Summary of the article

13 Jun Summary of the article

Journal of Management History A view of entrepreneurship and innovation from the economist “for all seasons”: Joseph S. Schumpeter Michael Harvey Timothy Kiessling Miriam Moeller

Article information: To cite this document: Michael Harvey Timothy Kiessling Miriam Moeller, (2010),”A view of entrepreneurship and innovation from the economist “for all seasons””, Journal of Management History, Vol. 16 Iss 4 pp. 527 – 531 Permanent link to this document: http://dx.doi.org/10.1108/17511341011074004

Downloaded on: 11 July 2016, At: 15:29 (PT) References: this document contains references to 11 other documents. To copy this document: permissions@emeraldinsight.com The fulltext of this document has been downloaded 2320 times since 2010*

Users who downloaded this article also downloaded: (2013),”Innovation, entrepreneurship and economic growth”, Management Decision, Vol. 51 Iss 3 pp. 501-514 http://dx.doi.org/10.1108/00251741311309625 (2012),”Innovation and entrepreneurship”, The Bottom Line, Vol. 25 Iss 3 pp. 98-101 http:// dx.doi.org/10.1108/08880451211276539 (2001),”What is innovation and entrepreneurship? Lessons for larger organisations”, Industrial and Commercial Training, Vol. 33 Iss 4 pp. 135-140 http://dx.doi.org/10.1108/00197850110395245

Access to this document was granted through an Emerald subscription provided by emerald-srm:203711 []

For Authors If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information.

About Emerald www.emeraldinsight.com Emerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.

Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation.

*Related content and download information correct at time of download.

D ow

nl oa

de d

by S

ou th

er n

N ew

H am

ps hi

re U

ni ve

rs ity

A t 1

5: 29

1 1

Ju ly

2 01

6 (P

T )

http://dx.doi.org/10.1108/17511341011074004
A view of entrepreneurship and innovation from theeconomist

“for all seasons” Joseph S. Schumpeter

Michael Harvey Department of Management, School of Business Administration,

University of Mississippi, Mississippi, USA and Bond University, Gold Coast, Australia

Timothy Kiessling School of Business, Technology and Sustainable Development,

Bond University, Gold Coast, Australia, and

Miriam Moeller Department of Management, School of Business Administration,

University of Mississippi, Mississippi, USA

Abstract

Purpose – The paper seeks to examine the influence of the Austrian School of Economics and its views of innovations and entrepreneurship on one of their champions, Joseph Schumpeter. Schumpeter’s insights on innovation and entrepreneurship issues are discussed and compared to previous literature.

Design/methodology/approach – The paper is conceptual in nature, highlighting that the key process in economic change is the introduction of innovations; the central innovator is that of the entrepreneur.

Findings – Insights gained from Schumpeter include the following: in the context of increasing global competition, the importance of innovations by entrepreneurs is becoming more important. The challenge though is for firms to find and make use of these individual for their survival. Another link is the distrust of the government and the ability of the free market to function, though imperfectly, without interference.

Originality/value – The paper suggests that innovation and entrepreneurship are the essence of the capitalist society. Entrepreneurs contribute to society as a whole by introducing new products/services that often are contradictory to institutional norms.

Keywords Entrepreneurialism, Innovation, Economics

Paper type Research paper

[. . .] if the centenary of Schumpeter was noticed at all, it would be in a small doctoral seminar. And yet, it will be Schumpeter who will shape the thinking and form the questions of economic theory and economic policy for the rest of the century, if not for the next thirty or fifty years (Drucker, 1993, p. 106).

Introduction Historically, entrepreneurship and innovation have always been important to both practitioners and researchers. Schumpeter thought capitalism could be doomed to

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1751-1348.htm

Economist “for all seasons”

527

Journal of Management History Vol. 16 No. 4, 2010

pp. 527-531 q Emerald Group Publishing Limited

1751-1348 DOI 10.1108/17511341011074004

D ow

nl oa

de d

by S

ou th

er n

N ew

H am

ps hi

re U

ni ve

rs ity

A t 1

5: 29

1 1

Ju ly

2 01

6 (P

T )

destruction. This was predicated on Schumpeter’s version of capitalism due to three reasons (Oser, 1970):

(1) obsolescence of the entrepreneurial function;

(2) destruction of protective political strata; and

(3) destruction of the institutional framework.

