Volume 44, Number 174,
July-September 2013
Schumpeter and the Post-Schumpeterians:
Old and New Dimensions of Analysis
Gabriel Yoguel, Florencia Barletta
and Mariano Pereira
The Idea of Creative Destruction ( ...continuation )

In csd, the cumulative process of creative destruction is mainly driven by leaders. This refers to large companies that require a market format to protect new combinations and limit the entrance of new agents.

The creative features of agents are a necessary condition for new combinations to appear and threaten the dominant positions. Although the idea of creativity is implicit in both the ted and csd, it is made explicit in the creh. In the ted, creative reactions appear in organizations that would be genetically gifted in terms of skills and creativity. In csd, creative reactions are generated by a process with path dependence features derived from learning generated in r+ddepartments. In the creh, the difference between creative and adaptive conduct is made explicit. This work suggests that creative reactions cannot be foreseen, are irreversible and result from the development of prior skills. They therefore cannot be anticipated, they create a new situation whereby it is impossible to return to the previous conditions and they depend on the skill levels of the human resources involved. On the contrary, adaptive behavior is a defensive response of practices in the face of changing information. This is manifest in both the circular economy as well as in companies that fail to introduce new combinations during the development process. In this way, the creation and destruction of creative agents are continuously at odds with how companies react to adapt and preserve the “normal” technological conditions under which they earn profits.6

Another relevant question regarding Schumpeterian thought is the endogenous nature of innovation and the exogenous nature of knowledge in system dynamics. Agents innovate by commercializing inventions generated outside of the economic system, which has been interpreted as an exogenous view of innovation (Freeman and Soete, 1982). In C7, Schumpeter maintains that the generation of technical knowledge is a necessary but insufficient condition to generate development, as it requires entrepreneurs to use this knowledge to develop new combinations. In this way, Schumpeter separates invention from application. Development requires not only inventions, but also that these inventions are fundamentally transformed in some way into applications. Schumpeter suggests that the storage of technical knowledge will continue to increase regardless of whether it is used or not, and as such, it may be present independent of whether an economy is stagnant or dynamic. The ted has a line of thinking that goes from the development of technical knowledge to the appearance of entrepreneurs and new combinations. Still, it remains unclear whether development increases technical knowledge, which would constitute the basis of evolutionary economic thought.7

On the contrary, in csd, invention is generated within the economic system because leaders internalize inventive activities (Freeman and Soete, 1982).

Forms of Competition and the Market Structure

Schumpeter critiques competition based only on prices and maintains that in a capitalist system, relevant competition prioritizes both quality and cost.8 There are significant differences between the ted and csd in terms of how competition is carried out as well as the predominant market structure.

In the ted, those that participate in the competition process are entrepreneurs and the leaders that continue producing using current practices. The necessary conditions for producing instability require competition, giving rise to the free entry of entrepreneurs. In csd, however, in a scheme of imperfect competition, quasi-rents are not eliminated, there is no free entry and development is more centered on the current leaders than on new enterprises. Schumpeter made an important critique to perfect competition by proposing that in an oligopolistic market, the quantities produced could even by higher and the prices lower, because concerns can introduce better production techniques that are not available to the rest of the agents.9 He also maintains that perfect competition is incompatible with economic progress. Using a historical analysis, he contemplates that since the predominance of the large concerns at the end of the nineteenth century, production has continued to grow in spite of the idea that maximum production could only be reached with perfect competition.10 The presence of the concern as a key actor does not mean absence of competition. There is even competition when there is only one producer, who could be threatened by new entries to the market. Maintaining a monopolistic position requires vigilance and effort.11

Schumpeter also begins to introduce the idea of dynamic efficiency in the competition process through two elements. First, he suggests that, “we must judge performance over time, as it unfolds through decades or centuries. A system–any system, economic or other–that at every given point of time fully utilizes its possibilities to the best advantage may yet in the long run be inferior to a system that does so at no given point of time,” (Schumpeter, 1942: 121). Second, he considers that capitalist dynamics cannot be understood merely by analyzing one of their actors — concerns. There are a variety of actors that interact, are different from each other and turn the competitive process into a collective event.

6 In the words of Schumpeter, “the forces of habit are revealed in the early stages of an individual that tries to do something new,” (Schumpeter, 1934: 96).

7 These Schumpeterian ideas were picked up again 40 years later in Kline and Rosemberg’s (1986) strong criticism of the linear model of innovation.

8 Schumpeter proposes this idea using the following analogy: “This kind of competition is as much more effective than the other as a bombardment is in comparison with forcing a door.”

9 Langlois (2007) maintains that Schumpeter’s thesis, reclaimed by Chandler later, is that large companies are a particular form of social technology and represent organizational change. However, while Chandler writes that organizations are a consequence of economic change, Schumpeter inverts the causality: change is the result of large organizations.

10 Schumpeter provides a critical discussion of the idea maximum production levels are reached under perfect competition. He believes that this principle is only applicable to the static equilibrium and that the capitalist reality is a continuous process of changing instability. Although he recognizes that Marshall and Wicksell accepted that there were cases where perfect competition did not apply, they considered them exceptions that would go away with time. For Schumpeter, the majority of products (except raw materials) have their own markets that try to stay afloat through pricing strategies and product differentiation.

11 Schumpeter considers that if the monopoly were as defined by Cournot and Marshall, there would be no creative destruction because there would be no free entry or threat to potential entrepreneurs.

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PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 195 October-December 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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