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Schumpeter pointed out that innovation is rarely the result of free market regimes but instead of monopolistic competition. A situation in which individual winn

Schumpeter pointed out that innovation is rarely the result of free market regimes but instead of monopolistic competition. A situation in which individual winners temporarily capture markets and use high surplus returns to fund fundamentally expensive innovation. In dynamic economies usually a handful of firms dominate in the medium term. They're replaced across time, they don't compete in the same space. More and more complex and developed economies naturally move towards this because progress requires immense capital. Under conditions of extremely free markets firms profits are reduced due to competition, consumers capture immediate value, but the sectors remain stagnant. An example are many service industries. This also applies to open source software. it is by its nature extremely competitive and as a result almost all value is captured by its users. This is great at any given point in time, but it also means that open source software is constantly underfunded, and research is in fact ironically driven by surpluses of large firms.

justinclift 3y ago
> This is great at any given point in time, but it also means that open source software is constantly underfunded, and research is in fact ironically driven by surpluses of large firms. Blender seems to be showing a different path?
lifeisstillgood 3y ago
That is incredible insight. Do you know which schumpter book he write this in?
- Barrin92 3y ago
  He addresses it in IIRC chapter 7 & 8 of Capitalism, Socialism and Democracy. But another more recent book I'd recommend that takes this kind of framework is The Entrepreneurial State by Mariana Mazzucato.
- mdp2021 3y ago
  Can I suggest that you check, for a first glance and orientation, Schumpeter’s View on Innovation and Entrepreneurship (by Karol Śledzik, Uni Gdansk) - https://www.researchgate.net/publication/256060978_Schumpeter%27s_View_on_Innovation_and_Entrepreneurship https://www.researchgate.net/publication/256060978_Schumpete... > In his earlier view (emphasized in The Theory of Economic Development, originally published in 1912), Schumpeter highlighted the function of entrepreneurs who is carrying out new combinations. He viewed the occurrence of discontinuous and “revolutionary” change as the core of “economic development” which breaks the economy out of its static mode (“circular flow”) and sets it on a dynamic path of fits and starts. Three decades later, in his Capitalism, Socialism, and Democracy (1942), Schumpeter took the view that dynamic capitalism was executed to fail because the very efficiency of capitalist enterprise would lead to monopolistic structures and the disappearance of the entrepreneur
  - jacquesm 3y ago
    > Schumpeter took the view that dynamic capitalism was executed to fail because the very efficiency of capitalist enterprise would lead to monopolistic structures and the disappearance of the entrepreneur Which seems to be more or less spot on, except that 'the entrepreneur' also includes the lucky few that end up with the new monopolies.
    - mdp2021 3y ago
