BE 718 Purcell 1
Creative Destruction: An Economic Phenomenon of Wealth Creation
Nick Purcell
BE 718 – Managerial Economics
Dr. Art Hall
BE 718 Purcell 2
Schumpeter and Christensen
Joseph A. Schumpeter who wrote, “Capitalism, Socialism and Democracy” developed
and coined the economic theory of “creative destruction”. Schumpeter explained that creative
destruction is “the opening up of new markets, foreign or domestic, and the organizational
development from the craft shop to such concerns as U.S. Steel illustrate the same process of
industrial mutation … that incessantly revolutionizes the economic structure from within,
incessantly destroying the old one, incessantly creating a new one” and that it is an “essential
fact about capitalism.” This concept of “creative destruction” has become a major theme in
modern economics and has influenced many economists to develop connected theories and
concepts. One of these theories is that of Clayton Christensen, “disruptive innovation”.
Christensen explained that entire markets could be turned upside down because the top
companies don’t notice and/or anticipate entrants to the market so they continue to innovate their
current product which locks out a large portion of consumer segments. This allows smaller
companies to move into the market and develop innovative products that are more accessible to a
consumer which propels these companies to the top of the market. The top companies are then
