NOTTINGHAM TRENT UNIVERSITY

"Revisiting Schumpeter's Theory of Innovation: Contemporary

Perspectives from the UK Legal Lens"

Innovation is becoming a critical component of successful entrepreneurship especially in

today's competitive markets, digital innovation is necessary to expand business. For the
growth of country economy and significant transformation of society, the adoption of digital
technology has proven to be highly beneficial for business in all the sector’s especially in
legal sector. A continuous increase in a country's average income per person and the things
people consume and enjoy, like better living standards, shows economic development or
progress. There's a global competition for this progress, and countries like the United
Kingdom, for instance, with 22 percent of its population living in poverty and a population of
about 67.89 million in 2024, are striving to become stronger economies.1 The UK's goal is to
boost its current GDP of 2.27 trillion British Pounds. To achieve this growth, entrepreneurs
play a crucial role. They constantly create new technologies to make life better. As the world
evolves, we move from meeting basic needs to enjoying more comfort, luxury, and even
super-luxury items. In the contemporary era of advancement of technology the laws which
are related to that field like “intellectual property rights, Data protection and privacy law,
competition law, etc.” also change with it to give a safe experience to its citizens from
criminals. However, the Intellectual Property Rights give potential ground to put to innovate,
as said in the case of Apple vs. Samsung Electronics Co., Ltd. (2012)2, a patent dispute
between tech giants Apple and Samsung over smartphone designs and features. The case
highlighted the importance of intellectual property protection in the tech industry and the
potential for such disputes to shape innovation and competition. Data Protection which
includes information that can directly identify an individual, such as location data, online
identifiers (IP addresses), or factors specific to the physical, and psychology of a person, as
said in the case of Google Inc. vs. Information Commissioner’s Office (2014). The UK's
Information Commissioner Officer looked into Google's Street View mapping project and
discovered that it had gathered personal data from unsecured Wi-Fi networks without
permission, including emails and browsing history. Google agreed to improve its policies and
provide its staff training to the concern raise. The case underscored the need for consent in
data collection and the role of authorities in enforcing data protection laws. Its attempts to
combat entropy and improve organizational effectiveness are included in the field of
entrepreneurship. We've seen that digital innovation really boosts GDP growth, helps
companies perform better, and makes them more competitive.
In the United Kingdom, the landscape of innovation and entrepreneurship has undergone
significant changes in recent times like Regulatory Framework for Startups, Intellectual
Property (IP) Laws, Data Protection and Privacy, Investment and Funding Regulations,
Support for Sustainable and Socially Responsible Business, Brexit Implication, Legal Tech
and Innovation etc. The implication of Brexit (Britain's exit from the EU) means that new
trade agreements and tariffs have to be negotiated between the EU and the UK. The UK is
considered to be among the most fintech-friendly nations in the world because of its
regulatory framework, investor friendly policy and tax benefits, and in 2022 it was rated
second after US as the most sought favourable location for fintech investment worldwide. 3
1
Johns, S. G. (2022). Overview of the UK population. In Office for National Statistics. Retrieved April 20,
2024, from https://www.ons.gov.uk/releases/overviewoftheukpopulation
2
Apple Inc. vs. Samsung Electronics Co. Limited (10.12.2012 - AUFC) : MANU/AUFC/0391
3
Tech Desk, SC order against Google a landmark decision, say Indian companies,[2023],2
UK as a whole is becoming the hub of diverse range of companies which are establishing
their headquarter and assembly line which eventually help companies at different phases of
development and expansion. The government-backed HSBC's recent acquisition of Silicon
Valley Bank's UK operations may have strengthened the UK's reputation as a hub for
technology and innovation.4
An economy is subject to change due to a multitude of variables. Development and growth
are two of the most significant figure for the growth of business. These entail the introduction
of novel goods, efficient methods, or technological advancements into the economy. Joseph
A. Schumpeter, an economist renowned for his work on innovation and entrepreneurship,
analyzed these aspects of economic theory. The theory of creative destruction and
Schumpeter's philosophy are introduced in this entry. He is frequently given credit for
developing the current growth hypothesis, which is predicated on the unavoidable byproduct
of invention and development. Austria gave birth to the legendary figure in national
development, Joseph Alois Schumpeter (1883–1950), who was a blessing to the nation, under
the Hapsburg Empire, at the time of Karl Marx's death, Joseph Alois Schumpeter (1883-
1950) got his education and professional degree in Austria, Germany, and the United States.
He studied at Harvard University in the United States from 1935 to 1950. He was a biggest
supporter of innovative entrepreneurship. However, his most significant early work focused
on the Theory of Economic Development (TED).5 This theory is essentially the opposite of
Marx's Das Kapital. Schumpeter believed that capitalism doesn't face collapse but rather
evolves and strengthens over time, driven by innovative entrepreneurs who continuously
propel the economy forward with their innovations. Thus rendering concepts like doomsday
scenarios or proletarian revolutions irrelevant.

