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Sam Walton’s determination in 1950s Arkansas to sell everyday items for less than his competitors was hardly a new idea. It is difficult to describe it as an innovation, although things like ‘cross-docking’ where goods go from suppliers’ trucks to distributor’s trucks without spending time in warehouses in between were indeed new. Yet the way in which he pursued and resolutely stuck to that simple idea ended up delivering a huge boost to American living standards. Like corrugated iron and container shipping, discount merchandising is among the most unsophisticated yet enriching innovations of the twentieth century. A single, routine, minuscule Wal-Mart decision in the 1990s – not to sell deodorant in cardboard boxes – saved America $50 million a year, half of which was passed on to customers. Charles Fishman writes: ‘Whole forests have not fallen in part because of a decision made in the Wal-Mart home office ... to eliminate the [deodorant] box.’

On average, when it lands in a town, Wal-Mart causes a 13 per cent drop in its competitors’ prices and saves its customers nationally $200 billion a year. Yet critics of corporate giants, who normally complain about profiteering, still disapprove of Wal-Mart, saying the low prices are a bad thing because smaller businesses can’t compete or that Wal-Mart is ‘the world’s largest sweat shop’ for paying low wages even though Wal-Mart pays twice the minimum wage (and as I was writing this announced $2 billion in bonuses to staff, despite the recession, because of record sales). It is true that the growth of Wal-Mart in the 1990s, just like the opening of a new Wal-Mart in a certain town, created turmoil. Competitors went bust or were forced into humiliating mergers. Suppliers found themselves driven to new practices. Unions lost their leverage over retailing workforces. Cardboard box makers went to the wall. Consumers changed their habits. Innovation, whether in the form of new technology or new ways of organising the world, can destroy as well as create. A Wal-Mart store drives small general retailers out of business as surely as the computer drove the typewriter out of business. But against this must be balanced the enormous benefits that (especially the poorest) customers reap in terms of cheaper, more varied and better goods.

It was Joseph Schumpeter who pointed out that the competition which keeps a businessman awake at night is not that from his rivals cutting prices, but that of entrepreneurs making his product obsolete. As Kodak and Fuji slugged it out for dominance in the 35mm film industry in the 1990s, digital photography began to extinguish the entire market for analogue film – as analogue records and analogue video cassettes had gone before. Creative destruction, Schumpeter called it. His point was that there is just as much creation going on as destruction – that the growth of digital photography would create as many jobs in the long run as were lost in analogue, or that the savings pocketed by a Wal-Mart customer are soon spent on other things, leading to the opening of new stores to service those new demands. In America, roughly 15 per cent of jobs are destroyed every year; and roughly 15 per cent created.

Commerce and creativity

This turnover in itself ensures a steady improvement in working conditions. From Josiah Wedgwood, proud of conditions in his Etruria pottery factory, via Henry Ford, doubling the wages of his employees in 1914 to reduce staff turnover, to Larry Page, idealistically designing the Googleplex, each generation of entrepreneurs often tries to make work a better experience for their employees. In the early days of the internet, eBay was just one of many online auction companies. It succeeded where its competitors failed because it realised that a sense of shared community, not a competitive auction process, was key. ‘This isn’t about auctions,’ said Meg Whitman, the chief executive of eBay, ‘in fact it’s not about economic warfare. It’s the opposite.’ It was survival of the nicest.

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