Joseph Schumpeter: Creative Destruction To Economics

Introduction
Joseph Schumpeter introduced the term ‘Creative Destruction’ to economics in 1942. He was an Austrian economist who used it to understand and explain a type of growth brought in by entrepreneurs to the capitalist system. He argued that radical innovation by entrepreneurs was the real reason behind long-term sustained economic growth, even though it may destroy the economic value of the enterprises that were established and previously enjoyed a degree of monopolistic power. Even though economic value might have been destroyed, Schumpeter believed that in economical terms, the benefit arising from the radical innovation would be much greater than if the radical innovation wouldn’t have been introduced at all. The process of generation of capitalist net economic growth where entrepreneurs produce a lot of economic value than is destroyed, where their innovations change the already established way of things can be explained as ‘Creative Destruction’. The net economic benefit from radical innovation even though it may destroy current economic value is more with radical innovation than if it was never introduced in the first place, according to Schumpeter. Therefore, this term ‘Creative Destruction’ essentially

Disruptions like these go after either low-end consumers by offering higher value or by lowering prices, or they go after an entirely new set of customers. In The Innovator’s Dilemma, a book by Clayton Christen, it is mentioned how innovations that are new unexpectedly bring established markets to an end. (Christensen, 1997). There is an important difference between ‘sustaining’ and ‘disruptive’ innovations as Sustaining Innovation is mostly exercised by companies that are established and it helps maintain their competitive degree in the market by altering and improving the overall performance of existing products. (Christensen and Overdorf,