Overview Of Creative Destruction Theory By Joseph Schumpeter

The first idea was inspired by the balance and the prophetic second prophecy about the end of capitalism. Development according to his convictions is an unrelated process, a boom and stagnation, but it continues gradually, the self-centered leader takes the lead in it, and for the purposes of analysis Schumpeter launched the following assumptions:

1. The rule of the product which adapts to the taste of the people and suit the quality of the products offered in the market.
2. The economy works at full operational level, but there are opportunities that only the self-employed leaders who seize the opportunity to exploit will see.
3. If rational calculations can not be ascertained to a degree of certainty in an uncertain world, adventure is the norm in the rush of business to invest. "The capitalist economy can not really be fixed," he says, "it is always subject to a coup from within, by introducing new goods or means of new production or creating new commercial opportunities for industrial building. "How do successive coups, ie, how to break the silent collar that is the starting point of the model?

Schumpeter's answer, however, that changes in the economy, which constitute the content of "Creation" will lead to special economic prosperity during the period (incubation), but that this period ends up looming recession again, and a reference that goes back to "sabotage creative" as the ( The opening of new markets and organizational development represent the process of industrial change itself, which creates the internal revolutionary in the economic system, a revolutionary that constantly breaks down the old machine and creates a new device replacement. .

It usually occurs in intermittent bursts separated from each other by periods of relative calm. The breakdown of this is based on the following logic: Since the competition is not conducted according to Schumpeter between small economic units and produce the goods themselves, but between creative enterprises and other non-creative, and between new goods old and other, since creativity is a monopoly at the beginning of the maker soon circulate, so The essence of "creative destruction" revolves around the possibility of survival of the most developed enterprises, especially if we know that the financing of inventions is carried out through bank credit, and as long as competition necessarily leads to lower prices after the first hatching cycle due to the reduction of money supply on the one hand. Which is due to the banking system, and the dumping of large quantities of goods in the market, on the other hand, and this naturally leads to a decline in the level of profits and increase the risk component as a reflection of pessimistic expectations, and the result of the exit of some of the facilities from the arena of production as a result of loss and reduce the rush towards innovation, Ie, the stage of depression. It is not long before the economy is ready to absorb a new burst of entrepreneurial activity that will stop until the full recession appears, because such activity depends either on the expectation of real price increases or their rise. The concept of creativity at Schumpeter goes to the process of building new projects or developing and expanding old projects, and on this basis distinguishes between two stages in capitalist history:

1. The stage of competitive capitalism, characterized by the fact that the economic projects are small and competitive and the owner is the one who plays the role of the innovator relying on his own savings.
2. The phase of monopoly capitalism, where the giant enterprises to control and retain innovations that do not lead to the establishment of new units as in the case of competitive capitalism, as well as the controller of the company "the largest stock of stock" or the manager is the task of the innovator and relying on Bank credits.

It should be noted that Schumpeter supports the phenomenon of monopoly and believes it is necessary to achieve and maintain progress. He says: (I think that the most common talk about monopoly as the common talk about the evil effects of saving is only an extremist ideology that is not really based on). "Large institutions or large control units must be accepted as necessary," he said, "because these institutions have become the most powerful organ of that progress.