I had been a stockbroker a little more than seven years when I bought my first PC in late 1983. The transformation irrevocably changed the way I thought about investing and the investment business. But it wasn't until I bought a little Visioneer scanner 11 years later that I saw the true potential of what is popularly known as creative destruction.
I'll never forget the first time I sat at my desk, slipped a few pages through the scanner and emailed it directly to a client. The office protocol at that time consisted of the following steps: (1) My assistant would locate the needed document from the client file or elsewhere. (2) Next she would go to the Xerox machine and make a copy of the document. (3) Then she would walk over to the fax machine and wait while the document was faxed to the client (assuming that she didn't have to wait even longer while someone else was using the fax). (4) When that was done she would walk to the branch manager's office and place the photocopy of the faxed document in the correspondence file for his review. (5) Finally, she would go back to the file drawer and place the document into the client's file, hopefully avoiding: (6) Doing it all over again if the client didn't get the fax.
All I needed was that one experience for the light bulb to go off in my head. Instantly I understood just how much time, effort, expense and insanity could be eliminated by that little scanner. I had seen just one tiny sliver of the future and I wanted it bad.
It has been nearly 15 years since I last had paper records. At Jaffe Asset Management there are currently 91,327 documents, 72,944 emails (with 27,046 attachments) representing over 2 million pages of paper weighing nearly 20 tons—that no longer exist. What used to require a significant commitment of space, time, people and money can now be managed almost anywhere with exponentially greater efficiency and some ridiculously inexpensive software. I continue to be amazed at the transformation.
Troubled Scribes
The first recorded instance of creative destruction was the invention of movable type in the mid-15th century. Before the advent of printing, handwritten books were incredibly rare and expensive—affordable only to the very wealthy or the Church. The year Gutenberg published his first Bible (in 1455) the library at Cambridge University had just 300 books. By the end of the century, 1,100 print shops operating in 200 European towns had printed nearly 10 million books. An unintended consequence of this rapid expansion of the written word was a concurrent explosion of literacy—which led to a flowering of innovation and invention that continues to this day.
Few of us know or care much about the scribes whose livelihood was threatened, marginalized and ultimately eliminated by this incredibly positive transformation. However the scribes were not just Luddites. The cost and the time required to keep manuscripts from deteriorating forced scribes to focus on preserving those few texts that held truly ancient wisdom. They knew that the printing press would bring new ideas to compete with the old, and they fully understood that while the ancient texts would no longer be in danger of disappearing, they faced an even bleaker future: The wisdom they possessed would be crowded out and ultimately forgotten.
The scribes' fears have been borne out. Five hundred years later—despite all the gains we have achieved—the marginalization of that wisdom leaves us poorer in many ways. But I doubt seriously that anyone today would suggest that the nearly unlimited benefits the world has gained from the advent of printing and resulting growth of literacy and innovation were not worth that cost.
This is the built-in trade-off of creative destruction: What we get is better than what we lose. But we still lose something, and sometimes that something is actually valuable. This is the nature of all important choices—and I think a healthy one.
Those of us who have observed the investment world are more than familiar with the benefits of creative destruction because we have had a front row seat as one industry after another transformed itself, and still others arose out of the sheer imagination of successful entrepreneurship. It has been a wonder to behold—unless of course, you found yourself directly in the path of the next wave.
