Joseph Alois Schumpeter Theory on Entrepreneurship (Micro-Read)

Entrepreneurship is firstly psychological and conceptual then is anything that a person executes it into. Entrepreneurship an uplifting practice when we talk about the economic aspect of our society. So, it is only obvious that there have been studies and theories that make it more viable to us. Here is one such psychological theory that might be a good read for you.

Joseph Alois Schumpeter Theory:

According to Joseph A. Schumpeter, the effective function of an entre-preneur is to start innovation in venture. This theory is also called innovation theory or dynamic theory. According to this theory, the entrepreneurs emerges because of individuals having certain psychological elements i.e., will power, self-intuitions, tolerance capacity. The entrepreneur is a person who has creative nature.

He regarded the entrepreneurship as a catalyst who checks the static conditions of the economy, there by initiates and thrusts a process of economic development i.e., innovation. He carries economy to new height of develop-ment.

This innovation includes:

1. Introduction of new goods,

2. Introduction of new methods of production,

3. Opening of a new market,

4. Discovering a new source of raw materials,

5. Carrying out a new source of an organisation.

Although, this theory also included other characteristics i.e., risk taking, superintendence and coordination, he emphasised that these attributes without the ability to innovate will not make an individual as an entrepreneur.

According to him, the following characteristics that appear in the behaviour of an entrepreneur are as follows:

1. An institutional capacity to see the things in a way which afterwards proves to be true.

2. Energy of will and mind to overcome static habits, desires and emotions.

3. The capacity to withstand social opposition.

According to him, an entrepreneur is an innovator who desires to earn profit through innovation. An entrepreneur is neither technical man nor a capitalist but simply an innovator. He introduces something new in the economy. He is motivated by establishing his psychological power. An entre-preneurship is formed for establishing his industrial empire. He has burning desires for creative activities.

He makes a distinction between innovator and inventor. An inventor discovers new methods and new material whereas an innovator is one who utilises or applies inventions and discovers to produce better quality goods that give greater satisfaction to customer and high profit to entrepreneurs. In this way, an entrepreneur is an innovator.

Schumpeter made it clear that an entrepreneur doesn’t have a single person but equal to an organisation. “What matter is the behaviour not the actor?” He emphasised more on technological innovations rather than on orga-nisational innovations. “Entrepreneurs are certainly not economic men in the theoretical sense.”

Critical Evaluation of J. A. Schumpeter Theory:

In this theory, the main theme is the innovation. He makes a distinction between an innovator and an inventor. According to him, an inventor discovers new methods and new materials. But an innovator is one who applies inventions and discovers in order to make new combination.

With the help of new combination, he pro-duces newer and better goods which yields satisfaction as well as profits. Schumpeter’s concept of entrepreneurship is quite broad based. It includes not only the independent businessmen but also executives and managers who actually undertake innovative functions.