Capitalism, Creative Destruction and Entrepreneurship

Both Adam Smith and Joseph Schumpeter was ardent supporter of capitalism; they believed in capitalism’s capability in redefining the rules of the game. Adam Smith synchronized capitalism with animal spirit; whereas Joseph Schumpeter relied on the role of entrepreneurs to conceptualize capitalism. So, Adam Smith’s interpretation of capitalism did not have a face; it was way too inherent and way too abstract. Unlike Smith, Schumpeter was skeptical about the fate of capitalism.  While Joseph Schumpeter agrees with Marxism-led philosophy that capitalism will collapse and be replaced by socialism, Schumpeter predicts a different way this will come about. While Marx predicted that capitalism would be overthrown by revolution, which actually occurred in the least capitalist countries, Schumpeter believed that capitalism would gradually weaken by itself and eventually collapse as invention and innovation has a limit of its own.

Schumpeter’s version of capitalism refers to a process of evolution. Economic change is considered as the only stationary variable in this process. ‘Creative destruction’ was the widely popular phrase used by Schumpeter to describe the transformation of a feudalistic society into a capitalist one. For example the water-wheel based power production technology had been replaced by power plant, charcoal furnace used in the iron and steel industry had been replaced by an even efficient furnace, airplane replaced mail coach. So, capitalism is redefining the economic structure internally, replacing the older system with an efficient and creative rule of the game – an omnipotent driver known as ‘creative destruction’. Along with newer product, service, and productions process the existing political, technological, regulatory and economic paradigm shifts. Such shifts of paradigms are expected to improve the standard of life.

Schumpeter differentiated between invention and innovation; it is the entrepreneur who understands the economic angle of each industrial transformation. A true entrepreneur redefines the industry boundary, extends the production possibility curve, and develops new market. So, an entrepreneur is a reformist of his religion. An entrepreneur is expected to be fight against all types of odds – social, economic and even physical. A Schumpeter entrepreneur is basically a manager and that explains why everybody is not an entrepreneur material.

An entrepreneur should become a rarity in the coming days, as economic progress has become de-personalized. Like the days of Napoleonic war, economic changes no longer needs a leader’s or an entrepreneur’s personal presence in the battleground. Rather industrial bourgeoisie should replace individual entrepreneurs and the whole leadership spectrum may become less glamorous.

Date – 18 July, 2017

Blog Writer: Hussain Ahmed Enamul Huda