Viewpoint
Nearly all business innovation is, in essence, about continuously lowering the cost of products and services. From the perspective of an individual producer, this may mean thinner profit margins; but from the perspective of consumers and society as a whole, it is a tangible increase in wealth and well-being.
Logic Chain
Take clothing, for example. Before the Industrial Revolution, clothing depended on manual spinning and weaving, making garments expensive and ordinary people’s purchasing power limited. Mechanized production caused the cost of cloth to plunge, so a person who could once afford only one piece of clothing could now afford two or four. Schumpeter’s famous remark—“Business is not about enabling the Queen of England to wear more silk stockings; it is about enabling female textile workers to afford to wear silk stockings themselves”—precisely captures this logic: the role of business is to bring once-expensive goods into ordinary households, thereby expanding total consumption and overall social welfare.
Failure Conditions
If the benefits of cost reduction are entirely captured by monopolistic firms and are not passed through to final prices, consumers do not benefit. Alternatively, if cost reduction is accompanied by large-scale technological unemployment without effective redistribution, causing an overall decline in social purchasing power, then the overall gains from innovation would be offset.
Related Areas
Consumption and daily life; entrepreneurship.