Question Godfrey Social Sciences

What is the role of the entrepreneur according to Schumpeter’s theory of economic development?

what is the role of an entrepreneur according to schumpeter's theory of economic development

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Schumpeter has been one of the most influential economists of the twentieth century. An entrepreneur, in Schumpeter’s view, must be able to take risks and make decisions, turning the ideas of inventors into successful products in a market that is open to new things (Thirlwall, 2011). His theory of economic development assumes that capitalism rests on continuous change (Schumpeter, 1934). This means that a successful entrepreneur must understand the different stages of the business cycle, and intervene to bring about the right kind of innovation at exactly the right time. These interventions can be of the creative sort that starts something completely new, or the disruptive sort that breaks up a state of equilibrium and takes a company in a new direction. The entrepreneur’s role is therefore to enable the business to transform itself, not only to adapt to unpredictable circumstances, but to drive change in the market and lead it from the front.

The concept of disruptive change is very important in Schumpeter’s thinking, and in his later work (Schumpeter, 1942) he expanded his idea of the entrepreneur to go beyond the personal qualities of the individual entrepreneur and include the potential of groups and organisations to fulfil the role of entrepreneur. If companies experience high growth, then the traditional small business entrepreneur model is no longer appropriate, and entrepreneurship takes on a corporate dimension. Collaboration with universities, innovation parks and financial backers then also becomes part of the mix of skills required for Schumpeterian entrepreneurship but the focus on innovation, decision-taking and disruptive change remains very important.


Schumpeter, J. A. (1934) Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest and the Business Cycle. Cambridge, MA: Harvard University Press.

Schumpeter, J. A. (1942) Capitalism, Socialism and Democracy. New York: Harper & Row.

Thirlwall, A. P. (2011) Economics of Development: Theory and Evidence. Ninth edition. Basingstoke: Palgrave Macmillan.