The New, Entrepreneurial Growth Theory: How to Stimulate Economic Growth and Entrepreneurship to Create Jobs for Young, Talented People All Over the World?
Following Schumpeter (1934), the literature on innovation distinguishes between invention and innovation. Innovation is the conversion of ideas into cash. Innovation refers to incremental and emergent or radical and revolutionary change in thinking, products, processes, etc. Robert Solow’s (2000) neoclassical, exogenous growth theory has long been dominating public policies all over the world. The new firm-based growth theory is based on the idea that long-run growth is determined by economic incentives (Lucas, 1988) created by the markets. Romer (1989) shares Lucas’ notion that intentional inventions generate technological spill-over and lower the costs of future innovations.
During his life time, Joseph Schumpeter criticized repeatedly the neoclassical economic theory that he claimed concealed the fundamental problem of economic change. Schumpeter insisted on the discontinuity between the mathematically perfect model of economics and entrepreneurship. Schumpeter was convinced that the analysis of the overall process of evolution required a radical reinterpretation of the system of general economic equilibrium. Following Schumpeter, the evolutionary economics has been based on the growth of knowledge, not on the mathematical models (Loasby, 1999, pp. 2-4). Schumpeter not only recognized the need for a theory of economic development, but also came to understand that such a theory would have to account for the process of technological change (Lazonick, 1991, p. 126). According to Lintunen (2000), Schumpeter suggests that (1) an entrepreneurial function is an act of will by the entrepreneur for the introduction of innovation in an economy, and a source of evolution in a whole society, (2) entrepreneurial leadership is a source of creative energy for innovation and evolution, and (3) entrepreneurial profit is the temporary monopoly return on the personal activity of the entrepreneur.
Schumpeter (1942) gave economists food for thought with the concept of creative destruction. He made his famous prediction about the transition from competitive capitalism to trustified capitalism. Schumpeter himself believed that free market capitalism is the best economic system. Galbraith (1956) extended Schumpeter's notion of corporatism. Galbraith claimed that large US firms were engaged in collusion with the government. The last financial crisis is an example of that on a global scale. The US and EU and even Asian banks incurred huge economic losses. However, there was a pronounced public interest, collusion between the national governments and big investment banks, exceeding that present in entrepreneurial firms, to pay a major part of these economic losses from the national budgets. ‘Right now, our economy is being dragged down by our dysfunctional financial system, which has been crippled by huge losses on mortgage-backed securities and other assets’ (Krugman, 2009). Paul Krugman, the Nobel-Prize winner, interprets the concerns of contemporary development economists.
The major challenge for competitive capitalism is that governmental subsidies allocated to save inefficient banks make it difficult for innovative firms to obtain financial resources to commercialize their innovations. As innovative firms are the catalyst of economic growth, these collusions threaten the global capitalistic market economy as a whole. The rapidly expanding global economy poses new challenges for economic theories. Our contribution is that the current and future challenges in the global economy can best be solved through a better understanding of Schumpeterian entrepreneurship in its modern, global contexts. A major paradox of the literature on entrepreneurship is that the process of opportunity recognition and exploitation (Kraus and Kauranen 2009) has been analyzed in a vacuum separate from the existing market structures. The fact is, however, that multinationals dominate commodities all over the world (Karliner, 1997).