(As always, feel free to listen or watch if that’s how you prefer to take it in.)
What if capitalism’s most disruptive feature—its habit of tearing down the old—isn’t a flaw, but its deepest virtue. Or, as we like to say, it’s not a bug; it’s a feature.
At its core, capitalism isn’t merely a system for generating profit—it’s a mechanism for progress. Economist Joseph Schumpeter called this force “creative destruction”: a relentless churn in which outdated businesses make way for better, more innovative ones. It’s harsh, no doubt. But it’s also what keeps society moving forward. Without it, we’d still be navigating paper maps instead of GPS on our smartphones.
The failure of a business isn’t proof that capitalism is broken. More often, it’s proof that it’s working—self-correcting, recalibrating, and constantly renewing itself through innovation.
Innovation’s Relentless Engine
Schumpeter’s theory isn’t abstract—you see it everywhere. Remember Blockbuster? It once dominated video rentals but couldn’t pivot to digital streaming. Netflix, initially mailing DVDs, innovated and left Blockbuster behind. Kodak faced a similar fate, missing the digital photography wave, overtaken by innovators like Canon, Nikon, and later Apple and Samsung.
These businesses didn’t fail because capitalism broke down; they failed because they stopped innovating. As Steve Jobs famously said, “Innovation distinguishes between a leader and a follower.” Creative destruction ensures companies stay vigilant—those who embrace it lead, and those who resist inevitably fall behind. That’s capitalism’s strength: it doesn't protect outdated ideas—it accelerates better ones.
Adapt or Fail
Capitalism demands businesses continually innovate—or make way for those who can. I’ve experienced this firsthand—painfully, sometimes personally. I’ve backed companies that couldn’t keep pace and lost money in ventures I deeply believed in–—especially those trying to help America eat healthier. It certainly hasn’t been easy or particularly successful.
But if nothing else, it has reinforced my humility around a simple truth: for anything to scale or succeed, you have to make customers love what you do–so much that they come back for more. If they don’t, it doesn’t much matter whether you’re right or wrong. That’s a tough lesson to learn–but it happens to be the right one.
That said, it hasn’t been a uniform experience. Chipotle, for example, did very well at introducing a “better-for-you” kind of fast food. UNREAL is doing something similar in candy and snacking. Other ventures haven’t fared as well. Finding the right mix of product, brand, story, price, channel, team and culture is not easy but it happens to be the special sauce of commercial success.
So perhaps what felt like failure at the time was actually the soil where better ideas eventually took root. Creative destruction isn’t just an economic theory to me—it’s a lived truth, one that has shaped how I invest, lead, and think about the future.
Of course, this kind of dynamism comes with short-term hardships and real displacements. To navigate these challenges, we need compassionate policies and practical support—like Denmark’s ‘flexicurity’ model, which combines unemployment benefits with proactive retraining—to help workers adapt and thrive in new industries. Balancing capitalism’s relentless drive for renewal with thoughtful assistance isn’t just ethical–it’s economically necesary.
If you’ve ever endured the inefficiencies of a government-run bureaucracy like the DMV, you know why this dynamism matters. Imagine if competition compelled the DMV to innovate like Amazon. Without competition, inefficiencies aren’t just tolerated—they flourish.
Underdog Entrepreneurs: Capitalism’s True Heroes
Small businesses and entrepreneurs are the true heroes of creative destruction. They spot opportunities larger corporations can’t—or won’t. Think of your favorite local restaurants experimenting with new cuisines or startups transforming how we communicate and travel. Immigrants notably lead the charge, launching businesses at rates far beyond their share of the population. Just think of Google, Zoom, and NVIDIA, to mention just a few—immigrant-founded companies that reshaped entire industries, created millions of jobs, and drove innovation.
Entrepreneurship is ultimately about solving problems in unique ways. Policymakers can encourage this innovation by removing unnecessary regulatory barriers, clarifying fair rules, and safeguarding economic freedom.
Foster entrepreneurship, and you’ll spark continual renewal.
Capitalism’s Innovation Advantage
Market-driven initiatives like what my good friend Tracy Palandjian is doing with the ReNEW Fund showcase capitalism’s innovation potential. Using private investment to tackle problems—like the U.S. nursing shortage through education and training—achieves results government mandates alone rarely can. Competition creates prosperity, pushing sectors from healthcare to renewable energy to continuously improve.
The internet birthed entirely new industries, and now artificial intelligence is reshaping fields from education to manufacturing. These aren’t threats—they’re clear proof capitalism is doing its job.
The Path to Lasting Prosperity
As my friend Daniel Tierney put it—and as I mentioned in the first article of this series—we’re not operating on the same planet anymore. Capitalism 2.0 was built for a world of linear change and slower feedback loops. But today, we face exponential shifts and rising complexity. In that kind of environment, adaptability isn’t just a strength—it’s a survival trait. If a company, policy, or system can’t evolve fast enough, it risks being left behind.
And that’s where creative destruction comes in. It’s how capitalism adapts. It may be messy, but it’s also how the system learns, evolves, and grows stronger. It’s often uncomfortable–but it’s crucial. It ensures capitalism never stagnates. Tomorrow’s winners embrace innovation, see disruption as opportunity, and focus on shaping the future—not preserving the past.
If capitalism makes you skeptical, try engaging differently. Support and buy from businesses aligned with your values, reward innovation, and encourage companies addressing societal challenges.
The real challenge? Structuring capitalism for long-term thinking, rewarding true innovation, and ensuring no one is left behind. The capitalism we need isn’t reckless—it’s strategic renewal, recognizing creative destruction as the key to lasting prosperity, innovation, and fairness.
But how do we strike the right balance between innovation and oversight? Next, we’ll look at why capitalism doesn’t mean zero government—it means smart, strategic governance that empowers markets rather than holding them back.
Capitalism is the operating system. Its the VALUE that determines how it works. VALUE is not just a price or a number, but it also means ethics and principles. Where an operating system goes wrong is when the emphasis too much placed on the number and not on the overall benefit or worth that the system creates.
Thank you for this, Mats, challenging us to see destruction as a necessary part of renewal, freeing up financial, human, and natural resources for the next creative cycle. I used to summarize Ray Anderson’s restless innovation with a simple phrase: businesses must innovate or liquidate. It’s another powerful parallel between business and nature, the only sustainably developing system we know.
The challenge, of course, is who bears the cost of that destruction. Capital is often well protected, with armies of accountants and lawyers. But workers, communities, and ecosystems too often absorb the damage alone. If we want lasting prosperity, we need to evolve how we balance innovation with responsibility.
There’s always a better way, one that aligns entrepreneurial energy with shared value creation, so no one is left behind in capitalism’s winter season.