The Relationship between Entrepreneuship, Innocation and Economic Essay

The Relationship between Entrepreneuship, Innocation and Economic Development - Essay Example A variety of theories and policy approaches have been advanced with Keynesian influenced stimulus packages being infused into Western economies with varying degrees of success. Still, a growing body of support has turned to the potentials of economic development occurring through entrepreneurship and innovation. Theorists such as Joseph Schumpeter argue that entrepreneurship and innovation are core elements for economic development, and subsequent city and state governments have oftentimes-established incubators and given increased funding to ensure that innovation is supported. This essay examines the relationship between entrepreneurship, innovation and economic development. The essay also considers the role creativity and problem solving play in this relationship, with reference to both theory and examples from the business world. Analysis When examining the relationship between entrepreneurship, innovation, and economic development perhaps the most groundbreaking theorist has bee n Joseph Schumpeter. While Schumpeter’s insights into economic development span a wide array of understandings, there are a number of specific considerations that are relevant for this specific mode of investigation. One of Schumpeter’s most important notions is that of ‘creative destruction’. ... Individuals such as Alan Greenspan have noted that this process underlines economic development. He notes, â€Å""Capitalism expands wealth primarily through creative destruction—the process by which the cash flow from obsolescent, low-return capital is invested in high-return, cutting-edge technologies" (Greenspan 2002). There are a number of specific means by which entrepreneurship and innovation carries out such creative destruction. In his text ‘Theory of Economic Development’ Schumpeter argued that entrepreneurship didn’t simply create new industries, but also resulted in the combination of past industries (Schumpeter 1982). One example of this is that the development of the steam engine combined with carriage development techniques to form the automobile. The development of the automobile then drastically shifts previously held economic and social structural elements, reenergizing the economy and contributing to economic development. While Schumpeter ’s theories have received a degree of criticism that remain prominent and highly relevant in the contemporary world environment. In large part, Schumpeter’s understanding of entrepreneurship and innovation as contributing to economic development has been echoed through endogenous growth theory. This perspective contends that a nation’s economic growth occurs through internal rather than external factors. In this context of understanding it’s clear how Schumpeter’s theory on entrepreneurship is squarely rooted within the endogenous means of growth. While entrepreneurship is popularly viewed in terms of inventions and small business owners, in further examining its impact on economic development one must consider the more abstract notion of innovation