There is an inconvenient truth about Joseph Schumpeter, patron saint of this column. As an economist, his biggest contribution was to single out entrepreneurs as core to the business cycle. Early in his career he made champions of them, describing them as swashbuckling iconoclasts who overthrow the existing order motivated by sheer chutzpah. Yet later in life, when he coined his famous term “creative destruction”, he applied it not to such individuals but to industrial behemoths, even monopolies. They were compelled to innovate in order to “keep on their feet, on ground that is slipping away from under them”, he wrote. A far cry from the entrepreneurial heroes of his youth.
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In his new book, “The Entrepreneurs”, Derek Lidow puts this into historical context. When the young Schumpeter wrote “The Theory of Economic Development” in 1911, it was at the end of a long period of unfettered enterprise during the first century of the Industrial Revolution. But in the run-up to the second world war, when Schumpeter wrote his most famous work, “Capitalism, Socialism and Democracy”, the buccaneers of yore had morphed into large conglomerates with vast research-and-development (R&D) labs in which they invested fortunes to remain competitive.
That is a useful way to understand Apple, maker of the iPhone. What was once a scrappy startup with visionary co-founders keen to change the world has become the world’s largest corporation, worth $2.4trn, with 2bn devices in active use and a line of high-margin services to support them. Some worry that its size has sapped its inventive mojo, made it too big for its boots, and left it overexposed to China. On February 2nd it reported its first decline in year-on-year earnings in three and a half years. Yet it is still a profit-making…
2023-02-09 09:25:11 What would Joseph Schumpeter have made of Apple?
Original from www.economist.com
Joseph Schumpeter, the celebrated Austrian economist and pioneer of “creative destruction” and “the theory of economic development”, is widely recognized for his important contributions to the field of economics. What would have Schumpeter made of the world-renowned Apple, Inc.?
Schumpeter’s theories of innovation and entrepreneurship set him apart from other classical economists, who often focused on the concept of equilibrium. Schumpeter viewed the economy as a dynamic and ever-changing system characterized not only by inflation and contraction, but also by disruptions and innovation fueled by entrepreneurs who bring about what he termed “creative destruction”. Schumpeter wrote, “The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U.S. Steel illustrate the same process of industrial mutation – if I may use that biological term – that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.”
Apple, one of the largest and most successful companies in the world, is a prime example of Schumpeter’s creative destruction in action. Founded in 1976 by Steve Jobs, Steve Wozniak, and Ron Wayne, Apple has become an iconic global powerhouse which has completely revolutionized the technology industry. Apple has revolutionized not just the way in which its customers interact with technology, but also the way in which its competitors do business.
Schumpeter would likely have seen Apple as a company that has changed the faces of numerous industries and changed the way people think about and use technology. Nonetheless, Schumpeter was skeptical of the long term sustainability of these innovation-driven companies. He believed that eventually, these companies are stifled by their success because they struggle to maintain the same level of innovation and growth. He wrote, “Innovation, by its very nature, is inherently a process of trial and error and its successes often owe much to chance. Successful innovators are often eventually swept aside by their own success.”
This leaves the question of whether or not Apple will be able to continue to remain on the cutting edge of innovation. While Apple has faced some significant challenges in recent years, it has also shown an impressive ability to stay ahead of the curve and remain relevant. As such, it can be assumed that Schumpeter would have placed Apple among the ranks of companies that have revolutionized the economy, but would have also cautioned against complacency. Technology is ever-evolving and companies that fail to keep up with the pace of change will eventually be left behind.
