In the history of economic thought, Joseph Alois Schumpeter (1883-1950) is the foundational contributor to the topic of innovation and development with entrepreneurship acting as the vital link between the two.


Schumpeter first set forth his pioneering vision of the relationship between innovation and development in The Theory of Economic Development (1911). Among the many conceptual contributions of that work is the first clear expression of the distinction between “invention” and “innovation”—the latter being, to Schumpeter, far more important than the former. Schumpeter stressed that an invention is of no economic significance until it is brought into use; had Thomas Edison only invented the light bulb and not innovated the organizational and technical apparatus for large-scale electrification, incandescent light would have been an historical curiosity.  Entrepreneurs are the agents within society who take leadership roles in translating inventions into innovation, and otherwise in bringing market-creating innovations into existence. As Schumpeter famously wrote in The Theory of Economic Development

By "development" ... we shall understand only such changes in economic life as are not forced upon it from without but arise by its own initiative, from within.
To produce means to combine materials and forces within our reach. To produce other things, or the same things by a different method, means to combine these materials and forces differently.
Development in our sense is then defined by the carrying out of
new combinations ... The carrying out of new combinations we call 'enterprise;' the individuals whose function it is to carry them out we call 'entrepreneurs.

Schumpeter also brought a unique perspective to bear on the power of market-creating innovation to improve human well-being. In his most widely read work, Capitalism, Socialism, and Democracy, he wrote:

Queen Elizabeth [I] owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort. The capitalist process, not by coincidence but by virtue of its mechanism, progressively raises the standard of life of the masses.

While Schumpeter is widely recognized and increasingly influential among economists, among wider audiences—including those working in the field of development—the principles that he first and most ably articulated remain little known. It is for this reason that we, the founders of the Schumpeter Center for Innovation and Development, have named our undertaking in his honor. We fully concur with the famed management theorist Peter Drucker (also a man ahead of his time) who wrote in 1983: “It is becoming increasingly clear that it is Schumpeter who will shape the thinking and inform the questions on economic theory and economic policy for the rest of this century, if not for the next thirty or fifty years.”

Schumpeter’s great works were all written in the 20th century, when the economic fortunes of any nation rested with its great corporations. “What’s good for General Motors is good for America”, went the saying. In today’s world of networked production and distributed innovation, that saying no longer holds. If anything, the underlying relationship has been reversed: Where large corporations once attracted top talent, now top talent attracts corporations. For this reason the economic vitality of nations depends primarily on success in mobilizing the innovative capacity of its most vital resource: its people.

Although the 20th century is behind us, Schumpeter’s century is still to come.