Entrepreneurial silver lining in today’s economic clouds

August 26, 2010

The economic future just happened.  This study from the Kauffman Foundation  finds that well over half of the companies on the 2009 Fortune 500 list, and just under half of the 2008 Inc. list, began during a recession or bear market.

The patents for the Television, Jukebox, and Nylon were granted during The Great Depression.  Although we can’t confirm any patent information on the chocolate chip cookie, it too was invented at the same time (1930 to be precise).

Joseph Schmupeter argued that this was an essential strength of the American economy:  economic destruction breeds creative success.  From The Library of Economics and Liberty:

Schumpeter was among the first to lay out a clear concept of entrepreneurship. He distinguished inventions from the entrepreneur’s innovations. Schumpeter pointed out that entrepreneurs innovate not just by figuring out how to use inventions, but also by introducing new means of production, new products, and new forms of organization. These innovations, he argued, take just as much skill and daring as does the process of invention.

Innovation by the entrepreneur, argued Schumpeter, leads to gales of “creative destruction” as innovations cause old inventories, ideas, technologies, skills, and equipment to become obsolete. The question is not “how capitalism administers existing structures, … [but] how it creates and destroys them.” This creative destruction, he believed, causes continuous progress and improves the standards of living for everyone.

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