But, due to the growing importance of the global marketplace, Schumpeter’s arguments seem out of step with the spread of capitalism in the twenty-first century.

Even though competition is now defined differently than during the Austrian School’s era, the capitalist system has always contained forces that bring about change and development (Wren and Greenwood, 1998). Schumpeter (1934, p. 68) concludes that, “anyone seeking profits must innovate, that is, brought about the different employment of the economic system’s existing supplies of productive means.” Innovation has been defined as consisting of five types (Schumpeter, 1934, p. 66). Two types: new methods of production and new sources of supply of raw material or semi-finished goods are identified as process innovations. The three other types are: product innovations: a new good or a new quality of a good, opening a new market, and a new industry structure such as the creation or destruction of a monopoly position.

This paper will examine the influence of the Austrian School of Economics and their views of innovation and entrepreneurship on one of their champions, Joseph Schumpeter. We will then discuss Schumpeter’s insights on innovation and entrepreneurship issues and compare them to previous literature.

Schumpeter on innovation and entrepreneurship Innovations are discontinuous because innovation is difficult and “only accessible to people with certain qualities” (Schumpeter, 1934, p. 228). Schumpeter recognized and felt that entrepreneurs seek profit thought innovation, transforms the static equilibrium into a dynamic process of economic development which in turn revolutionize the patterns of production by exploiting an innovation or new pattern of production (Schumpeter, 1952; Oser, 1970). The profound shift occurring in the economy is from a “managerial” to an “entrepreneurial” economy (Beatty, 1998). Innovations do not appear independently of one another but in swarms or clusters. This clustering of innovations occurs “because the appearance of one or a few entrepreneurs facilitates the appearance of others, and thus the appearance of more, in ever-increasing numbers” (Schumpeter, 1934, p. 228). Innovation clusters reinforce purchasing power and create conditions for prosperity.

If innovations are being embodied in new plant and equipment, additional consumers’ spending will result practically as quickly as additional producers’ spending. Both together will spread in contagion from the points in the system on which they first touched, and develop a prosperous business situation. However, there is a cost of economic progress; a “necessary complement” of development is “the great economic and social process by which businesses, individual positions, forms of life, cultural values and ideals, sink in the social scale and finally disappear” (Schumpeter, 1934, p. 255). Schumpeter terms this replacement of old structures with new structures as the process of “creative destruction.” Successive innovations represent “industrial mutation” that incessantly revolutionizes the economic structure from within, constantly destroying the old one, while creating a new one. For example, “in the

JMH 16,4

528

D ow

nl oa

de d

by S

ou th

er n

N ew

H am

ps hi

re U

ni ve

rs ity

A t 1

5: 29

1 1

Ju ly

2 01

6 (P

T )

case of retail trade, the competition that matters arises not from additional shops of the same type, but from the department store, the chain store, the mail-order house and the supermarket” (Schumpeter, 1942, p. 85).

An important implication regarding government policy can be drawn from the view that this process of creative destruction is the essential fact about capitalism. Since we are dealing with a process “whose every element takes considerable time in revealing its true features and ultimate effects, there is no point in appraising the performance of that process ex visu of a given point in time” (Schumpeter, 1942, p. 83). That is, the impact of innovations on existing industry structure considerably reduces the long-run scope and importance of practices that aim at conserving established positions and at maximizing the profits accruing from them. This view is even more applicable in the global hypercompetitive business environment.