“Some people see innovation as change, but we have never really seen it like that. It’s making
things better.” Tim Cook, Apple CEO.6 After the pandemic, the United Kingdom like
everyone else, UK also faced some really tough economic challenges along with the rest of
the world. Investments in innovation undertaken by the UK for pandemic recovery will play a
crucial role in achieving a future where the nation is cleaner, healthier, and more prosperous.
The UK has a long history of using inventions to change the world. From the Industrial
Revolution to recent breakthroughs in vaccination, these innovations have had a huge impact
on our lives. The next few years are really important for the UK's future success. That's why
the government has launched "Build Back Better: Our Growth Plan," focusing on innovation,
skills, and infrastructure to boost the economy.

This comes at a crucial time due to various factors:

Brexit:

In the case of Miller & Anor vs. The Secretary of State, which went before the UK Supreme
Court in 2016, the issue was whether the government could activate Article 50 of the Treaty
on European Union without getting approval from Parliament. The Supreme Court decided
that Parliament's approval was indeed necessary for triggering the exit from the EU. The

4
ICLG. (2023, July 12). Fintech Laws and Regulations United Kingdom 2023-2024. ICLG.com. Retrieved
April 22, 2024, from https://iclg.com/practice-areas/fintech-laws-and-regulations/united-kingdom
5
Bögenhold D, “Schumpeter, Joseph A. (1883–1950)” [2007] Research Gate 1
<https://www.researchgate.net/publication/325097683_Schumpeter_Joseph_A_1883-1950>
6
EADICICCO, L. (2015, October 15). The 13 best quotes from Apple’s Tim Cook on innovation and
leadership. Inc. Com. Retrieved April 22, 2024, from https://www.inc.com/business-insider/best-quotes-tim-
cook.html
departure of UK from the EU necessitates creating products and services that are successful
globally and align with UK values. This involves creating an immigration system to attract
global talent and securing trade deals to share innovations.
The COVID-19 pandemic has disrupted the economy, but it also presents opportunities for
ambitious investment in science, technology, and innovation. Other countries are investing
heavily in innovation, necessitating a more focused approach to supporting innovation in the
private sector. The government has committed to making innovation central to its agenda
through initiatives such as the Science Superpower agenda, the Integrated Review, and the
Defence and Security Industrial Strategy. Innovation is viewed as crucial for economic
prosperity and is one of the pillars of the government's plan for growth.
The Innovation Strategy aims to turn the UK into a top destination for innovation on a
worldwide scale unleashing business innovation, attracting talent, ensuring research
institutions meet business needs, and driving innovation to tackle major challenges. The
strategy outlines steps to achieve these goals and measure success. Transformative industrial
changes, such as advancements in Artificial Intelligence (AI) and quantum technology,
requires the UK to secure leadership in these areas for growth and prosperity. In the case of
Donaldson vs Beckett7, which laid the foundation for copyright law in the UK. The UK wants
to make sure that intellectual property (IP) rights, like patents and copyrights, are protected
well both at home and internationally. Why? Because IP is super important for our economy.
It helps businesses grow and encourages new ideas and inventions.

