After failing to find a buyer in bankruptcy, the bookstore chain Borders is headed into liquidation. There’s no question it sucks for the people involved, particularly the 11,000 jobs that will be lost. A lot of people are complaining on Twitter about how sad it is. But it’s important to remember that it’s part of a much broader story, which is a positive one: capitalistic creative destruction.
Borders failed for two reasons:
- Books are going the way of vinyl records;
- Borders stores just weren’t really good.
A system that allows companies that aren’t good and let themselves be overtaken by technological change creates more jobs and prosperity over the long term. The economist Joseph Schumpeter called it creative destruction: it’s only by letting outdated companies fail that we can free up the resources that allow new companies to become huge and introduce new goods and services that make us all better off.
Books are being replaced by electronic formats that are superior in almost every way. People will still make money selling books that have value as luxury goods, not as word-storage. People will still make money running bookstores that provide a superior retail experience. But the overwhelming majority of book-buying is going to happen in a way that makes Borders’ business model unsustainable.
No one knows this as well as Barnes & Noble, who is doing better than Borders because its stores are better and it’s betting the house on its e-reader, the Nook. Actually, the Nook is probably doomed because Amazon will own the eBook market, but Barnes & Noble is doing the right thing and it will stand or fall by its own efforts.
And by the way, it’s easy to blame Amazon for Borders’ fall, but Amazon is as threatened by the change as anyone else: it still makes tons of money selling physical books. But Amazon smartly chose to disrupt itself by betting on the Kindle, and soon its own Amazon tablets.The new publishing paradigm is better for everyone. It’s better for customers, because it’s cheaper and more convenient to read and they have more choice. As a result they read more, which is certainly great for society as a whole.
It’s better for authors because they can side-step publishers and sometimes make millions. It’s going to be better for some publishers over the long run because they’ll have to focus on serving authors and customers instead of retailers and critics (and themselves), and the others will die, which will also be good.
That’s how markets work. Firms that don’t adapt fail, and those that do win. And as a result, everyone gets increased prosperity. After an era of bailouts and too big to fail, we should cheer the fact that outdated companies still fail.