Thursday, 20 October 2011

From Schumpeter to Steve Jobs - The Endurance of the Entrepreneurial Spirit

This is a continuation of our study of Schumpeter's Concept of Innovation.

We saw in our major piece on “Nietzsche, Schumpeter, Menger” (just search this site using facility provided) how Schumpeter mis-interprets Weber’s concept of “rationalisation”, mis-taking it for “scientization” as against “normative conduct”. Schumpeter’s aim in the ‘Theorie der wirtschaftlichen Entwicklung’ is to discover “scientifically” what he calls “the trans-formation mechanism” (Veranderungs-mechanismus) of the capitalist economy that allows it to change “form”, “to grow” from its “static equilibrium” to a new, dif-ferent equilibrium that is reached “dynamically” not through “external or exogenous shocks” but through “internal forces”. Indeed, Schumpeter discovers that what is “specific” to the capitalist economy is precisely this ability “to trans-form” itself, to be the opposite of “static”, the opposite of “in equilibrium”, but rather to be in a constant state of “trans-formation”, of “dynamism”, of change and therefore “not-equilibrium” – to be, in short, in a state of constant “crisis”. The capitalist economy “destroys” itself by “re-creating” itself, by “re-novating” itself, by “in-novating” – and it is this process of innovation (Innovationsprozess) and of “creative destruction” (schopferische Zerstorung) that “characterises” capitalist development and “growth”.

No “Statik”, then; but constant “Dynamik”. The capitalist economy can never be described adequately through a “static model” or a “circular flow”: it does not have a precise and unique “form”, because it is in a constant state of “trans-formation”, of “crisis”! The capitalist economy thrives on “crisis”, on “creative destruction”. Its “growth” can never be understood as a “steady-state” (as in the Cobb-Douglas function) but only as “trans-crescence”, as “permanent revolution” (Schumpeter knew his Trotszky very well!). And what Schumpeter describes is exactly this “transformation mechanism” whereby the “specific difference” of capitalism from other modes of production is that it “frees” the entrepreneur, both in terms of “availability of financial resources” and in terms of “availability of material and human resources”, into constantly revolutionising the process of industrial production and therefore (!) that of consumption!

NOTE! Schumpeter does not say that capitalism is trans-formed by “the freedom of consumer choice” (as all the idiotic hagiographers of a Steve Jobs would have us believe ultimately, that is, he “knew” what we wanted but did not know we wanted it!). Quite the opposite! Schumpeter sees from the very start that it is not the “consumer” who decides in capitalist society: it is instead the “entrepreneur”, the “captain of industry”. So this is the “peculiarity” of capitalism: - the existence and empowerment of the “entrepreneurial Spirit” (Unternehmer-geist).

But here the central difficulty of Schumpeter’s entire schema comes to light: for the problem is that he has not and cannot explain how what is an entrepreneurial “spirit” can ever be reconciled with what Schumpeter had meant to identify “scientifically”, that is to say, the “mechanism (!) of trans-formation” of capitalist industry. The inconsistency here is as clear as it is insuperable: it is simply a contra-diction to argue that the specific difference of capitalism is the “scientific-mechanistic” combination of certain “institutional features” – a “mechanism of transformation” and an “innovation process” - that enable the emergence of an entrepreneurial “spirit”. No matter how much or how long we look for “spirit” in a “mechanism” or in “scientific processes”, we shall quite simply never find it!! Here Schumpeter’s misinterpretation of Weber is absolutely striking: by interpreting Weber’s “Rationalisierung” (the secularisation and “bureaucratisation” of social life under capitalism) as the replacement of “faith” and “values” with “objective science”, Schumpeter has entirely forgotten that Weber had always understood capitalism as a “Spirit” (“the spirit of capitalism”) and that its “organisation” of society was entirely “political” and subject to “leadership spirit” (leitender Geist) in all spheres of social life, and predominantly in Politics and in Science (the subject of his famous lectures on “Politics as Vocation” and “Science as Vocation”).