So, the UK has three main goals:

 Fixing International Rules: We want to improve the way IP is handled worldwide. This
means making it easier for businesses to get patents and speeding up the process,
especially in places like China and India where there are a lot of delays. We also want to
make sure the rules for IP in Europe are good for UK businesses.
 Better Rules at Home: We're working on making sure the rules for IP in the UK are
strong and fair. The IP rather talk only about ideas but protect the extent to the expression
of ideas, as said in the case of Donoghue vs Allied Newspapers Ltd. This includes making
sure laws are enforced properly and helping UK businesses deal with IP issues in other
countries.
 Helping Everyone Growth: We want to balance the rules so that they help both rich and
poor countries. This means supporting countries that are still developing and making sure
they can access important things like medicine and technology. In covid era there was a
case that involved disputes over the supply of COVID-19 vaccines and contractual
obligations called AstraZeneca vs. European Commission8. In this case of intellectual
property rights (IPR) in medicine and technology it underscored the importance of IP
rights, including patents, in vaccine development, distribution, and access. Issues related
to patent licensing, technology transfer, and equitable access to vaccines have been
central in discussions surrounding COVID-19 vaccines. Overall, the goal is to have a
system where everyone's ideas are protected, which encourages creativity and helps the
economy to grow.

Schumpeter’s theory of innovation was analyzed within the context of modern-day UK

77
Rose, M. (1988). The author as proprietor : Donaldson V Becket and Genealogy of Modern Authorship.
JSTOR, 23, 51–85. https://www.jstor.org/stable/2928566
88
AstraZeneca. (2021, June 21). AstraZeneca welcomes court ruling on supply of its COVID-19 vaccine to
Europe. Retrieved April 22, 2024, from
https://www.astrazeneca.com/media-centre/press-releases/2021/astrazeneca-welcomes-court-ruling-on-supply-
of-its-covid-19-vaccine-to-europe.html#
Joseph Alois Schumpeter was among the top economist in the early 20th century. Following a
time in which traditional economic theories were frequently questioned, Schumpeterian
economics was regarded as exceedingly broad in the early 1980s. These days, as economies
battle with financial and debt problem, they're also becoming more focused on knowledge
and information rather than just physical resources. This shift is driven by globalization and
the increasing importance of intangible things, like ideas and innovation. Schumpeter's
impact on innovation far outweighs that of earlier pioneers, even though the term innovation
was being used for unconventional things as far back as the late 1880s. He argues that
customers preferences are set and don't naturally evolve. This suggests that they don't drive
economic shift. Additionally, consumers do not plays an active role in economic progress.

Schumpeter described development as a historical journey where big changes happen because
of innovation. He talked about five main types of innovation:
1. Introducing a new product or improving an existing one.
2. Using new ways to make or sell a product.
3. Finding and entering into new markets.
4. Getting new places to get the materials needed to make things.
5. Changing how industries are structured, like creating or breaking up monopolies.9

