Edited by John B. Davis and Wilfred Dolfsma
Chapter 27: Communication in the economy: the example of innovation
The classical notion and definition of innovation in economics originate in the works of Joseph Alois Schumpeter. Schumpeter emphasized that truly welfare-enhancing economic development is not based on a smooth adjustment from a slightly disturbed equilibrium to another, but is based on revolutionary innovations (Schumpeter, 1934, p. 64). He defined innovation as new combinations that lead to new products, new ways of production, discoveries of new resources, new organizational methods of running the business enterprise and entry into new markets (ibid., p. 66). In the process of innovation path-breaking eminent inventions and discoveries (technical, managerial or others) are picked up by radical individuals called entrepreneurs and turned into commercial successes. Schumpeter assumed the ‘new’ was somehow emerging out of the blue or floating around (ibid., p. 88). The distinctive role of the entrepreneur is to turn radically away from traditions, customs and routines and to commit heror himself to push for change. This distinctive communicative and innovative role of the entrepreneur was more recently highlighted by Deirdre McCloskey. She calculates that about a quarter of national income is produced by persuasive talk (including, e.g., advertising, McCloskey and Klamer, 1995, p. 194). In her book Knowledge and Persuasion in Economics she collects a bulk of evidence for the economic significance of persuasion under the heading The Economy as a Conversation. McCloskey (1994, p. 370) uses the example of Donald Trump to point to the power of persuasion and the art of felicitous speech acts to close deals.
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