Schumpeterian growth, chaos, and the formation of dissipative structures

Abstract

This paper reformulates several basic ideas introduced by Joseph Schumpeter to examine the correlation between productivity growth and technological change in order to explore why American productivity growth has been sluggish for the past two decades. Convetional growth theory maintains that a primary cause of low productivity growth is inadequate capital formation, which in turn is caused by low private domestic saving. This paper borrows concepts from cybernetics, formal information theory, and chaotic dynamic systems to describe the Schumpeterian process through which innovative “new combinations” of capital goods generate wealth, productivity increases, and income growth, and which in turn cause increased savings. It describes the process through which such fundamental technological changes are diffused by entrepreneurs throughout the economy, and concludes that the fundamental causes of America's relatively weak productivity growth are to be found in policies or practices that inhibit innovation and entrepreneurship.