According to Schumpeter, innovation is the key to make money. Innovation will lead to using
the existing ways we produce things in the economy in new and different ways. A country
like South Korea illustrates the Schumpeter theory of innovation, with the modification of its
IT companies it revolutionized its economy, companies like Samsung, LG, and Hyundai,
have transformed itself into world's most innovative companies over the past few decades.
Schumpeter believed that innovation plays a crucial role in how economies dynamic and
compete with each other. He coined the term "creative destruction" in his book "Capitalism,
Socialism, and Democracy" to describe how innovation drives economic progress by
replacing old industries and methods with new ones.10 In simpler terms, innovation shakes
things up by introducing new ideas, technologies, and ways of doing things, which can both
create and destroy existing economic structures. This constant process of renewal is what
propels economic development forward. Schumpeter describes innovation as the ongoing
transformation of the economic structure, constantly revolutionizing it from within by
dismantling the old and establishing the new. IBM is the best example which shows
dismantling is an important tool to go with the change and survive in the market, IBM began
by producing punch card tabulating machines, time clocks, and other business-related gear.
IBM became a major player in the computing industry over the years, introducing
innovations like the mainframe and the personal computer. Under the direction of CEO Lou
Gerstner, IBM started a dramatic transformation process in the early 1990s to redefine the
company for the digital era. IBM took the audacious choice to demolish the old and build the
new by changing its emphasis from hardware to software and services, as opposed to clinging
to its heritage businesses. With a diverse portfolio of software, services, and solutions tailored
to meet the changing demands of its clients in the digital age, IBM is a reinvented company. 11
99
Markus C. Becker, Thorbjørn Knudsen & Richard Swedberg. (2012). Schumpeter’s Theory of Economic
Development: 100 years of Development. Journal of Evolutionary Economy, 22, 917–933.
https://link.springer.com/article/10.1007/s00191-012-0297-x
10
NICHOLAS T, “Why Schumpeter Was Right: Innovation, Market Power, and Creative Destruction in 1920s
America” (Harvard Business School) <https://www.hbs.edu/ris/Publication%20Files/JEH03_237b9530-3add-
40c3-b74b-cb9c3cd43360.pdf>
11
Tefi, Alonso. (2022, December 5). How IBM became a multinational giant through multiple business
transformations. Strategy Factory by Cascade. Retrieved April 22, 2024, from
https://www.cascade.app/studies/how-ibm-became-a-multinational-giant-through-multiple-business-
Schumpeter divided the process of innovation into four categories: limitation, diffusion,
innovation, and invention. Schumpeter's theory puts entrepreneurs at the heart of economic
development. He believes that entrepreneurs create new opportunities for investment, growth,
and jobs by taking the ideas of scientists and inventors and turning them into practical
businesses. According to Schumpeter, how these ideas spread and are used is more important
for the economy than just coming up with new ideas in the first place.

