Creative Destruction

February 18, 1992

Some 7.1 percent of Americans are out of work. That's bad, but it's well below the jobless rate in the 1980-81 recession, which went over 10 percent. But 7.1 percent doesn't count the discouraged, who have given up looking for work, or part-timers or "temps" who would like to work longer hours. Factoring in these two groups would correct the unemployment rate to about 10.2 percent. The same corrections could have been made to the 1981 jobless rate, pushing it over 12 percent.

Still, this recession feels worse than the last one. Some have called it a white-collar recession, because it hits service industries especially hard. Previous recessions affected mostly manufacturing businesses, and mostly the blue-collar workers in those businesses. When an assembly line shuts down during a recession, there is usually the expectation that it will start up again when times get better; with unemployment insurance and union contracts guaranteeing re-employment, laid-off families can get through recessions.

But the 70,000 jobs cut by General Motors and the 20,000 by IBM were planned as permanent reductions. Those employees, many of them in clerical and middle management positions, will get no callbacks when the cycle turns up.

The Baltimore Sun's recent incentive program, under which nearly 300 employees accepted buyout packages to leave their jobs, was another example of a business "downsizing" itself, seeking to operate more efficiently with a leaner payroll. And so was the University of Maryland's announcement that it would eliminate eight programs and departments, reassigning some faculty members and letting other jobs lapse through attrition.

Unemployment can be tragic for individuals, and their families. But for society as a whole, these jobless professors, salesmen, managers and reporters represent an enormous pool of talent. Most of them will find new ways to make a living. Some will start up new businesses. Others will go to work for businesses needing their particular talents.

This is the process the economist Joseph Schumpeter called capitalism's "creative destruction," releasing new energies into the economy to fuel its future growth. That's cold comfort for the jobless trying to pay the bills, but it suggests there is no cause for panic over the American future.

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