Schumpeter’s Idea of Creative Destruction

Topics: Macroeconomics, Business cycle, Keynesian economics Pages: 2 (661 words) Published: July 28, 2013
In this essay I examine Schumpeter’s idea of creative destruction and the question, whether the policy makers may prevent the business cycle or let the economy work freely. For the purposes of this essay, it is important to be clear about the definition of the term business cycle. It means the recurring and fluctuating levels of economic activity that an economy experiences over a long period of time. The five stages of the business cycle are growth (expansion), peak, recession (contraction), trough and recovery. At one time, business cycles were thought to be extremely regular, with predictable durations, but today they are widely believed to be irregular, varying in frequency, magnitude and duration.

I believe that there are several reasons to believe in the theory of creative destruction. Firstly, it is obvious that Capitalism is a process of economic change and never can be stationary. Schumpeter's central idea: Capitalism is a disorder, which is continually supported by innovative entrepreneurs with new ideas to the market. The results are progress and growth. Nowadays only companies which are innovative can survive in the market. To put it in other words we speak about qualitative change, which means the price is not the only competitive factor in the market. As an illustration you may think about the competitors Sony and Apple. Sony provides an example of the consequences if an organization lacks the sense of creative destruction. In the 1980s the company crowned a worldwide success with the Walkman cassette. About two decades, Sony dominated the market. But the organization missed to recognize the true threat posed by Apple and his IPod. Besides this fact, companies want to do their best in the competition and thus they optimize their production or establish new and more efficient organization forms. As a result they safe costs, energy and for instance pollution decline. Secondly, all attempts from policy makers to interfere in the market to prevent...
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