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Dead Economists, the Auto Industry, and Entrepreneurship

Creative destruction of auto industryYou can’t read a magazine or newspaper or go online these days without reading an article about whether we should or shouldn’t bail out the auto industry. 

There are a lot of arguments for a bail out and a lot of arguments against it.  I don’t think I can provide anything new on the debate so I’m not going to weigh in with my opinion on what we should do.  Instead, I want to use this discussion to point out that we seem not to be talking very much about our belief in entrepreneurial capitalism when we talk about the auto industry today.

The evidence for my opinion on this point comes from two dead economists: John Maynard Keynes [1] and Joseph Schumpeter [2].   

Keynes was the intellectual leader behind interventionist economic policy.  In particular, he advocated the use of fiscal stimulus — government spending — to get an economy out of a recession. 

Schumpeter was the intellectual leader behind the study of entrepreneurship. In particular, he coined the expression “creative destruction [3]” to explain the rise of new companies to replace old ones in response to changes in technology, the economy, and other forces that affect industries.

My very unscientific evidence for the idea that we are not talking enough about entrepreneurial capitalism and creative destruction in the discussion of the auto industry right now comes from a Google search.  I took a look at the number of pages that came up if I searched for “John Maynard Keynes” and “Joseph Schumpeter.” The search brought up 996,000 pages for Keynes and 281,000 pages for Schumpeter, a ratio of 3.5:1 between the dead economists.

Then I did a search on “Schumpeter” and “auto industry” over the past month and compared it to “Keynes” and “auto industry” over the same period.  I got 8,020 hits for Keynes and 589 hits for Schumpeter, a ratio of 13.6:1.  This very unscientific analysis suggests that in the past month in discussions of the auto industry, reference to Schumpeter has been far less than the ratio of the reference to him and Keynes over all would suggest it should be. 

In simpler terms, people aren’t talking very much about Schumpeter’s concept of creative destruction when discussing the problems of the auto industry.  Instead, they are talking a lot about Keynes concept of fiscal stimulus.

Does this mean that we are shifting away from a philosophy of entrepreneurial capitalism and a belief in creative destruction as a fundamental force behind our economy?  Does it mean that we believe in entrepreneurial capitalism except when confronted with the destruction part of creative destruction? (Or does it mean I have too much time on my hands to play around on Google?)

I’m interested in hearing your thoughts.

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About the Author: Scott Shane [4] is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool’s Gold: The Truth Behind Angel Investing in America [5]; Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By; Finding Fertile Ground: Identifying Extraordinary Opportunities for New Ventures; Technology Strategy for Managers and Entrepreneurs; and From Ice Cream to the Internet: Using Franchising to Drive the Growth and Profits of Your Company.