kind being compact fluorescent bulbs.
Politicians sold the regulation using a distorted notion of creative destruction mixed with global-warming concerns. They said it would create jobs, save consumers money, and reduce greenhouse-gas emissions.
But what's really happened? As usual, politicians failed to see the unintended consequences of their legislative agenda.
For example, compact fluorescents contain dangerous mercury vapor that can be released if they are broken. Hospitals and medical charities warn that they cause migraines and epilepsy attacks. Critics also point out that they do not work well in colder temperatures, and they emit less heat than incandescent bulbs, which will force Americans to use more heating fuel. Nor do they work well with dimmer switches, and their life span diminishes if they are turned off and on frequently.
The latest attack on compact fluorescents has to do with jobs. The Washington Post recently reported that General Electric had to close its major incandescent factory in Winchester, Va. - a factory that employed 200. And the jobs that likely will be replacing those will be in China, where the United States gets many of its compact fluorescent bulbs. The process of making them is labor-intensive, and labor in China is much cheaper than it is here.
As Rep. Marsha Blackburn (R., Tenn.) said, "Washington banned a perfectly good product and fired hardworking Americans based on little more than their own whim and the silly notion that they know better than the American consumer. Now, hundreds more Americans are looking for work while assembly lines in China are churning out fluorescent bulbs for the U.S. market."
To be clear, this is not Schumpeter's model of creative destruction; it's economic ignorance. If consumers really wanted to buy fluorescents rather than cheaper incandescents, they would purchase them without a government ban. And if China produced those fluorescents, cheap imports would mean businesses would find better uses for labor in the United States.
While this is likely true with or without a mandate, the difference is that the government's ban unnecessarily kills jobs. In this case, a mix of special-interest politics and concern that energy use in the United States is producing too much greenhouse-gas emissions resulted in a needless regulation and mandates. Rather than an innovation valued in the marketplace, consumers are forced to accept a product they don't want.
The attack on the incandescent bulb is just one on a laundry list of government regulations and mandates attempting to promote conservation.
Energy-efficiency standards for vehicles, appliances, and buildings all have unintended consequences that the advocates of the regulations fail to foresee, including increased energy use. In every single case, if consumers want a product, the market is capable of providing it.
On the other hand, when the government picks winners and losers, it reduces the incentive for companies to innovate. It also increases the incentive for companies to lobby the government for special handouts and protections.
When the government creates specific mandates and regulations, it purposely narrows the path businesses can take. Such policies distort normal market forces and encourage government dependence.
First appeared in The Philadelphia Inquirer