Creative Destruction

Entrepreneurship induces destructive changes in the underlying system. This is how the famed, uncontemporary economist Joseph Schumpeter defined it. He termed it as Creative Destruction. This rebel economist was the first one to rightly predict economic ecosystems like Silicon Valley, giving a deep existential insight into the mind of the entrepreneur. A far-cry and almost anarchic view when compared to the Keynesian notions of mass-production and supply-and-demand, which were dominant and popular during those days of industrial revolution. With seminal works like Capitalism, Socialism and Democracy, he laid the foundations of entrepreneurship.

He (Schumpeter) rejected the notion of equilibrium altogether, instead arguing that the economy is in a perpetual state of dynamic disequilibrium. Entrepreneurs introduce innovations that upend the established order, he said, unleashing a “gale of creative destruction” that forces incumbents to adapt or die. This “process of industrial mutation,” he explained, “incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” Moreover, it is precisely this process that causes economies to grow. “Stabilized capitalism,” he declared, “is a contradiction in terms [1].

For me, Schumpeter was one of the earliest avatars of the entrepreneur we see nowadays. He was non-aligned to the economic theories of those days and wanted to create an economic model whose basic catalyzers were idea and creativity. Under a heavy influence of the existentialist writers like Nietzsche, he amalgamated basic reasoning with economics. Even while reading the “acclaimed” book Blue Ocean Strategy, I could somehow see the Schumpeterian foundations of big-is-better and monopoly innovations [2].

With the passage of time, his ideas were taken seriously and people could relate to it. He’s not a perfect rendition of the entrepreneurial mindset and neither his hypothesis has an underlying mathematical logic, still he had some fascinating ideas.

1. Dead Thinkers’ Society, Meet the new economy’s oldest new economist – Business 2.0 . Cached link here.

2. Schumpeter�s Creative Destruction: A Review of the Evidence