Joseph A Schumpeter, for the first time, put the human agent at the centre of process of economic development and assigned a critical role to the entrepreneurship in his theory of economic development. He described an entrepreneur as a key man in the process of development. He innovates new ideas and puts them into practice. Schumpeter treats entrepreneurs as motivated and talented class of people who forsee the profitable opportunities and exploit them. The entrepreneur in Schumpeter’s view is basically
an innovator, and innovator is one who carries new combinations of means of production such as
1. The introduction of new goods, that is, one with which consumers are not yet familiar, new quality of goods ;
2. The introduction of a new method of production, that is, one not yet tested by experience in the branch of manufacture concerned, which need by no means be founded upon a discovery significantly new, and also exist in a way of handling in commodity commercially
3. The opening of a new market, that is, a market into which that particular branch of manufacture of the company in question has not previously entered, irrespective of whether or not this market has existed before ;
4. The conquest of a new source of raw materials or half manufactured goods, again irrespective of whether this source already exists or
whether it has to be created ; and
5. The carrying out of a new organisation of any industry, like the creation of a monopoly position, for example, through trustification or the breaking up of a monopoly position.
Entrepreneurship is not a profession or permanent occupation and therefore it cannot formulate a social class like capitalists or wage earners. Psychologically, entrepreneurs are not solely motivated by profit. According to Schumpeter, both interest and profit will arise from progress (change) and would not exist in the static society. Schumpeterian innovation’ is a creative response to a situation.
Schumpeterian theory of economic development was conceived in the context of industrial revolution. His explanations of development are influenced by the experiences of that period. As far as the magnitude of this theory is concerned it was based on big private entrepreneurship. This theory has less application in under developed countries. In these countries where basic infrastructure is not
available only one factor, innovator, cannot start the process of development. Moreover, dynamic changes in such countries cannot be expected.