      Hi J.; I am not sure about your interpretation but if I understand correctly, the reply would be: that «fail» refers to the spirit of entrepreneur-iality, i.e. the dynamism centered on innovation. Schumpeter was called (by Joan Robinson) «Marx with the adjectives changed»: his idea was that innovation be "the driving force of capitalism", but since efficiency creates bloat, the lean becomes heavy, the dynamism becomes bureaucracy, the "entrepreneur" becomes a """manager""" (an insulting label in Sch.), capitalism proceeds towards atrophy and finally transforms into socialism. In Schumpeter, "entrepreneur" means "the dynamic innovator"; the monopolistic phase is that of the heavy bureaucracies - that would be the failure. The Schumpeterian school (Sch. died in 1950 - crucial time) deals consequently with "why socialism did not happen". If it was you that hit my parent post: I only reported that quote to help the poster asking for a bibliography - the paragraph contains reference to the two main books, with short descriptions left to the writing researcher (my own competence on Schumpeter is minimal). I am not personally defending their theories.
noduerme 3y ago
"Monopolistic competition" only exists between states at war, since any "monopoly", by definition, has no competition in the same polis. Willing to confuse cause with effect for a moment, is it true that innovation has mainly been the child of centralized monopolies competing under their respective wartime governments? ...mayyybe... but much of what they did militarily was built on the back of peacetime (or at least freelance) amateur discoveries by their respective member bodies. That's actually why, supposedly, America "won" the cold war. We promoted the birth of Mom's Garage Engineering. [edit: Strike. "Engineering your home PC in your mom's garage" is what I meant to say. And clearly, that more than any military/industrial/monopolistic program has made America the dominant power in the global technocracy today.]
mdp2021 3y ago
All effortful "culture" comes from surplus. And investment is crucial, not marginal. Let us not forget that the surplus need not be astronomical to create innovation - e.g. some innovative design comes from a shop¹, some comes from very expensive prototyping. Still surplus, but on remote points in the scale. (¹Think of the Rietveld Meubel Makerij - in the picture, Gerrit Rietveld is sitting on the prototype of what will become the "Rood blauwe stoel" - https://www.spectrumdesign.nl/wp-content/uploads/2019/06/gerrit-rietveld-ontwerper-1024x944.jpg https://www.spectrumdesign.nl/wp-content/uploads/2019/06/ger... ) If the circulation of tools is curbed, surely the freedom to progress is limited. Comparatively in outcomes to other scenarios, that is to be analyzed. But surely a reply to Schumpeter should be found in Levine and Boldrin: their work is explicit part of the discussion against competing theories.
- immibis 3y ago
  In modern capitalism, resources are not invested to find better ways to create things, but to find better ways to lock people out of the things you create until they pay you.
BiteCode_dev 3y ago
You mean softwares VLC, Linux, Python all came out of a monopoly position? Or maybe you mean great greater than life concepts like the press, the Web or vaccines have been invented by big monopolistic entities? Or do you mean unicorns like Google, Amazon and Facebook were born out of monopoly?
Archelaos 3y ago
> ... and use high surplus returns to fund fundamentally expensive innovation We might still see examples of this, but in the more than 70 years since Schumpeter developed his theories, the financial sector as well as state spending (military budget, infrastructure, public research, pension funds, etc.) expanded a lot. So there are many other sources for large capital needs available today.
theptip 3y ago
Thanks for sharing, found this interesting. Presumably this could be quantified/tested empirically? Are you aware of evidence in favor? What would be the strongest case against this position? Presumably there are NBER papers etc arguing this to death, but I don’t know the literature.

