Creative Destruction Theory of Entrepreneurship

Joseph Schumpeter, a prominent economist, is widely recognized as a pioneer in the field of entrepreneurship. He placed human actors at the center of economic development processes and argued that entrepreneurs played a critical role in driving innovation and economic growth.

Schumpeter's view of entrepreneurship was unique in that he saw it as a disruptive force that challenged the status quo and led to the creation of new markets and industries. He believed that entrepreneurs were not simply passive actors responding to market forces, but were active agents who sought to gain power through their ability to resist social pressure and overcome limitations in existing skill sets.

According to Schumpeter, entrepreneurs played a key role in driving the process of "creative destruction." This process involved the destruction of established industries and the creation of new ones through the introduction of innovative products, services, and production methods. Entrepreneurs were seen as the driving force behind this process, as they were willing to take risks and challenge established norms in pursuit of economic gain.

Schumpeter's emphasis on the role of entrepreneurs in economic development was a departure from the prevailing view of his time, which focused on the role of markets and competition in driving economic growth. He argued that entrepreneurs played a critical role in creating new markets and industries, and that their actions were a key driver of economic growth and innovation.

Overall, Schumpeter's view of entrepreneurship placed a strong emphasis on the role of human actors in economic development processes. He saw entrepreneurs as active agents who were willing to challenge established norms and take risks in pursuit of economic gain. This view has had a lasting impact on the field of entrepreneurship and has helped to shape our understanding of the critical role that entrepreneurs play in driving innovation and economic growth.

He distinguished between inventors and entrepreneurs, arguing that entrepreneurs are more important economic actors than inventors because entrepreneurs are responsible for the actual implementation and dissemination of inventions. Inventors create new technologies and techniques, whereas entrepreneurs transform them into economic forces.

Schumpeter is perhaps best known for his theory of creative destruction which celebrates the destruction of old ways, companies and legacies to make way for the new. Schumpeter’s dynamic theory contrasts with the older static theories of the circular flow of the economy. He argued that entrepreneurs produce innovations by creating new combinations with factors of production such as technologies and techniques. The entrepreneur innovates by introducing new products, opening new markets, new sources of inputs, or new forms of organization.

Schumpeter is credited with placing human actors at the center of economic development processes. He argued that entrepreneurs seek to gain power through a capacity to resist social pressure and to overcome the limitations of existing skill sets.

A great modern representation of Schumpeter’s theory of creative destruction in entrepreneurship are innovative start-ups (Stam, 2018). Start-ups aim to solve existing problems experienced by the market and current incumbent offerings and aim to create a new solution that will eventually overtake the existing product or service in the market, thus destroying it. This can be seen in the rise of streaming services such as Netflix, which effectively dominated the home entertainment industry and rendered businesses such as Blockbuster obsolete.


Schumpeter, J. A. (1947) The Creative Response in Economic History. Journal of Economic History, Vol. 7 149–59.

Schumpeter, Joseph (1942). Capitalism, Socialism and Democracy. New York: Harper and Roe Publishers. p. 82.

Stam, F.C. (2018) Enabling Creative Destruction : An Entrepreneurial Ecosystem Approach to Industrial Policy. Working Paper series, volume 18, issue 05. U.S.E. Research Institute

This video illustrates the Netflix/Blockbuster example:

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