01 January 2007
Visualizing Creative Destruction
We introduce a series of methods for visualizing the dynamics of firm size as indicative of the way the creation of new economic entities destroy the existing order in the manner first sketched by Schumpeter (1938). We examine firm size distributions for every year from 1955 to 1994 for the top 100 firms listed in the Fortune 500.
We show that although rank-size distributions from this data are remarkably stable, this masks a much more detailed microdynamics where firms are changing their size and rank in the prevailing order quite rapidly. These provide the signatures of creation and destruction and to visualize their form, we introduce the idea of half lives, rank clocks and distance statistics which reveal a cornucopia of dynamic behaviors. We first examine changes in firm size measured by revenue earnings and then we contrast this with profits per earnings data which reveals another picture of these processes of creation and destruction.
This working paper is available as a PDF.
The file size is 1652KB.
Authors: Michael Batty
Publication Date: 1/1/2007