justinclift 3y ago

> This is great at any given point in time, but it also means that open source software is constantly underfunded, and research is in fact ironically driven by surpluses of large firms. Blender seems to be showing a different path?

lifeisstillgood 3y ago

That is incredible insight. Do you know which schumpter book he write this in?

Barrin92 3y ago
He addresses it in IIRC chapter 7 & 8 of Capitalism, Socialism and Democracy. But another more recent book I'd recommend that takes this kind of framework is The Entrepreneurial State by Mariana Mazzucato.
mdp2021 3y ago
Can I suggest that you check, for a first glance and orientation, Schumpeter’s View on Innovation and Entrepreneurship (by Karol Śledzik, Uni Gdansk) - https://www.researchgate.net/publication/256060978_Schumpeter%27s_View_on_Innovation_and_Entrepreneurship https://www.researchgate.net/publication/256060978_Schumpete... > In his earlier view (emphasized in The Theory of Economic Development, originally published in 1912), Schumpeter highlighted the function of entrepreneurs who is carrying out new combinations. He viewed the occurrence of discontinuous and “revolutionary” change as the core of “economic development” which breaks the economy out of its static mode (“circular flow”) and sets it on a dynamic path of fits and starts. Three decades later, in his Capitalism, Socialism, and Democracy (1942), Schumpeter took the view that dynamic capitalism was executed to fail because the very efficiency of capitalist enterprise would lead to monopolistic structures and the disappearance of the entrepreneur
- jacquesm 3y ago
  > Schumpeter took the view that dynamic capitalism was executed to fail because the very efficiency of capitalist enterprise would lead to monopolistic structures and the disappearance of the entrepreneur Which seems to be more or less spot on, except that 'the entrepreneur' also includes the lucky few that end up with the new monopolies.
  - mdp2021 3y ago
    Hi J.; I am not sure about your interpretation but if I understand correctly, the reply would be: that «fail» refers to the spirit of entrepreneur-iality, i.e. the dynamism centered on innovation. Schumpeter was called (by Joan Robinson) «Marx with the adjectives changed»: his idea was that innovation be "the driving force of capitalism", but since efficiency creates bloat, the lean becomes heavy, the dynamism becomes bureaucracy, the "entrepreneur" becomes a """manager""" (an insulting label in Sch.), capitalism proceeds towards atrophy and finally transforms into socialism. In Schumpeter, "entrepreneur" means "the dynamic innovator"; the monopolistic phase is that of the heavy bureaucracies - that would be the failure. The Schumpeterian school (Sch. died in 1950 - crucial time) deals consequently with "why socialism did not happen". If it was you that hit my parent post: I only reported that quote to help the poster asking for a bibliography - the paragraph contains reference to the two main books, with short descriptions left to the writing researcher (my own competence on Schumpeter is minimal). I am not personally defending their theories.

noduerme 3y ago

"Monopolistic competition" only exists between states at war, since any "monopoly", by definition, has no competition in the same polis. Willing to confuse cause with effect for a moment, is it true that innovation has mainly been the child of centralized monopolies competing under their respective wartime governments? ...mayyybe... but much of what they did militarily was built on the back of peacetime (or at least freelance) amateur discoveries by their respective member bodies. That's actually why, supposedly, America "won" the cold war. We promoted the birth of Mom's Garage Engineering. [edit: Strike. "Engineering your home PC in your mom's garage" is what I meant to say. And clearly, that more than any military/industrial/monopolistic program has made America the dominant power in the global technocracy today.]

mdp2021 3y ago

All effortful "culture" comes from surplus. And investment is crucial, not marginal. Let us not forget that the surplus need not be astronomical to create innovation - e.g. some innovative design comes from a shop¹, some comes from very expensive prototyping. Still surplus, but on remote points in the scale. (¹Think of the Rietveld Meubel Makerij - in the picture, Gerrit Rietveld is sitting on the prototype of what will become the "Rood blauwe stoel" - https://www.spectrumdesign.nl/wp-content/uploads/2019/06/gerrit-rietveld-ontwerper-1024x944.jpg https://www.spectrumdesign.nl/wp-content/uploads/2019/06/ger... ) If the circulation of tools is curbed, surely the freedom to progress is limited. Comparatively in outcomes to other scenarios, that is to be analyzed. But surely a reply to Schumpeter should be found in Levine and Boldrin: their work is explicit part of the discussion against competing theories.

immibis 3y ago
In modern capitalism, resources are not invested to find better ways to create things, but to find better ways to lock people out of the things you create until they pay you.

BiteCode_dev 3y ago

You mean softwares VLC, Linux, Python all came out of a monopoly position? Or maybe you mean great greater than life concepts like the press, the Web or vaccines have been invented by big monopolistic entities? Or do you mean unicorns like Google, Amazon and Facebook were born out of monopoly?

Archelaos 3y ago

> ... and use high surplus returns to fund fundamentally expensive innovation We might still see examples of this, but in the more than 70 years since Schumpeter developed his theories, the financial sector as well as state spending (military budget, infrastructure, public research, pension funds, etc.) expanded a lot. So there are many other sources for large capital needs available today.

theptip 3y ago

Thanks for sharing, found this interesting. Presumably this could be quantified/tested empirically? Are you aware of evidence in favor? What would be the strongest case against this position? Presumably there are NBER papers etc arguing this to death, but I don’t know the literature.