Characteristics of Schumpeter’s Innovation Theory

Characteristics of Schumpeter’s Innovation Theory

Schumpeter believes that creativity or innovation is the key factor in any entrepreneur’s field of specialization. The main theme of Schumpeter’s theory is, “The economic development of a country depends upon the various innovative activities of the entrepreneurs. So, an entrepreneur is the central character of economic development”.

There are some characteristics of Schumpeter’s innovation theory. These are as follows:

(1) Innovation is the prime function of an entrepreneur: Innovation means new combinations of production. It includes:

  1. introduction of a new product in the market;
  2. instituting of new production technology;
  3. opening Of a new market;
  4. discovering a new source of raw material, and
  5. carrying out of the new form of organization.

(2) Innovation is separate from invention: Schumpeter made a distinction between innovation and invention. Invention means discovering new methods and new materials. And, innovation means utilizing the inventions. That is, innovation means new combinations of production.

(3) Entrepreneurial role in economic development: According to Schumpeter “The economic development of a country depends upon the various innovative activities of the entrepreneurs. So, an entrepreneur is the central character of economic development”.

(4) Difference between entrepreneurial functions and managerial functions: According to Schumpeter entrepreneurial function is more extending than managerial functions. Managers only ensure proper utilization of an organization’s resources. On the other hand, entrepreneurs create new products, develop new technology, open a new market, discover a new source of raw material etc.

(5) Pre-requisites for entrepreneurship: A suitable environment is required for entrepreneurship development. Personal entrepreneurial qualities along with suitable environment play an important role in the expansion of entrepreneurship.

(6) Entrepreneurial motivation: Desire to do something new, independence, personal accomplishment etc play an important role in entrepreneurial motivation.

(7) Innovation, development and profit rotate in a cyclical framework: The more the innovation, the more the profit for the entrepreneurs. It also ensures the economic development of a country.

Criticisms

  • Excessive emphasis on the entrepreneurial role;
  • Avoiding the role of savings;
  • Silent about the role of government;
  • Dependant on some assumptions like capitalism, employment condition etc.
  • Dependant on the social environment.

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