Schumpeter’s concept of a “profound shift” is evident around us from a “managerial” to an “entrepreneurial” economy (Beatty, 1998). Schumpeter (1939, p. 102) distinguishes the entrepreneur from the mere head or manager of a firm who runs it on established lines “[. . .] and surely it is but common sense to recognize that the economic function of deciding how much wool to buy for one’s process of production and the function of introducing a new process of production do not stand on the same footing, either in practice or in logic.” The entrepreneur must overcome the inertia implied by the inherent tendency of the circular flow toward equilibrium. The ordinary businessman tends to continue on traditional lines:

No other than ordinary routine work has to be done in this stationary society, either by workmen or managers: [. . .] Nothing is foreseen but repetition of orders and operations, and this foresight is ideally born out by events (Schumpeter, 1939, p. 40).

However, Schumpeter (1934, p. 89) believes that:

[. . .] the entrepreneurial kind of leadership [. . .] has none of that glamour which characterizes other kinds of leadership. It consists in fulfilling a very special task which only in rare cases appeals to the imagination of the public.

Why, then, do some individuals undertake the thankless tasks of entrepreneurship? First, there is “the dream and the will to found a private kingdom. Its fascination is especially strong for people who have no other chance of achieving social distinction.” Next, there is “the will to conquer; the impulse to fight, to prove oneself superior to others, to succeed for the sake, not of the fruits of success, but of success itself.” Finally, “there is the joy of creating, of getting things done, or simply of exercising one’s energy and ingenuity.” The entrepreneur “seeks out difficulties, changes in order to change, and delights in ventures” (Schumpeter, 1934, pp. 93-4).

Insights from Schumpeter The importance of innovations by entrepreneurs is becoming even more important as global competition offers more entrepreneurial opportunities from a greater pool of people. The challenge is for firms to find and make use of these individuals for their survival. Another link throughout the paper is the distrust of the government and the ability of the free market to function, though imperfectly, without interference. Keynes et al. (1989) would not agree with this philosophy, but luckily the free market appears to be winning that battle.

Economist “for all seasons”

529

D ow

nl oa

de d

by S

ou th

er n

N ew

H am

ps hi

re U

ni ve

rs ity

A t 1

5: 29

1 1

Ju ly

2 01

6 (P

T )

However, important entrepreneurs and innovations, there are always those that lose. This process of destroying to rebuild suggests that as new innovations are implemented, firms that cannot adjust or compete will die. The innovators are not necessarily large firms as recent research suggests that some firms are born global and do not incrementally grow (Autio et al., 2000). Large firms due to their core rigidities and learning capabilities that have become institutionalized will most likely have difficulty developing an entrepreneurial environment, while new firms have the flexibility and the entrepreneurial managerial capabilities to innovate rapidly. In essence, the large firms must develop innovation/entrepreneurial capabilities if they wish to compete successfully against smaller entrepreneurial firms.

In summary, innovation and entrepreneurship are the essence of the capitalist society. The entrepreneurs contribute to society as a whole by introducing new products/services that often are contradictory to institutional norms. One lasting contribution of Schumpeter that is often overlooked was his insistence that economist study law, sociology, history and even literature, to broaden the scope of economics discourse. Schumpeter clearly believed in the wealth of knowledge these other disciplines offered and the assumptions that mathematical economics often held constant (e.g. all other things being equal) (Perlman and McCann, 1998). However, though considerable research continues to explore these phenomena, the acknowledgement of the value of the practice is not new; thanks to leaders like the Austrian School of Economics and their leading disciple Joseph S. Schumpeter.

Schumpeter claimed to have three ambitions in life:

(1) to become the world’s greatest economist;

(2) the world’s greatest lover; and

(3) the world’s horseman.

“I (Schumpeter) never became the world’s greatest horseman” (Swedberg, 1991). It appears that Schumpeter also had a great sense of humor!

References

Autio, E., Sapienza, H.J. and Almeida, J.G. (2000), “Effects of age at entry, knowledge intensity, and imitability on international growth”, Academy of Management Journal, Vol. 43 No. 5, pp. 909-25.

Beatty, J. (1998), The World According to Peter Drucker, Simon and Schuster, New York, NY.

Keynes, J.M., Mogridge, D. and Johnson, E.S. (1989), The Collected Writings of John Maynard Keynes, St. Martin’s Press, New York, NY.

Oser, J. (1970), Evolution of Economic Thought, Harcourt, Brace and World, New York, NY.