Schumpeter’s First Entrepreneurship Theory

A distinctive viewpoint on the function of entrepreneurs in promoting economic progress,
notably through innovation, is provided by Schumpeter's First Entrepreneurship theory.
Before the development of Schumpeter's theory, economists like Jean-Baptiste Say and
Richard Cantillon established the foundation for the notion that entrepreneurship is the
planning, directing, and control of commerce or production. However, the Schumpeter’s
theory of entrepreneurship is deviated from conventional theory and started focusing on
entrepreneurial role as a tool of innovation in the country.
In Schumpeter’s view, the individuals who start a business or bring innovation into it are
made possible by the mere combination of forces of production, where innovation plays a
major role in accelerating the economic progress of the country. If we take the example of
Amazon, which revolutionized the internet experience for customers in purchasing or selling
goods, it's clear that Amazon utilizes different forces of production like the power of the
internet, user generated content, and e-commerce. Although entrepreneurs are not only
organizers or supervisors of production but also concentrate on the roles and activities
associated with innovation. Furthermore, innovators should have the ability to take advantage
of new technology and open up new markets. These are the new aspects of Schumpeter which
highlight the dynamic role of the entrepreneur’s.
According to Schumpeter's idea, people who bring novel combinations to the economy may
be better referred to as innovators rather than entrepreneurs. Still, the idea of the
"Schumpeterian entrepreneur" has solidified in modern economic theory, despite some
conceptual ambiguity.12 Schumpeter's theory highlights the role of banks and the banking
system in facilitating entrepreneurship by providing funding for innovative ventures. This
underscores the need of banking institutions in supporting economic innovation and
development. As in the case Barclays Bank plc v. Quistclose Investments Ltd 1970,13 the
House of Lords examined the need for financial institutions in the country, the case highlights
how important financial institutions are to maintain legal rights, promoting economic
innovation, and developing the economy by controlling risks and supplying financing for
business activities.
According to Schumpeter, there are three primary reasons why people engage in
entrepreneurship, the desire to establish their realm or empire, the need for competitive
advantage and money, and the satisfaction that comes from creating or succeeding.14 These
motivations highlight the variety of incentives that encourage risk-taking and innovation
among entrepreneurs. Schumpeter's theory, entrepreneurship is a dynamic process rather than
a static one. As entrepreneurs continually generate fresh ideas and configurations, their
entrepreneurial role may evolve from initiating ventures to overseeing established companies.
Schumpeter's First theory of entrepreneurship offers a sophisticated perspective on the role
transformations
12
G. Carayannis, E. (Ed.). (n.d.). Encyclopedia of Creativity, Invention, Innovation and Entrepreneurship.
Springer Link. https://link.springer.com/referencework/10.1007/978-3-319-15347-6
13
Barclays Bank plc v. Quistclose Investments Ltd [1970]
14
Joern H. Block, Christian O. Fisch & Mirjam Van Praag. (2016). The Schumpeterian Entrepreneur: A review
of the empirical evidence on the antecedents, behaviour and consequences of innovative entrepreneurship.
Taylor & Francis Online, 24(1), 61–95. https://www.tandfonline.com/doi/full/10.1080/13662716.2016.1216397
that entrepreneurship plays in promoting innovation-driven economic progress. Schumpeter's
theory highlights how entrepreneurship isn't just about starting businesses but about being
innovative and driving change. Entrepreneurs are seen as the ones who come up with new
ideas and technologies, pushing the economy forward.

Schumpeter’s Second Entrepreneurship Theory

In the 1930s, Schumpeter started to diverge from his prior entrepreneurship theory,
culminating in the presentation of a completely distinct theory by the end of the decade. It is
evident, for instance, in the 1942 book “Capitalism, Socialism, and Democracy”.15
Schumpeter didn't focus much on the entrepreneur as defined in the Theory of Economic
Development in his theory of how capitalism evolves. Instead, he emphasized innovation
much more than he did entrepreneurship in Business Cycles. Schumpeter laid out a fresh
perspective on entrepreneurship. He discussed how entrepreneurship fits into economic
history, the challenges of economic growth, and how economic theory intersects with the
history of entrepreneurship and business cycles. Essentially, he offered new ideas about what
entrepreneurship is and how it shapes economies over time.
Schumpeter does not establish the entrepreneur as the axis around which all other ideas
revolve in the new theory. The banker-entrepreneur relationship was also viewed differently.
Schumpeter abandoned his unilateral inclusion theory, which was based on observations
made in Central Europe in the early 20th century, due to the impact of the American
experience.16 The idealized view of the banker as the most powerful figure in the capitalist
economy a representative of society qualified to grant financial backing to creative endeavors
undertaken by entrepreneurs is supplanted by the contemporary, impersonal, cautious bank,
which embarrasses innovators trying to maintain control over their enterprise.
Then, Schumpeter's theory which he had detailed in his most recent articles was largely
disregarded. A contributing factor to this response was the fact that Schumpeter began
succinctly stating the necessity of approaching economic history from a theoretical
economics perspective. Furthermore, Schumpeter stated in recent lectures that the
employment of mathematical models in the study of business cycles is comparatively
cognitively barren, and that of the three approaches of cycle research theoretical, statistical,
and historical. The last is unquestionably the most helpful.
These claims startled modern American economists, who at the time firmly believed that the
advancement of economic science was inseparably tied to the ongoing extension of
mathematical techniques. It was incredible to hear these remarks from an economist who co-
founded the first econometric society in history and spent nearly half of his life emphasizing
the value of using mathematical techniques. Importantly, Schumpeter vehemently disagreed
with the other extreme, which is to reduce the economy to abstract mathematical models
while completely ignoring institutional analysis, empirical research, and historical
perspectives. Schumpeter expressed his bitterness in the final years of his life article
"Economists tend to regard as non-existent all natural phenomena that are not quantitative,
and occasionally even those that are immeasurable, because of human weakness."

