Andrew Cho.NET

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There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40% of our national income.

• Fox News interview (May 2004)

Apple‘s latest and hottest product, the iPad just hit the stores yesterday. As it is the case for most Apple products, whenever Steve Jobs announces the latest innovation in Apple’s product line, so many doubtful customers (usually the ones that have no idea what they’re talking about but love to show off their ignorance)  talk so much nonsense all over the place that I’ve decided to clarify a few things and enlighten theses poor bastards.

The biggest complaint that I hear from people around me is that the iPad is just a bigger version of the iPhone. Now, I can’t even begin to tell you why such statement is absurd but let me just explain to you why the iPad is not just a blown up iPhone.

First, take the iBooks app and the Kindle app for the iPad. As most of you know, these applications let users purchase books and store them directly onto the iPad. Some may say, “I prefer to have a real book made of paper and ink”. Now, that doesn’t matter. As witnessed by the music industry, contents, whether they are music, pictures, songs, or films, are bound to become cheaper and cheaper over time. It is a basic economic principle that consumers will find their way to get their hands on the contents that they consume in the cheapest possible way without compromising quality. These two books applications mark the beginning of cheapening content in publishing industry. Yes, it is the rise of cheaper, higher quality digital content that will shake the publishing industry’s traditional business model. It will give power to numerous independent writers just as the iPhone and the App Store empowered independent programmers.

This is a good news for independent writers and publishers as they now have more opportunities to communicate and spread their ideas in effective ways by distributing their work as digital content over the Kindle app and the iBooks app. The iPad is like Guttenberg’s printing press that revolutionized the publishing industry back in 1436, and marks the end of 600-year-old paper and ink publishing. The iPad is the very epitome of the process of creative destruction preached by Joseph Schumpeter.  The market will NEVER be the same again.

The rise of independent writers that can deliver their products directly to consumers will turn the oligopolistic publishing market into competitive market, thereby maximizing consumer surplus and minimizing deadweight loss caused by oligopolistic business practice. The oligopolistic publishing industry, which have been dominated by a few mega firms, will have to adapt to the new free market perfect competition business model that will arise in the near future, thanks to the iPad. In conclusion, the iPad will be the only device that will be remembered as the gadget that single-handedly brought down the publishing industry.

This is just one effect of the iPad will have on the existing market. Now, I dare you to tell me that this product is still a giant iPhone.

Yes, for those of you who are familiar with the title, I just finished reading the most important chapter in Capitalism, Socialism, and Democracy by Joseph Schumpeter, The Process of Creative Destruction.

This chapter was the reason why I borrowed this 60-year-old book in the first place, and I have to admit that Schumpeter is now one of my favorite authors/economists. The book is very difficult to read, so if you have no previous experience in economics, I do not recommend it because the book uses many economic jargons in it.

Anyway, Here is the summary of the chapter:

Capitalism, in its essence, is an evolutionary process. It is by nature a form or method of economic change and not only never is but never can be stationary. And this evolutionary character is not due to mere increase in population or capital, but due to new consumers’ goods, new methods of production or transportation, new markets and new forms of industrial organization that capitalist enterprise creates.

Capitalism  revolutionizes the economic structure from within, destroying the old one, and creating the new one. It is truly an organic process of industrial mutation, and this process of Creative Destruction is the essential fact about capitalism.

Some people may think that capitalist economy is dominated by monopolists and oligopolists but in reality, the constant introduction of new technology, commodity, sources of supply, and type of organization strikes existing organizations at their foundations and their very lives. Thus, in the long-run, capitalist society, by nature, ends up operating in a very similar fashion to perfect competition, in which all producers produce at “socially optimum/desirable”  or profit-maximizing output.

What is truly amazing about this book is that it is written in the 1940s. Schumpter accurately predicted 60 years ago that whoever creates a new market and introduce new technology will keep the capitalist engine in motion and this exact phenomenon had been happening in the Silicon Valley since the 1970s. Apple and Microsoft redefined and pioneered the personal computer market and Google successfully revolutionized the search market. Intel created a market for CPU and mobile computing; Facebook and Twitter are both restructuring social networking as enormous businesses.

There is no longer a specific market for each product that companies produce. For instance, Apple’s iTunes is no longer just a music player but also an online market for music, movies, TV shows, and the App Store for iPhone and iPod Touch. Microsoft not only makes Windows OS but also Windows Mobile, Microsoft Office, and the newest contestant to Google search, Bing. Google recently showed off Android 2.0 for mobile phones and the App Store for Android phones.

In capitalist economy, where continuous destructions and creations of products and markets occur everyday, it is very important for entrepreneurs to remember that, whoever defines or creates a new market for their products and utilize relevant technology to promote them, will be the new KING.

And, this is why I believe that capitalism and American economy will continue to prosper for many years to come:

The evolutionary character, the incessant innovation and the Process of Creative Destruction embedded within the idea of capitalism will continue to improve the standards of living for many as it has been for many decades.

“Innovation is the source of a country’s “structural dynamism” and is the root of just about everything good, like growth, employment, and prosperity. What the American [economic] system is good at is..coming up with innovative ideas that are economically feasible.”

-Edmund S. Phelps, Economics professor & Nobel laureate, Columbia University

In his interview with Fast Company, John Mackey, founder and CEO of Whole Foods Market, said something very impressive on the gospel of Conscious Capitalism:

“It’s not like you go up to the mountaintop and God talks to you: Here is your purpose –execute. It is something you discover and also create.”

So what the heck is Conscious Capitalism?

According to Mackey, Conscious Capitalism moves corporations to refocus on purpose instead of profit. In theory, it underscores the importance of all of a company’s interdependent stakeholders: employees, customers, shareholders, suppliers, community, and the environment. When all of those constituencies’ interests are factored into the company’s decisions and aligned, it will flourish.

A conscious capitalist focuses on one or more of four ideals: the good, the true, the beautiful, and the heroic—and on aligning the interests of all stakeholders.

My point? Be conscious, do the right thing, have fun, and make money

Capitalism, Socialism, and Democracy

So I picked up a copy of this book called Capitalism, Socialism, and Democracy by Joseph Schumpeter.

It’s an old book originally written in 1946.

Here is what I’ve learned so far from the first section, The Marxian Doctrine.

On p.26 cited in his(Marx’s) Theory of Exploitation:

“What he (Marx) wanted to prove was that exploitation did not arise from individual situtations occasionally and accidentally; but that it resulted the very logic of the capitalist system, unavoidably and quite independently of any individual attention”.

Interesting? huh?