Schumpeter Theory

Theory Schumpeter
Discuss the roles of entrepreneurship in economic development process. He explains the differences between economic growth and development (Business Cycles (1939). He argues development as consisting of a process which involved reformation on various equipments of productions, outputs, marketing and industrial organizations.

 Capitalist system is a rapid economic development system process. This system may affect negatively on social life. In the long-run, economy will face stagnation period and it is not a process that always operate accordingly and smoothly. In development process, economy may sometime run prosperously (full employment condition) and sometime is in crisis (unemployment) and this may take place happen alternately.

 A key factor of development is dependent on entrepreneur group which are very innovative in combining the factors of production which is targeted to produce goods and services. The reformation process included the following measures: - introduce a new product - using new method in producing goods - to find new market - to develop new raw material as alternative sources - to have rearrangement of industries

 Analysis begun with the assumption that country s economic performance is in rigid condition, i.e., there are no population growth and net investment, and high level of unemployment. Some entrepreneurs committed to reformation and followed by other entrepreneurs until there is an increase in investment. The impacts are increasing in society s income and consumption. This phenomena will lead the entrepreneurs to increase the new capital. - induced investment increasing of investment because of increasing in income , production and profit. - autonomous investment investments which determined by long-term development, such as new resources found and technology which can create reformation

 The economic development (booming period) will be followed by economic recession some entrepreneurs who cannot compete with those entrepreneurs whose have done reformation will subsequently failed in their business and lost their market and have to close their business. creation of new products will lead to uncertainty among the entrepreneurs in terms investment and capital that are needed for business development Those entrepreneur who are able to create the new products and market will lead to economic booming However, the equilibrium point is higher than the economic recession period. With the new equilibrium, the level of per capita income is higher

Conclusion of Schumpeter Theory

Explanation of factors that cause uncertainty in capitalist economy. Identification of factors that encourage economic development process. For efficiency - optimal mobilization and combination of factors of production with the new method of production. Enlargement of credit facilities to mobilize factors of production The significant role of entrepreneurs in economic development process A significant characteristic in economic development process is mobilization of production factors and not to increase new accumulated capital.