15
A. Almond G, “Capitalism and Democracy” (1991) 24 JSTOR 467 <https://www.jstor.org/stable/420091?
read-now=1#page_scan_tab_contents>
16
Callegari B, “The Finance/Innovation Nexus in Schumpeterian Analysis: Theory and Application to the Case
of U.S. Trustified Capitalism” (2018) 28 Springer Link 1175 <https://link.springer.com/article/10.1007/s00191-
018-0601-5>
Relevance of Schumpeter’s theory in contemporary society
Focus of Schumpeter was on Disruptive innovation, entrepreneurship, policy implication, etc.
According to Schumpeter's theory of innovation, entrepreneurs play a crucial role in
advancing economic growth by introducing novel goods, systems, and technological
advancements.17 He used the phrase "creative destruction" to characterize how innovation
established markets and industries, causing established businesses to fade away and new ones
to flourish. Schumpeter's observations are still very applicable in the fast-paced, knowledge-
based economy, globalization, and fast-changing technology of today's business world. In the
modern world, entrepreneurship, technical innovation, and policy implications must be
understood to promote economic growth and competitiveness.
In this contemporary society, Big multi-billionaires like Elon Musk and Jeff Bezos have
disrupted the traditional industry through their bold vision and innovative approach.
Businesses like SpaceX and Tesla, founded by Elon Musk, and Amazon, owned by Jeff
Bezos, have completely changed industries in ways that are consistent with Schumpeter's
theory of innovation.
Disruptive innovation is exemplified by Elon Musk's endeavors in multiple significant ways.
First off, by creating reusable rocket technology, cutting space exploration costs significantly,
and taking on long-standing players like NASA and conventional aerospace businesses,
SpaceX has completely transformed the space sector. Musk's goal of lowering the barrier to
space travel has upended the idea that space exploration is the exclusive purview of
governmental organizations.
With Amazon, which began as an online bookshop and has now grown into a massive e-
commerce platform with a wide range of goods and services, Jeff Bezos revolutionized the
retail sector. Amazon changed the way people purchase by displacing traditional brick-and-
mortar shops and established new worldwide standards for e-commerce with its unwavering
focus on the customer experience, effective logistics, and data-driven personalization.
Furthermore, Bezos's ambition went beyond retail to encompass businesses like Amazon
Web Services, a trailblazer in cloud computing services that revolutionized the technology
infrastructure market. The pay-as-you-go, scalable model of Amazon Web Services allowed
businesses and startups to use computer resources more effectively, upending established
providers of IT infrastructure and spurring innovation in a variety of industries.
Bezos and Musk both exhibit Schumpeterian entrepreneurship by bringing disruptive
innovations, upending conventional wisdom, and drastically altering entire sectors. Their
accomplishments provide as further evidence of the lasting value of Schumpeter's theory of
innovation in explaining how entrepreneurs propel economic advancement by pursuing new
opportunities ceaselessly and engaging in creative destruction.

The theory of Schumpeterian is however applicable to the legal domain also, a relevant
instance can be observed in the development of legal technology, commonly known as Legal
Tech. The conventional paradigm of the legal sector has been defined by high prices for legal
services, reliance on paper paperwork, and manual processes. However, the emergence of
Legal Tech entrepreneurs has upended this environment by bringing cutting-edge
technologies that increase efficiency, improve access to Justice, and expedite legal
procedures. The innovation in technology has helped law firms to offer legal services to their
respective clients. Many websites have developed themselves to assist legal attorneys by
providing necessary legal documents, wills, trademark registrations, etc. From creating 'to-do

