Competition from entrepreneurs with innovative business
strategies continually forces established firms to
either keep up with their younger counterparts or exit.
Many firms fail to adapt to new competitive conditions.
The consequent failure of unprofitable firms and their
replacement by new firms is a familiar aspect of competition.
Because a firm’s failure frees the labor and
capital it employed for use at a more profitable entrant,
this process may be described as creative destruction.
Although there are costs associated with creative destruction,
such as the lost labor of temporarily unemployed
workers, it benefits an economy in the long run by moving
productive resources into more profitable uses.