Creative Destruction & Corporate Political Participation




Baysal, Eren

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Creative destruction is a term first coined by economist Joseph Schumpeter to describe the emergence of new products and processes that are created in the wake of the destruction of old ones. This phenomenon has been attributed to being an essential catalyst of economic growth that shapes how industries and markets will look in the future. However, corporate political participation, such as lobbying, may be having an effect on this process due to the potential formation of vested interests between firms and political actors that preserves the status quo.

In this paper I perform a literature review of creative destruction while exploring the theoretical factors that allow for creative destruction to take place in a manner that progresses the economy forward. I also review literature on corporate political activity to understand its effects on firms and markets. Next, I take a more quantitative approach by investigating firms with political ties, specifically in the energy industry, through regression and data analysis. Are these firms trading off long term economic growth of their industry for short term success? This is relevant in increasing our understanding of how certain forms of current private sector relationships with the government might be affecting the future of their industry.

The regression results analyzing the relationship between innovation and lobbying were not statistically significant but other data and the literature surrounding the topics point toward the possibility of larger firms that lobby not properly utilizing their resources in the most efficient manner. It was also found that escaping old ideas and the emotional difficulty of destruction can hold back incumbent firms from constantly innovating. Industries in which entrants decide to cooperate with incumbents leads to less competition, thus decreasing the likelihood of both adopting new technology and enacting the process of creative destruction. Political participation such as lobbying, meanwhile, can be used as an effective means to influence the government and to increase profits.


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