1. What is the Schumpeterian concept of “creative destruction”?
Creative Destruction’ is a paradoxical term introduced to economic theory in 1942 by the Austrian economist Joseph Schumpeter (1883–1950). He used the term to describe the special form of economic growth that entrepreneurs particularly bring to the capitalist system.
Schumpeter argued that it was the entrepreneur’s introduction of radical innovation into the capitalist system that was the real force that sustained long-term economic growth, even as it destroyed the economic value of established enterprises who may have previously enjoyed a degree of monopolistic power. For Schumpeter, the net economic benefit from the radical innovation, in spite of the destruction of existing economic value, was greater than if the radical innovation had never been introduced. So, the term ‘creative destruction’ describes a process of creating net economic growth in the capitalist system where entrepreneurs create more economic value from their radical innovations than is destroyed as their innovation replaces and supplants the established way of doing things.
Schumpeter believed that capitalism would ultimately be destroyed by its successes and that this ‘creative destruction’ was just part of the prognosis of capitalism’s future. His great defence of capitalism however, was built on the grounds that capitalism sparks entrepreneurship. He was one of the first economists to truly provide us with a clear concept of this term. His theory described the more expanded role of entrepreneurs as innovators not just inventors. He saw that entrepreneurs did far more than just invent as they introduced new means of production, new products, and new forms of organization. These innovations, he argued, take just as much skill and daring as did the process of invention. 2. Discuss the economics of the legacy newspaper