This entirely “political” basis of Weber’s interpretation of capitalist society and the rise of the bourgeoisie wholly and totally eludes and escapes Schumpeter! His own later “prognostication” of the eventual “obsolescence of the entrepreneur” and consequent “atrophy and decline of capitalism” is founded on this fundamental misconception of the “motor” of capitalist industry (the antagonism of the wage relation) and his substitution of it with a “voluntaristic” entrepreneurial “spirit” that in fact – already! – had been supplanted by the rise of what he himself called “trustified capitalism” in the Second Industrial Revolution of the 1870s whose “crisis” he had also correctly identified! Schumpeter correctly and sharply identifies the “critical trans-crescence” of capitalist industry and society: he correctly and adroitly intuits the social expression of “the entrepreneurial Spirit” as a “Will to Conquer” (in the ‘Theorie’).

 But Schumpeter “never” (!) understood the true social significance, impact and “social origins” of the “entrepreneurial spirit” which derives its true impetus and strength from the “Will to Conquer” of the bourgeoisie to command the living labour of workers, and whose real “necessity” is provided precisely by the impact of this antagonism on the “profitability” of capitalist investment or “enterprise”!

This is a point of fundamental importance. Following the recent demise of Apple CEO Steve Jobs, many commentators and analysts have remarked on the incorrectness of Schumpeter’s prediction about the “obsolescence and disappearance” of the capitalist entrepreneur. If by this we understand that the “entrepreneur” as Schumpeter understood it – as a free-wheeling adventurer or genius capable of “trans-forming” capitalist industry single-handedly by the sheer might of his “innovative genius” – then we can safely say that such an “entrepreneur”, such a “captain of industry” has never existed. But if instead by “entrepreneur” we understand a “figure” or “personality” that embodies the will to power of the bourgeoisie to exert and enforce its command over living labour, then clearly the capitalist “entrepreneur” will live for as long as capitalism is alive! Let us explain why.

The whole point to “capital” is to realise a “profit”. But the notion of “profit” is meaningless and without content unless this “profit” can be re-invested to command fresh living labour for fresh and expanded “profitable” production. In other words, the sole aim of capital is to accumulate social resources that can be applied to command more living labour that is formally “free” – that is to say, that is “exchanged” with its own dead objectified labour! Clearly therefore capitalist industry is a system for securing the subjugation of living labour to dead labour by means of the money wage.

What this entails is that the capitalist has two ways to realise more “profit” from capitalist production: - either to intensify the exploitation of living labour (absolute exploitation), or else to introduce new machinery for the exploitation of living labour (relative exploitation). The fact that this second method, that we call “relative exploitation”, involves also the production of new products does not detract from the reality that it is the capitalist (the entrepreneur) whose Will to Power is projected in the new technologies and the new products. Nor does it negate the fact that these new technologies and products must not emancipate workers to such an extent that they no longer feel compelled “to sell” their living labour to the capitalist in exchange for their own objectified labour in the “form” of the money wage!

In effect, therefore, Schumpeter was wrong to view the (capitalist) “entrepreneur” as an economic agent “distinct” from the “capitalist” (by which he meant the financier) in this “romanticised”, idealistic and “voluntarist” manner wholly unrealistic and inconsistent with his own aim to discover the “trans-formation mechanism” of capitalist industry and society.

Quite clearly, by predicting the obsolescence of the entrepreneurial spirit and therefore – as a consequence ! – the atrophy and demise of capitalism, Schumpeter was putting the cart before the horse, that is to say, he was confusing the cause with the effect! Because it is capitalist industry that requires the command over living labour personified by the capitalist entrepreneur, rather than the capitalist entrepreneur who as “entrepreneur” constitutes the essence of capitalism!

Differently put, we can say that it is not "the entrepreneur" that defines capitalism: rather, it is the wage relation, the essential social relation of production of capitalism, that cannot exist without   the "entrepreneurial function" - without "the capitalist"! It is the need for the capitalist to realise a "profit" that forces him to become an "entrepreneur"; it is certainly not the need to be "entrepreneurial" that turns a capitalist into an "entrepreneur"! Only the demise of capitalism will usher in the extinction of the entrepreneur - but as long as capitalism survives, so will the "entrepreneurial spirit"!

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