17
Callegari B, “The Finance/Innovation Nexus in Schumpeterian Analysis: Theory and Application to the Case
of U.S. Trustified Capitalism” (2018) 28 Springer Link 1175 <https://link.springer.com/article/10.1007/s00191-
018-0601-5>
lists' with 'Wunderlist' to drafting legal documents with 'AdvocAI', entrepreneurs have
innovated in all fields and democratized access to the legal field.
In addition, artificial intelligence has made the task easier for attorneys with case analysis and
legal research. Innovators have developed technologies like LexisNexis and SCC Online,
which use their technology to extract and sort legal databases. They also help attorneys to
make decisions in less time, as AI has increased efficiency and accuracy. Therefore, it has
become a necessary tool to improve legal practitioner’s skills.
These examples adequately represent Schumpeter’s idea of innovation in the legal sector. The
impact of Legal Tech has brought about disruptive innovation in many ways, as Legal Tech
firms introduced radically new technologies and business models that were counter to the
norm and practice. The emergence of Legal Tech made the market more competitive and
lowered entrance barriers. Established legal firms were forced to change as the market
dynamics shifted. Spotting areas for innovation in the legal sector and creating cutting-edge
solutions to fill them, founders of Legal Tech embody Schumpeterian entrepreneurship. The
example of Legal Tech proves how vital risk taking, inventiveness, and entrepreneurial vision
are for driving change and progress. Schumpeter’s theory of creative destruction is evident in
the manner proven legal service providers and their operating establishments have been
replaced as a consequence of the emergence of Legal Tech. Indeed, with the new crop of
firms already established, the latter of which are welcoming innovation while the former may
face difficulty embracing the change.
Therefore, Legal Tech’s implications for policy are large and involve numerous issues
regarding Regulatory Frameworks, ethics, and Access to justice. It will remain the
responsibility of the state legislature to address points such as data privacy, algorithmic
prejudice, and the unauthorized practice of law, all while preserving innovation and consumer
protection. The law evolves at a slower pace, but it is not unlike the economy does not obey
the same laws of change or creative destruction as the businesses Schumpeter explained so
well. At the end of the day, Schumpeter’s ideas will define the future of not just their own
subject but also the political economy and technological discipline as well.

Updating Schumpeter's Theory: Addressing Modern Challenges and

Enhancing Understanding of Entrepreneurship
While Schumpeter’s theories on innovation have become quite popular and still remain
relevant in many cases, there might be certain moments at which they should be reconsidered
and, if necessary, updated. The first issue is that the entrepreneur sometimes acts in terms of
the creative destruction theory. The second point is that the market is often presented as a
static equilibrium. Modern economic theory, however, contends that markets are
fundamentally dynamic, non-equilibrium systems.18 The dynamic nature of markets, where
innovation and change are constant elements, can be reflected in Schumpeter's theory through
the incorporation of concepts from complexity theory and agent-based modeling. If, for
instance, a powerful business in an industry uses its influence to quash competition and
hinders innovative entrepreneurs from entering, there is no dynamic equilibrium for new
entrants to vie with established players. Consequently, without this equilibrium, the
dominating business might engage in anti-competitive behavior such as predatory pricing or
exclusive dealing. The companies affected might then bring legal action or be investigated by
regulators under competition mandates, which they violated, asserting they were victims of
mistreatment. In turn, that negatively impacted consumers. Schumpeter’s theory is frequently
criticized for not paying enough attention to the role of institutions in entrepreneurial
18
Joern H. Block, Christian O. Fisch & Mirjam Van Praag. (2013). The Schumpeterian Entrepreneur: A review
of the empirical evidence on the antecedents, behaviour and consequences of innovative entrepreneurship.
Taylor & Francis Online, 24(1), 61–95. https://www.tandfonline.com/doi/full/10.1080/13662716.2016.1216397
behavior and economic development. In contrast, during the last decades, institutional
economics has shown that institutions play a crucial role in encouraging and discouraging
entrepreneurship. The introduction of such an amended Schumpeterian theory that considers
the impact of institutions can have the effect of a fundamental reform in the understanding of
economic processes. The world has drastically changed since Schumpeter’s time because of
globalization. Entrepreneurs are provided with new markets and opportunities by
globalization. Technical advancements have speed up the pace of invention and reduced the
monetary cost of doing so. To understand the dynamics of the modern economy,
Schumpeter’s theory must be redesigned to include these modern advancements.

