Question
What is the role of an entrepreneur according to Schumpeter’s theory of economic development?
Answer
Joseph Schumpeter’s theory of economic development places the entrepreneur at the centre of economic change and innovation. According to Schumpeter, the entrepreneur is a key driver of economic development through the process of “creative destruction,” which involves introducing radical innovations that disrupt existing market structures and create new opportunities for growth (Brakman and Garretsen, 2017; Frank, 1998; Jh, 2022).
Role of the Entrepreneur
Innovation and Creative Destruction: Entrepreneurs introduce new products, processes, or business models that challenge and transform existing industries. This process, termed “creative destruction,” is essential for economic development as it replaces outdated systems with more efficient and innovative ones (Brakman and Garretsen, 2017; Frank, 1998; Jh, 2022).
Dynamic Economic Change: Schumpeter emphasized the dynamic nature of economic development, where entrepreneurs play a crucial role in driving structural changes and economic evolution. This dynamic approach contrasts with static economic models that focus on equilibrium (Brakman and Garretsen, 2017; Frank, 1998; Vaz-Curado and Mueller, 2019).
Entrepreneurial Leadership: Entrepreneurs are seen as leaders who not only innovate but also inspire and lead economic transformation. Their leadership is crucial in establishing significant innovations that propel economic growth (Brakman and Garretsen, 2017; Džbánková and Sirůček, 2016).
Socio-Economic Impact: Schumpeter’s theory also considers the broader socio-economic factors influencing entrepreneurship, such as individual motivations, cultural contexts, and historical circumstances. These factors contribute to the complex interplay of economic and non-economic elements in development (Brakman and Garretsen, 2017; Piano, 2020).
Conclusion
Schumpeter’s theory highlights the entrepreneur as a pivotal figure in economic development, primarily through innovation and the process of creative destruction. Entrepreneurs are seen as dynamic leaders who drive economic change and development by challenging existing market conditions and introducing transformative innovations. This theory underscores the importance of a dynamic and evolutionary approach to understanding economic growth.
References
Brakman, S., & Garretsen, H., 2017. Economics without equilibrium. Regional Studies, 51, pp. 655 – 658. https://doi.org/10.1080/00343404.2017.1278971
Piano, N., 2020. Neoliberalism, leadership, and democracy: Schumpeter on “Schumpeterian” theories of entrepreneurship. European Journal of Political Theory, 21, pp. 715 – 737. https://doi.org/10.1177/1474885120960439
Frank, M., 1998. Schumpeter on Entrepreneurs and Innovation: A Reappraisal. Journal of the History of Economic Thought, 20, pp. 505 – 516. https://doi.org/10.1017/S1053837200002509
Džbánková, Z., & Sirůček, P., 2016. THE ENTREPRENEUR ACCORDING TO J. A. SCHUMPETER AND A VIEW OF MANAGEMENT SCIENCE AND PSYCHOLOGY. **.
Jh, P., 2022. Entrepreneurship as Capitalist Dialectics A Schumpeterian Vista. SunText Review of Economics & Business. https://doi.org/10.51737/2766-4775.2022.065
Vaz-Curado, S., & Mueller, A., 2019. The concept of entrepreneur of Schumpeter in comparison to Kirzner. MISES: Interdisciplinary Journal of Philosophy, Law and Economics. https://doi.org/10.30800/mises.2019.v7.1223
Schumpeter, J. A. (1934) Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest and the Business Cycle. Cambridge, MA: Harvard University Press.
Schumpeter, J. A. (1942) Capitalism, Socialism and Democracy. New York: Harper & Row.
Thirlwall, A. P. (2011) Economics of Development: Theory and Evidence. Ninth edition. Basingstoke: Palgrave Macmillan.
