Schumpeter's Deeper Dive and Linkages to Innovation

Three Posting Series - Post 2

Introduction

The 20th century brought forth a number of great economists, among them
Joseph A. Schumpeter. Yet, none of these giants has attracted an interest similar to that of Schumpeter's over the last two decades. There are two main reasons for this. His simple proposition that entrepreneurs carry out novelty, luring swarms of followers, contains in its core an analytical category - called meso - that prompts a breakdown of the traditional distinction between micro and macro and aspires to the reconstruction of economics on a micro-meso-macro basis. The extraordinary and increasing interest in Schumpeter's work today, and likely in the foreseeable future, is part of what may be called a meso revolution.

The second reason the game belongs to Schumpeter is closely related to the fact that his work can provide, as that of no other economist, solutions to the most pressing problems of our times. His approach appears to be tailor-made when calling for solutions to the complex problems of a highly dynamic, innovative knowledge-based economy.

Schumpeter’s Vision

Joseph Schumpeter’s proto-scientific interest concerned social life rather than nature. Social life being, arguably, more complex than nature, his original question cannot be formulated with comparable simplicity, but most students of Schumpeter would agree that his proto-scientific interest can be encapsulated in the question: what determines change in social life? Schumpeter early curiosity is with the preconception that change is brought about primarily by energetic personalities, and then phrase his proto-scientific question more specifically:

How do energetic personalities bring about social change?

Schumpeter did not mean change in ongoing social life under given conditions, but rather changes in these conditions themselves. This type of change involves new ideas, and in this way makes the energetic agent an innovator. The primary ‘agens’ of change is the energetic drive of the individual, and new ideas are his powerful tool. An agent who brings about change in social life by introducing novelty is termed an entrepreneur by Schumpeter. All important change, whether in political, economic or cultural life, is brought about by entrepreneurs. The notion of the entrepreneur is an archetype for a primary source of energy that changes social life.

Schumpeter translated his proto-scientific vision into a powerful economic theory with the entrepreneur granted center stage. Dealing in the following with Schumpeter´s assessment of classical and neoclassical economics, it is relevant to recognize that he took his position to be a yardstick for the assessment of the work of others. He missed few opportunities to make it clear that a theory that failed to acknowledge the central role of the entrepreneur was fundamentally flawed.

Using this lens, Schumpeter brought the works of the classical economists into
particularly sharp focus. The proponents of the classical doctrine worked with aggregate
resource magnitudes, and they proposed looking for objective laws in their relationships.

For Schumpeter, the essential point was that development was always propelled by the ‘agens’ of the entrepreneur, and that “in technical or organisational progress there is no autonomous momentum which carries in itself a developmental law, which would be due to progress in our knowledge.

It is impossible to understand Schumpeter’s disregard of Adam Smith’s work unless one realizes that his criticism was not aimed at the categories of the proposed determinants as such but, rather, at their presumed objective nature.

Schumpeter highlighted innovations as the central driving force of development, and
Smith analogously emphasized the power of innovations unlike any other classical writer,
but still no other economist of that strand had to suffer a comparable disregard. It was,
arguably, precisely this close congeniality that prompted Schumpeter to take Smith’s work as an exemplar for demonstrating the essential difference between his and the classical approach.

Summary

The hallmark of Schumpeter’s theoretical proposition is that the active agent engages not only in activities at the operant but also at the generic level. The entrepreneur carries out innovations, and in this way changes the generic knowledge base of the economy. There will be changes in the operations and the commodity space, but these are induced by changes in generic knowledge.

Sources:

The Origins of Meso Economics Schumpeter's Legacy by
Kurt Dopfer :Max Planck Institute of Economics Evolutionary Economics Group Kahlaische Str. 10 Jena, Germany ftp://papers.econ.mpg.de/evo/discussionpapers/2006-10.pdf

Definition of Mesoeconomics - http://en.wikipedia.org/wiki/Mesoeconomics