Munger calls this “the great lesson in microeconomics”: discriminating between when technology helps you and when it kills you. The textile business illustrates the losing side. When someone proposed a new loom that would “do twice as much work,” Buffett said: “Gee, I hope this doesn’t work — because if it does, I’m going to close the mill.” In a commodity business, all productivity gains flow through to customers as lower prices. “You keep buying things that will pay for themselves in three years. And after twenty years of doing it, somehow you’ve earned a return of only about four percent per annum.”
The projections always show savings at current prices, but “they don’t do the second step of the analysis — which is to determine how much is going to stay home and how much is just going to flow through to the customer.” Munger says he’s never seen a single capital expenditure projection incorporating that second step. Conversely, if you own “the only newspaper in Oshkosh” and get more efficient composing technology, “all of the savings would come right through to the bottom line.” The deciding factor is competitive position, not the technology itself.
The same logic extends to “competitive destruction” — the buggy whip factory killed by the horseless carriage. Early movers who “surf” the wave get long runs (National Cash Register, Microsoft, Intel), but even great surfers can get bounced off: IBM “got bounced off the wave after ‘surfing’ successfully for sixty years.” This connects to Technology transitions create more of the 'dying' thing, not less — transitions destroy incumbents in commodity positions while creating enormous value for those with structural advantages. The moat businesses that benefit from technology are precisely the Scale advantages cascade toward dominance until bureaucracy kills them — firms whose competitive position lets them capture rather than pass through productivity gains.