149
Apple’s iPhone was introduced by
visionary entrepreneur Steve Jobs.
It was an industry “game changer,”
forcing competitors to come up with
products that could rival it.
See also: Free market economics 54–61 ■ Boom and bust 78–79 ■
Marxist economics 100–05 ■ Technological leaps 313
INDUSTRIAL AND ECONOMIC REVOLUTIONS
the entrepreneur as a new class of
person, an “upstart” outside the
capital-owning or working class
who innovates, creating new
products and forms of production in
uncertain conditions.
The entrepreneur’s creative
response to economic change
makes him or her stand out from
the owners of existing firms, who
only make “adaptive responses” to
minor economic change. Forced to
borrow to bring their innovations
to market, entrepreneurs take risks
and inevitably meet with resistance.
They disturb the old system and
open up new opportunities for
profit. For Schumpeter innovation
creates new markets far more
effectively than Smith’s “invisible
hand” or free-market competition.
Breaking through
Schumpeter argued that, although
a new market may grow after an
innovation, others soon imitate
and begin to eat into the profits
of the original innovator. In time
the market begins to stagnate.
Recessions are a vital way of
moving things forward again,
clearing away the dead wood, even
if the process is painful. In recent
years business strategists such
as US economist Clayton M.
Christensen have distinguished
between two types of innovations.
“Sustaining” innovations maintain
an ongoing system and are often
technological improvements.
On the other hand “disruptive”
innovations upset the market and
really get things moving, changing
the market through product
innovation. For example, although
Apple did not invent the technology
of the digital music player, it
combined a high-design product
(iPod) with a music download
program (iTunes) to provide a
new way of accessing music.
Marx believed that creative
destruction gave capitalism huge
energy but also explosive crises
that would destroy it. Schumpeter
agreed but argued that it would
destroy itself due to its success,
not failure. He saw monopolies as
the engine of innovation but said
these were doomed to grow into
over-large corporations, whose
bureaucracy would eventually
stifle the entrepreneurial spirit
that had given them life. ■Joseph Schumpeter
Born in 1883 in Moravia,
then part of the Austro-
Hungarian Empire, Joseph
Schumpeter was the son of
a German factory owner. His
father died when he was four,
and Schumpeter moved with
his mother to Vienna. There
she married an aristocratic
Viennese general who helped
launch the brilliant young
economist on a whirlwind
career that saw him become
a professor of economics,
the Austrian Minister for
Finance, and President
of the Biedermann Bank.
After the bank collapsed
in 1924 and Austria and
Germany succumbed to
nazism, Schumpeter moved
to the US. He became a
lecturer at Harvard, where
he acquired a small cult
following. Schumpeter died
in 1950 at the age of 66.Key works1939 Business Cycles
1942 Capitalism, Socialism
and Democracy
1954 History of Economic
Analysis
1961 The Theory of Economic
DevelopmentNew products and new
methods compete with the
old... not on equal terms but at
a decisive advantage that may
mean death to the latter.
Joseph Schumpeter