Sunday, February 24, 2008

Creative-Destruction, Entrepreneurship And Innovation

One of the ideas that this weblog has been particularly interested in is creative-destruction. Even though it does not hold the view that Schumpeter is the savior of 21st century economics as some do, the concept of creative-destruction is a useful means of looking at the world. The disagreement is with what actions we take with that knowledge. A number of posts have already been made on creative-destruction approaching it from a variety of perspectives. The links provided below resulted from combining the terms creative-destruction and entrepreneurship in resulting in some expected and already discovered results, but also bringing up some new insights that have been added to the online MyStuff Creative-Destruction folder. The common focus of these links in the importance of Joseph Schumpeter to modern entrepreneurialism. The concepts quoted and highlighted here were also highlight through my diigo account.

Creative Destruction's Reconstruction: Joseph Schumpeter Revisited - By J. BRADFORD DELONG December 7, 2007 Annotated

tags: creative-destruction, economics, entrepreneurship, innovation

Schumpeter saw farther: that market capitalism destroys its own earlier generations. There is, he wrote, a constant "process of industrial mutation — if I may use that biological term — that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in, and what every capitalist concern has got to live in."

It is important to stress that a Schumpeterian entrepreneur is not an inventor, but an innovator.

He did not think governments could maintain enough social insurance to counter the destructive part of capitalism without strangling the sources of rapid growth. But why Schumpeter's Capitalism, Socialism, and Democracy places so much blame on "democracy" is unclear to me: Oligarchs fear change at least as much as democratic electorates do.

One great test of our era will be whether creative destruction can flourish alongside public order and political liberty. If not, we're in big trouble. But if so — and I'm an optimist on the point — the results could be a marvel.

Rediscovering Schumpeter: The Power of Capitalism — HBS Working Knowledge Author:Sean Silverthorne Published:May 7, 2007 Annotated

tags: creative-destruction, economics, entrepreneurship, innovation

As for my title, here's the quotation that inspired it: "Without innovations, no entrepreneurs; without entrepreneurial achievement, no capitalist returns and no capitalist propulsion." Schumpeter wrote this sentence during the Great Depression of the 1930s. Many, many smart people of that time believed that technology had reached its limits and capitalism had passed its peak. Schumpeter believed the exact opposite, and of course he was right.

This is an extremely hard lesson to accept, particularly by successful people. But business is a Darwinian process, and Schumpeter often likened it to evolution. The creative destruction can occur within a large innovative company (Toyota, GE, Microsoft), but it's much more likely to happen with start-ups, particularly since they now have so much access to venture capital. Schumpeter, by the way, was one of the first economists to use that term. He wrote an article in 1943 in which he speaks of "venture capital."

A: Several economists, including Larry Summers and Brad DeLong, have said that the 21st century is going to be "the century of Schumpeter," and I agree.

Joseph Alois Schumpeter, Biography: The Concise Encyclopedia of Economics: Library of Economics and Liberty Annotated

tags: creative-destruction, economics, entrepreneurship, innovation

Indeed, Schumpeter was among the first to lay out a clear concept of entrepreneurship. He distinguished inventions from the entrepreneur's innovations. Schumpeter pointed out that entrepreneurs innovate, not just by figuring out how to use inventions, but also by introducing new means of production, new products, and new forms of organization. These innovations, he argued, take just as much skill and daring as does the process of invention.

Under perfect competition all firms in an industry produced the same good, sold it for the same price, and had access to the same technology. Schumpeter saw this kind of competition as relatively unimportant. He wrote: "[What counts is] competition from the new commodity, the new technology, the new source of supply, the new type of organization... competition which... strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives."

Most economists accept the latter argument and, on that basis, believe that companies should be able to keep their production processes secret, have their trademarks protected from infringement, and obtain patents.
  • The question, especially in the digital age, is how long and under what conditions such a monopoly should be extended. - comment posted by brianddrpm on diigo

What is of particular interest is the role innovation plays in creative-destruction. Innovation has been another topic of inquiry for this weblog.

Open Innovation from QuickMBA / Entrepreneurship / Open Innovation

tags: creative-destruction, economics, entrepreneurship, innovation

  • Innovation and entrepreneurship are at the heart of "creative destruction". In his book, Open Innovation, Henry Chesbrough describes a new paradigm of open innovation that is in contrast to the traditional closed model. To understand open innovation, it is worthwhile to review the older model of closed innovation. - quotes posted by brianddrpm on diigo

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