Complexity, Innovation, and Development: Schumpeter Revisited

The role of innovation and entrepreneurship is increasingly getting policy attention in emerging countries. A growing body of literature is deriving its inspiration from the work of Joseph Schumpeter. His seminal 1911 book, The Theory of Economic Development, outlined a general framework for understanding the role of innovation and entrepreneurship in economic transformation. Despite Schumpeter’s influence on economic policies in industrialized countries, there has been little application of his work in emerging countries. On surface, the failure to apply Schumpeter’s ideas to emerging countries appears to be an intellectual oversight. To the contrary, this paper argues that the application of Schumpeter’s ideas to emerging countries was debated through the 1950s, but early architects of development studies deemed it to be irrelevant. The core of the rejection was an epistemological clash between Schumpeter’s systems approach to economic transformation and that of his critics who adhered to a more static, linear, and incremental view of economic change. Thus, Schumpeter’s central themes of innovation and entrepreneurship focused on endogenous transformation and evolution of economies, while his critics, who focused on the importance of central planning, relied on equilibrium models reflected in the role of bureaucracies as economic sources of stability.