Schumpeter, he said, based his theory on what he saw happening in developed nations.
He made the observation by looking at the impact of railroads in Europe and America. So, rich nations were already doing it, but it had not been explained in a clear and explicit way, which had to do with this idea of introducing new combinations in the economy, which [are] technological combinations -- but also the recognition that these new technological transformations were being driven by entrepreneurs. So entrepreneurship became a very central part of his thinking.
Professor Juma said new industries develop through whats called creative destruction.
His idea was that when you introduce, say, railroads in a community, which didnt have railroads before, so theyre using stage coaches, railroads will destroy stage coaches. That industry will disappear, but it will create a new industry, which is a faster industry with a greater opportunity for economic expansion. If you think of it in modern times, if we introduce downloading of music, it destroys CDs. So, its destructive to the CDs, but it creates new industries, which is downloading of music, he said.
Such developments are common today. But many economists in the 20th Century thought the developing world was not ready for Schumpeters ideas.
Juma said, So the critics said emerging economies dont have new technologies. Secondly, he said, the agent of change is [the] entrepreneur. Then they argued that the entrepreneur is not the biggest player in poor economies you need big government. You need bureaucracies. And thirdly, he put a lot of emphasis on industrial production. His critics said what the poor want is not production. They want consumption. So we give them some products that have been developed elsewhere. But it doesnt make sense to enable them to produce themselves.
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