Policy and Complex Systems
steady state and cause economic discontinuities . Finally , the emergence of credit-providing institutions plays a key role in stimulating entrepreneurial activities . In his view , it is the credit-providing institutions that take risks by providing funding to entrepreneurs .
Debating Schumpeter
The debate over the relevance of
Schumpeter ’ s theory to emerging countries started with the publication of Ragnar Nurkse ’ s 1953 book , Problems of Capital Formation in Underdeveloped Countries . The timing is particularly important . Many of the major development planning efforts initiated by the United Nations ( UN ) and other international development agencies were just starting to take shape . 22 Nurkse is recognized as one of the founding fathers of classical development economics who worked with the League of Nations on the transition from peace to war . He was an advocate of a “ big push ” for large-scale investment in emerging countries to start and sustain the development process .
In grappling with the issue of emerging countries , he argued that “ Schumpeter ’ s theory seems to … provide the mould which we must use , although we may use it with slightly different ingredients .” 23 He based his reasoning on the important role that Schumpeter assigns to “ the creative entrepreneur , or rather to the action of considerable numbers of such entrepreneurs and their imitators , carrying out innovations , putting out new commodities , and devising new combinations of productive factors .” 24
Nurkse was particularly interested in the capital formation impact of the diffusion of technology across different industries . “ Even if an innovation tends each time to originate in one particular industry , the monetary effects of the initial investment … are such as to promote a wave of new applications of capital over a range of different industries .” 25 He drew inspiration from Schumpeter ’ s contention that it is the “ avalanche of consumers ’ goods that permanently deepens and widens the stream of real income although in the first instance they spell disturbance , losses , and unemployment .” 26
Nurkse believed that a “ frontal attack ” with “ a wave of capital investments in a number of different industries … can economically succeed while any substantial application of capital by an individual entrepreneur in any particular industry may be blocked or discouraged by the limitations of the pre-existing market .” 27 He envisaged that such an approach would create conditions for mutual support among a diverse range of entrepreneurs .
Nurkse recognized the importance of modifying Schumpeter ’ s ideas to suit new geographical locations . He pointed out that defeating the forces that reinforce
22
See , for example , A . Staples , The Birth of Development : How the World Bank , Food and Agriculture Organization , and World Health Organization Changed the World , 1945 – 1965 ( Kent , OH : Kent State University
Press , 2006 ).
23
R . Nurkse , Capital Formation in Underdeveloped Countries ( New York : Oxford University Press , 1953 ), 12 .
24
Ibid ., 13 .
25
Ibid ., 13 .
26
J . A . Schumpeter , Capitalism , Socialism and Democracy ( New York : HarperCollins , 1942 ; reprint , with an introduction by Thomas K . McCraw , 2008 ), 68 .
27
Nurkse , Capital Formation in Underdeveloped Countries , 13 .
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