12.1 SCHUMPETER ON INNOVATION

Any attempt to link innovation to social change owes an enormous debt to Joseph Schumpeter. It was Schumpeter who, in The Theory of Economic Development (1911), ‘traced all disrupting economic change to innovations and identified the innovator with the entrepreneur'.^[809] As Schumpeter saw it, the entrepreneur was the source of the ‘creative response' within an economic system.

Without innovations - the ‘carrying out of new combinations' of materials and forces of production by the entrepreneur - there simply would not be any economic development or change worthy of the name. Yet Schumpeter by no means intended to discount the ordinary, day-to-day operation of the economy in a commercial state. On the contrary, the backdrop of secure private property, the division of labour, and free competition would ensure that productive resources were allocated to their highest-valued uses, as deter­mined by consumer demand.^[810] But this interdependent system of production and exchange, regulated by competitive prices, did not by itself provide conditions for substantive economic growth. Rather, it was as Walras and Bohm-Bawerk had described it: an adaptive mechanism that sought to bring the forces of production and consumer demand into equilibrium. Accordingly, certain phenomena that looked like changes in the system were, as Schumpeter put it, merely changes in the ‘data' - the inputs and outputs of the system.

Schumpeter's eventual appeal to an innovation model of economic development was rooted in a fundamental rethinking of the very phenomenon of social change. On the one hand, he made it clear that the bathetic treatment of shifts in wealth, population, and consumer tastes in neoclassical economic theory - their treatment as mere variables in a system of equations describing the conditions for a competitive equilibrium - was part of a ‘rationalisation' of social processes that Weber had famously described. Still, Schumpeter's purpose was not to deny the fact of social change, but to ensure that it was properly understood. Although he insisted that neoclassical theory defanged certain kinds of change, it also had the beneficial effect of leading social analysts away from ‘the metaphysical treatment of social development'. Much as historians do today, Schumpeter rejected ‘every search for a “mean­ing” of history'. For in the typical case this rested on the assumption that ‘a nation, a civilisation, or even the whole of mankind, must show some kind of uniform unilinear development'. Recent forms of ‘evolutionary thought that centre in Darwin' were just the latest instance of this unfortunate mystification of social change.^[812] But if economic development could not be understood as changes affecting an economic system from the ‘outside' like population growth or changing consumer psychology, nor as a kind of metaphysical development, then in what did it consist?

Schumpeter had a definite answer. ‘By “development”, therefore, we shall understand only such changes in economic life as are not forced on it from without but arise by its own initiative, from within.'^[813] Genuine change was something generated from within the economic system.