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Continuing relevance of creative destruction

Continuing relevance of creative destruction
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First Published: Thu, Nov 17 2011. 07 59 PM IST

 Jayachandran/Mint
Jayachandran/Mint
Updated: Thu, Nov 17 2011. 07 59 PM IST
We have entered what might be called the era of “frontier economics”. As older, easier sources of economic growth are drying up, the prospects for continued dynamism and prosperity hinge more than ever before on pioneering entrepreneurial start-ups to explore and extend the technological barrier. This puts national economies under constant pressure to knock down artificial barriers to competition. In other words, in their search for economic growth, countries need to make their economies more entrepreneurial.
Jayachandran/Mint
With many new jobs in entrepreneurial-minded economies coming from firms less than five years old, it is not surprising that political leaders around the world and across ideological divides are now looking to reinvigorate their economies by focusing on ways to stimulate new firm formation. It is a strategy to address the twin challenges of growth and job creation.
This brave new world of “frontier economics” represents a significant point of departure for the entire world. It was always assumed that, in contrast to the developing world (and, in particular, true frontier economies such as Kenya, Nigeria, Vietnam, Colombia, Romania and Kazakhstan), developed countries had it easy. With well-established and well-honed economies, they just needed to worry about doing more of the same. Not so. As a matter of fact, the richer a country gets, the more uncertain its economic future becomes.
At a time when we search for stability and security, a paradoxical insight emerges: To sustain our progress, we need to do away with the old and be open for the new.
That is, of course, the great insight first formulated by Joseph Schumpeter in his concept of creative destruction. His ideas are ideally suited for our time—and yet little tolerated by old-school politicians. They still consider it their “business” to protect powerful and well-established corporations. That may, or may not, protect existing jobs—but it surely destroys many more potential ones.
Until now, advocates of creative destruction have been widely considered proponents of raw capitalism and, by extension, arch-conservatives. I have always been puzzled by this. Anybody who has any sense of the true scope of the world’s challenges today, from the environment and health to energy and education, appreciates the need to pursue new approaches.
To get to the changes they envision, even and especially those who are on what is generally described as the ideological left, must hope that a healthy dose of Schumpeter’s insights will be applied to the political process and the economy. For these social forces (and, remarkably, for true entrepreneurs alike), the power of the “vested” interests is what stands in the way of both economic renewal and social progress.
Meanwhile, the right-of-centre camp, after two and a quarter centuries of continued development, has to acknowledge that future growth won’t follow the previous, preordained linear models of growth.
How about young people? They have a general sense that they face uncertain job prospects. At the same time, they are part of a generation where the frontiers of technological and social innovation are being advanced ever further. After technological developments were long an abstraction, or quite inflexible, they yield new ideas and paradigms. The rapid global adoption of social media and other low-cost gadgets and networks also promotes decentralized, but more engaged and connected decision-making.
For that to become a reality and to tap into new sources of prosperity, we—the young, entrepreneurs and political leaders alike—need to rely on a broad range of well-functioning, truly competitive markets. And we need be open for entrepreneurial innovation. That doesn’t just apply to start-ups. Apple’s example underscores that even well-established companies, in order to truly succeed, must be willing to engage in creative destruction and reinvent the company from top to bottom.
With all of that in mind, Global Entrepreneurship Week (November 14-20) helps people around the world explore their potential as self-starters and innovators—the very people who will engage in this competition to discover and nurture the bright new ideas that will drive future economic growth. Schumpeter’s core idea, first expressed in 1942, was never as relevant as it is today.
Carl Schramm is president and CEO of the Ewing Marion Kauffman Foundation in the US
Comments are welcome at theirview@livemint.com
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First Published: Thu, Nov 17 2011. 07 59 PM IST