The inevitability of change is a reality businesses must face—just ask Kodak. Recently, this once-iconic company, with a proud 123-year history, announced intentions to seek bankruptcy protection. By the end of the trading week, Kodak’s stock had plummeted to a mere $0.37 per share.
Kodak’s fall from grace can be attributed to numerous missteps, the most glaring being its inability to adapt to the digital photography revolution. For decades, Kodak enjoyed a near monopoly on film photography, benefiting from substantial profit margins that ultimately blinded the company to the sweeping transformation occurring in the industry.
By the time Kodak recognized its strategic miscalculation, the landscape had shifted dramatically. Although the company made significant investments in digital camera technology, it was too little, too late. Faced with fierce competition, Kodak found itself stuck in an analog past, unable to pivot as the market evolved toward digital solutions.
In essence, as film’s popularity waned, Kodak’s revenue streams dried up, while legacy costs and benefit liabilities continued to mount, leading to its inability to remain profitable. Over a decade, Kodak has reported losses nearly every year, making bankruptcy an eventuality.
Creative Destruction
Kodak’s fate is not an isolated case; it serves as a poignant example of the larger economic narrative. Dinosaurs of industry such as Pan American Airways, Bethlehem Steel, and Montgomery Wards have all succumbed to the creative destruction that arises when new, agile companies emerge.
This process, termed “creative destruction” by Austrian-American economist Joseph Schumpeter, highlights the inevitable decline of established companies in the face of innovative competition. While disruptive and often painful—resulting in job losses for those with obsolete skills—this cycle is essential for fostering long-term economic growth.
Innovation opens new doors for workers in more dynamic sectors and paves the way for superior products at lower prices. Thanks to creative destruction, we can now capture moments with smartphones and instantly share them, eliminating the cumbersome process of developing film.
While many factors contributed to Kodak’s bankruptcy, it’s plausible that this chapter may not be the end. Following a restructuring to shed its debt and liabilities, there’s potential for Kodak to emerge as a smaller yet viable entity that addresses consumer needs.
For now, let us reflect on Kodak’s unfortunate predicament, which parallels some of the challenges faced by Uncle Sam.
Kodak Moment for Uncle Sam
“Nothing fails like success,” remarked 20th-century economist and systems scientist Kenneth Ewart Boulding. This observation goes beyond being a mere insight; it recognizes a fundamental truth.
In Kodak’s case, their past success in the film market—characterized by high profit margins—ultimately led to their downfall. When the market dynamics shifted and their reliable source of income dwindled, the inefficiencies in their business model became glaringly obvious. Unable to adapt quickly enough, Kodak was financially vulnerable.
Other companies, like Barnes & Noble, are similarly grappling with the need to realign their businesses with evolving consumer preferences. However, it’s not just corporations that face existential threats; governments are similarly at risk.
For instance, the inefficiencies of the U.S. government have long been masked by the overall success of the economy. For over a century, robust economic growth has obscured the poor decisions made by Congress and the inefficacies of government agencies.
Yet, the economic downturn in 2008 unveiled a stark reality for Uncle Sam, highlighting deep-rooted failings within the government’s structure. Corruption had infiltrated the system.
The emerging image of Uncle Sam paints a picture where Washington no longer represents the populace, but rather serves the interests of investment banks, lobbyists, and special interest groups. Simultaneously, legacy costs continue to weigh down the economy, pushing governmental finances deeper into the red.
What we may be witnessing is a form of creative destruction that aims to eradicate the sources of governmental corruption. One can only hope this disruptive change will yield a more streamlined and liberated version of Uncle Sam.
Sincerely,
MN Gordon
for Economic Prism