Joseph A. Schumpeter on Competition - Dictionary of Arguments

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Competition: Competition is a rivalry or contest between individuals or groups striving for a common goal, often involving effort, skill, or resources. _____________ Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments.

> Schumpeter, Joseph A.	> Competition	Joseph A. Schumpeter on Competition - Dictionary of Arguments Sobel I 17 Competition/Schumpeter/Sobel/Clemens: The first thing to go is the traditional conception of the modus operandi of competition ... in capitalist reality as distinguished from its textbook picture, it is not that type of competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization ... which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives ... It is hardly necessary to point out that competition of the kind we now have in mind acts not only when in being but also when it is merely an ever-present threat. It disciplines before it attacks. The businessman feels himself to be in a competitive situation even ifhe is alone in his field.⁽¹⁾ >Entrepreneurship/Schumpeter. Tradition: Baumol states, we can generally conclude simply that markets with more small firms are better (or more effcient) than those with fewer large firms. >Competition/Baumol. SchumpeterVsBaumol/SchumpeterVsTradition: Joseph Schumpeter was one of the first economists to question this standard description and indeed viewed this traditional framework as being somewhat misleading. After discussing the widespread increase in prosperity and economic development that occurred throughout the last few centuries prior to his writing Capitalism Socialism and Democracy (CSD)⁽¹⁾, he notes: „As soon as we go into details and inquire into the individual items in which progress was most conspicuous, the trail leads not to the doors of those firms that work under conditions of comparatively free competition but precisely to the doors of the large concerns ... and a shocking suspicion dawns upon us that big business may have had more to do with creating that standard of life than with keeping it down.“ (CSD⁽¹⁾: 82) Sobel/Clemens: Schumpeter's view of actual economic history, which was formative of his views of how the economy actually worked, was more a picture of progress based on innovation that had been produced in reality by industries dominated by larger firms. >Innovation/Schumpeter. Perfect competition/Schumpeter: Schumpeter viewed actual cases of both perfect competition and monopoly as being rare: "If we look more closely at the conditions ... that must be fulfilled in order to produce perfect competition, we realize immediately that outside of agricultural mass production there cannot be many instances of it" (CSD⁽¹⁾: 78-79); and similarly, "it becomes evident immediately that pure cases of long-run monopoly must be of the rarest occurrence and that even tolerable approximations to the requirements of the concept must be still rarer than are cases of perfect competition" (CSD⁽¹⁾: 99). >Monopolies, >Monopolistic competition, >Perfect competition. Sobel I 18 In Schumpeter's view, the most important aspect of the true competitive process was not really the count of the number of existing firms in the industry (which is the dimension on which the traditional continuum is built in microeconomics). Instead, it was whether it is easy for new firms to enter and compete With (and displace) existing firms. In other words, Schumpeter focused on the degree to which there were barriers in place for new firms to be created or existing firms to enter existing markets. If we return to the opening quotation for this chapter, we see Schumpeter eschewing the standard "traditional" or "textbook" notion of competition in favour of one in which it is the competition from new goods or technologies that matters. In fact, Schumpeter continues with the following passage: „the competition from the new commodity, the new technology, the new source of supply, the new type of organization ... [t]his kind of competition is as much more effective than the other as a bombardment is in comparison with forcing a door, and so much more important that it becomes a matter of comparative indifference whether competition in the ordinary sense functions more or less promptly; the powerful lever that in the long run expands output and brings down prices is in any case made of other stuff.“ (CSD⁽¹⁾: 84-85) Sobel I 19 SchumpeterVsTradition: Thus, the ability of new firms, goods, and technologies to enter and compete with existing firms, and to displace them ihrough the process of innovation and creative destruction thfough time - or at lease ihe threat of it - was a much more important aspect of real-world competition and progress than textbook models of price competition between firms. Sobel/Clemns: How then does Schumpeter rectify his conclusion with the accepted wisdom that competitive markets generally produce better outcomes than industries with fewer larger firms or monopoly? He justifies his position by differentiating between outcomes at a point in time compared to outcomes over a longer time. Schumpeter argues: „First, since we are dealing with a process whose every element takes considerable time in revealing its true features and ultimate effects, there is no point in appraising the performance of that process [at] a given point of time; we must judge its performance over time, as it unfolds through decades or centuries. A system - any system, economic or other - that at every given point of time fully utilizes its possibilities to the best advantage may yet in the long run be inferior to a system that does so at no given point of time, because the latter's failure to do so may be a condition for the level or speed of long-run performance.“ (CSD⁽¹⁾: 83) In a nutshell, Schumpeter's assessment leads him to conclude: "In this respect, perfect competition is not only impossible but inferior, and has no title to being set up as a model of ideal effciency" (CSD⁽¹⁾: 106). >Perfect competition/Schumpeter. 1. Schumpeter, Joseph A. (1942). Capitalism, Socialism, and Democracy [CSD]. Harper & Brothers. pp.84-85. - - - Brocker I 255 Competition/Schumpeter: Schumpeter's thesis: In the economic process of creative destruction, it is not only the visible but above all the invisible competition of potential competition that counts⁽¹⁾ and that for capitalism's innovative performance it is not the static dimension of price competition but the dynamic dimension of quality competition that is of overriding importance⁽²⁾. >Innovation, >Progress, >Creativity. 1. Joseph A. Schumpeter, Capitalism, Socialism and Democracy, New York 1942. Dt.: Joseph A. Schumpeter, Kapitalismus, Sozialismus und Demokratie, Tübingen/Basel 2005 (zuerst: Bern 1946).S. 60, 140. 2. Ebenda S. 139. Ingo Pies, „Joseph A. Schumpeter, Kapitalismus, Sozialismus und Demokratie (1942)“ in: Manfred Brocker (Hg.) Geschichte des politischen Denkens. Das 20. Jahrhundert. Frankfurt/M. 2018 _____________ Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.	EconSchum I Joseph A. Schumpeter The Theory of Economic Development An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle, Cambridge/MA 1934 German Edition: Theorie der wirtschaftlichen Entwicklung Leipzig 1912 Sobel I Russell S. Sobel Jason Clemens The Essential Joseph Schumpeter Vancouver 2020 Brocker I Manfred Brocker Geschichte des politischen Denkens. Das 20. Jahrhundert Frankfurt/M. 2018

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