|www.ebbemunk.dkSchumpeter was mistaken about the owners of stagecoaches|
Joseph A. Schumpeter was an Austrian economist born 1883. In 1909, at the age of 26, he was appointed as a professor of economics at the University of Czernowitz (now Chernivtsi, in Ukraine). Here he studied the development of the railway network throughout the Austrian empire. He wrote the pioneer work "The Theory of Economic Development", which contained an elegant and convincing model for the role of the entrepreneur. A central part of the model is that new enterprises with new ways of production will be carried out by new firms, not by firms that already control the productive process. As an example he mentioned that:
According to this theory new ways of production will not be carried out by the same people that already are in control of the production process, but 100 years after he wrote his first major work, Schumpeter's chosen example has backfired: Since 1909 the stagecoach owners have transformed into minibus operators, and all over Eastern Europe the minibus operators are now far more successful than the railways.
For any railway passenger in Eastern Europe it is obvious that the present-day railway system is in decay: Trains are slow and carry few passengers. The railway companies give employment to a host of railway servants that seem to have no other task than standing with a flag in hand when trains pass by.
The minibus network offers more connections and transport more passengers than the decaying railway monopolies. All over Eastern Europe there is a disorganized system of buses, minibuses, and maxitaxis with an ever-changing array of bus companies. The main bus routes are well known, but the points of departure and arrival are constantly on the move. The departures change so often that timetables are out of date, etc. The minibus entrepreneurs seem to adapt very well to the changing conditions of the market in a way that the railway monopolies cannot compete with.
Schumpeter regarded the founders of the railway companies as entrepreneurs as opposed to the small-scale owners of stagecoaches, but now it is the small-scale minibus operators that should be regarded as Schumpeterian entrepreneurs. The minibus operators are act as an avant-garde unsatisfied with the known routines. They introduce innovations and try to persuade the customers to use the new goods or services. Here is Schumpeter's list of new ways of production exploited by entrepreneurs:
Also, according to Schumpeter, the entrepreneurs will appear in swarms. They do so because the appearance of one or a few entrepreneurs facilitates the appearance of others, and these the appearance of more, in ever-increasing numbers. "The swarm-like appearance of entrepreneurs, ... has a qualitatively different effect upon the economic system from that of a continuous appearance evenly distributed in time, ... it does not, ... mean a continuous, ... disturbance of the equilibrium position but a jerky disturbance, ... of a different order of magnitude."
The minibus operators are breaking up a monopoly position, and they appear in swarms. One could say that Schumpeter's model is confirmed by the development since 1909, except that the example should be inverted:
It seems that there is very little government interference in the minibus transport system. There is apparently no public support to keep fares low, and only a few attempts to register the income of the entrepreneurs. You can buy a printed ticket at the bus station, or you can jump on the bus anywhere along the road, pay in cash and not receive a ticket. The driver's income will be taxable in the first situation, but not in the second one.
"... es waren, um bei dem einmal gewählten Beispiel zu bleiben, im allgemeinen nicht die Postmeister, welche die Eisenbahnen gründeten",
Joseph Schumpeter 1926: Theorie der wirtschaftlichen Entwicklung, 2. Auflage, Duncker & Humblot, München und Leipzig (3. Auflage, 1931), 2. Kap., S. 100-101.
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For longer extracts in German and English: www.ebbemunk.dk/kazaa_skype/kazaa_skypep10.html#T6.