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
Forms of Competition and the Market Structure ( ...continuation )

He maintains that innovation reduces the effectiveness of practices whose objective is to maintain market positioning through price by reducing the supply. He proposes that imperfect structures like this must be analyzed in the context of “the perennial gale of creative destruction, a significance which they would not have in a stationary state” (Schumpeter, 1942: 125). Unlike in the ted, imperfect market structures constitute the necessary conditions for the process of creative destruction. Investing in the longer term in rapidly changing conditions, such as the development process, “is like shooting at a target that is not only indistinct but moving — and moving jerkily at that” (Schumpeter, 1942: 126). As a result, it is necessary to build in mechanisms of protection, such as patents or contracts, and above all, to use imperfect market methods to provide protection against the temporary disorganization of the market and space to carry out a long-term program. Schumpeter defends the need for protection by using one of his frequent analogies, “motorcars are traveling faster than they otherwise would because they are provided with brakes” (Schumpeter, 1942: 127).

In this sense, he suggests that the temporary practices of monopolistic price fixing should be understood as necessary protection for creative agents against the threat of new entries into the system. He proposes that if prices are adjusted in the short-term, as in perfect competition, creative destruction is interrupted, because no agent would introduce new combinations in a scenario of growing risk and uncertainty.12 In this way, under different market structures he maintains the same dynamic idea of competition, driven — more than by prices — by the emergence of new combinations that introduce quasi-rents. Stan Metcalfe (2010) proposed that Schumpeter’s argument on the relationship between innovation, competition and economic development places the entrepreneur and business profit at the core of the process of economic change. This radical proposal lies in replacing the optimizing agent with a creative concept of an agent with imagination.13

On the other hand, the ted spreads the idea that there are no market faults. The market simply selects the entrepreneurs that make new combinations, as these destroy the old combinations. The underlying idea is that the institutional framework is always ready for innovation (Rivera Ríos et al., 2009).

In csd, Schumpeter introduces the idea of uncertainty and market failure in selection. Although the rewards for agents that generate the development process are not random, there is a dose of luck: “But though the incompetent men and the obsolete methods are in fact eliminated, sometimes very promptly, sometimes with a lag, failure also threatens or actually overtakes many an able man” (Schumpeter, 1942: 109). Schumpeter recognizes that the market also fails in differentiating the economic selection and social selection of biology, as there is no guarantee that those selected are the most able.14

12 According to Nelson and Winter (1982), the idea of uncertainty in Schumpeter is related to Knight’s ideas, and refers to the fact that agents lack sufficient experience to estimate reliable and relevant probabilities. The essence of innovation is that it is the result of uncertainty, and some will lose while others will win.

13 According to Langlois (2007), Schumpeter needed a mechanism to explain how new knowledge entered the economic system and broke the circular flow. Like Weber, he found it in the charisma and intuitive capacity of the entrepreneur, trusting that the leader would be able to break with the system of behavioral rules.

14 “The same apparatus which conditions for performance the individuals and families that at any given time form the bourgeois class, ipso facto also selects the individuals and families that are to rise into that class or to drop out of it [...] most methods of social selection, unlike the “methods” of biological selection, do not guarantee performance of the selected individual” (Schumpeter, 1942: 109).

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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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