Schumpeter’s theory is deficient in explaining how financial markets and capital availability
strengthen entrepreneurship. Funding creative projects and expanding profitable companies
are both heavily reliant on entrepreneurial money. By integrating knowledge from the finance
and capital markets, to get a more accurate description of the entrepreneurial process.
Schumpeter's theories, while influential, often overlook the long-term sustainability impacts
of innovation and creative destruction. Instead, they tend to focus on the short-term dynamics
of these processes. However, in today's world, we face urgent challenges such as social
inequality and environmental degradation that cannot be ignored. Take, for instance, the case
of Client Earth, R vs The Secretary of State for the Environment, Food and Rural Affairs, 19
where the Court emphasized the importance of meeting the nitrogen dioxide limits to protect
human health and the environment, and deemed it necessary to enforce compliance through
the preparation of new air quality plans. By incorporating sustainability concerns into
Schumpeter's theory, we can develop a more holistic framework for evaluating the impacts of
entrepreneurial activity.

Schumpeter's theory frequently views business owners as logical agents motivated only by
financial gain, ignoring the impact of psychological issues, cultural norms, and personal
incentives on entrepreneurial conduct. While money could be a big incentive, other things
like a sense of purpose, autonomy, or a passion for innovation could also play a role in their
decision to become an entrepreneur. Understanding the diverse aspects of entrepreneurial
motivation helps us better comprehend the intricate dynamics influencing innovation and
economic change in today's corporate environment. Nonetheless, sociological and
psychological researches indicates that these variables have a big impact on how
entrepreneurs behave. We can gain a better knowledge of the many motivations and actions
of entrepreneurs by integrating them into Schumpeter's theory.
The importance Joseph Schumpeter placed on innovation, entrepreneurship, and creative
destruction as forces behind economic growth has long been praised in his theory of
economic development. Nonetheless, Schumpeter's theory is sometimes criticized for its
propensity to ignore the impact of psychological issues, societal standards, and personal
incentives on entrepreneurial behavior. Schumpeter often presents entrepreneurs as logical
individuals motivated just by self-interest, ignoring the intricate interactions between
psychological, social, and cultural elements that influence entrepreneurial behavior. The core
idea of Schumpeter's theory of entrepreneurship is that of an innovator who upends
established markets by launching novel goods, procedures, or business schemes.
Schumpeter believes that what mainly drives entrepreneurs is their ambition to seize market
opportunities and make profits. But recent research in psychology and sociology shows that
there's more to it than just money. Things like overconfidence, fear of failure, and aversion to

19
R vs. The Secretary of State for the Environment, Food and Rural Affairs (01.05.2013 - UKSC) :
MANU/UKSC/0025/2013
risk also have a big influence on why people choose to become entrepreneurs.20 For instance,
entrepreneurs often take more risks and have more confidence in themselves than others do.
To understand entrepreneurship and economic development better, we need to think about
how psychological issues, cultural norms, and personal motivations fit into Schumpeter's
ideas. If we realize that entrepreneurs are complex people shaped by many different factors
not just money we can really understand why they do and what they do. Ultimately, taking
this broader view, we might find new ways to encourage innovation, growth, and success in
our economies by adopting a more inclusive conception of entrepreneurship.

20
Silja Hartmann, Psychological resilience of entrepreneurs: A review and agenda for future research, [2022],
Volume 60, Taylor & Francis Online
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