Perlman, M. and McCann, C.R. (1998), The Pillars of Economic Understanding: Ideas and Traditions, The University of Michigan Press, Ann Arbor, MI.

Schumpeter, J. (1934), “The theory of economic development: an inquiry into profits, capital, credit, interest and the business cycle”, Harvard Economic Studies, Vol. 46, Redvers Opies (translator).

Schumpeter, J. (1939), Business Cycles: A Theoretical, Historical and Statistical Analysis of the Capitalist Process, McGraw-Hill, New York, NY.

Schumpeter, J. (1942), Capitalism, Socialism, and Democracy, Harper &Brothers, New York, NY.

Schumpeter, J. (1952), Can Capitalism Survive?, Harper and Row, New York, NY.

JMH 16,4

530

D ow

nl oa

de d

by S

ou th

er n

N ew

H am

ps hi

re U

ni ve

rs ity

A t 1

5: 29

1 1

Ju ly

2 01

6 (P

T )

http://www.emeraldinsight.com/action/showLinks?crossref=10.2307%2F1556419&isi=000090056700010
Swedberg, R. (1991), Schumpeter: A Biography, Princeton University Press, Princeton, NJ.

Wren, D. and Greenwood, R.G. (1998), Management Innovators: The People and Ideas that have Shaped Modern Business, Oxford University Press, New York, NY.

Corresponding author Michael Harvey can be contacted at: mharvey@bus.olemiss.edu

About Joseph A. Schumpeter Joseph A. Schumpeter (1883-1950), born in what is the Czech Republic today, was an economic and political scientist resting his contribution on the importance of business cycles, economic development, entrepreneurship, and evolutionary economics. He began his career studying law at the University of Vienna, subsequently taking positions as Professor of Economics and Government at the University of Czernowitz (1909-1911) and University of Graz (1912-1914). In 1919-1920, he served as the Austrian Minister of Finance and in 1920-1924 as President of the private Biedermann Bank. After the collapse in 1924, bankrupt Schumpeter joined the University of Bonn and in 1932 joined the faculty at Harvard, where he taught until his death in 1950. Schumpeter’s early work on Theory of Economic Development (1911) first outlined his famous theory of entrepreneurship. Later works include Business Cycles (1939), Capitalism, Socialism and Democracy (1942), in which the idea of “creative destruction” first appeared, and History of Economic Analysis (1954). In 2009, (The) Economist identified Schumpeter as a significant figure and praised him as a “champion of innovation and entrepreneurship” whose writing showed an understanding of the benefits and dangers of business that proved far ahead of its time.

Economist “for all seasons”

531

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com Or visit our web site for further details: www.emeraldinsight.com/reprints

D ow

nl oa

de d

by S

ou th

er n

N ew

H am

ps hi

re U

ni ve

rs ity

A t 1

5: 29

1 1

Ju ly

2 01

6 (P

T )

This article has been cited by:

1. Colleen Schwarz Management Department, B.I. Moody III College of Business Administration, University of Louisiana Lafayette, Lafayette, Louisiana, USA . 2015. A review of management history from 2010-2014 utilizing a thematic analysis approach. Journal of Management History 21:4, 494-504. [Abstract] [Full Text] [PDF]

2. Tony ProctorBusiness School, University of Chester, Chester, UK. 2013. Collaboration and networking in the process of innovation: the path to precision time keeping. Journal of Management History 19:2, 167-188. [Abstract] [Full Text] [PDF]

3. Pekka VarjeFinnish Institute of Occupational Health, Helsinki, Finland Jussi TurtiainenFinnish Institute of Occupational Health, Helsinki, Finland Ari VäänänenFinnish Institute of Occupational Health, Helsinki, Finland. 2013. Psychological management: changing qualities of the ideal manager in Finland 1949‐2009. Journal of Management History 19:1, 33-54. [Abstract] [Full Text] [PDF]

D ow

nl oa

de d

by S

ou th

er n

N ew

H am

ps hi

re U

ni ve

rs ity

A t 1

5: 29

1 1

Ju ly

2 01

6 (P

T )