Schumpeter’s 1947 essay still holds valuable lessons in the 21st century
When Mads Christian Holm founded shipping company Norden in 1871, he needed banks and investors to put money into his business. Steamships were expensive to build, and Holm could not raise money quickly enough.
So, he did something rather unusual at the time: He listed the company.
“It's a creative response to new opportunities [and] Norden was the first Danish company to send a steam vessel east of the Suez…because he could then control them via telegraphy,” recounts Martin Jes Iversen, Vice Dean of International Education at the Copenhagen Business School.” If you look at the first records of his annual reports, Holm spent more money on telegraphy than he did on salaries.
“We can translate that to modern technology today, which would be equivalent to digitalisation. It was a big investment at the time.”
Iversen made those observation at an SMU International Trading Institute leadership conference that was part of Singapore Maritime Week, titled “Entrepreneurship – from the Schumpeterian Hero to the Critical Process”. He tells Perspectives@SMU that Holm’s decision to list his company is an example of a creative response described in economist Joseph Schumpeter’s 1947 essay, “The Creative Response in Economic History”.
While further elaborating that traditional economic theory holds when actors – organisations and individuals – act within existing and known patterns of behaviour, i.e., an adaptive response, entrepreneurs and innovators often think out of the box with a creative response and therefore it is virtually impossible to apply economic theory in predicting the effects.
Florissant eras
Holm and Norden represented what Iversen describes as the second of three “Florissant” eras of Copenhagen Maritime History, referring to the original Florissant Period in the second half of the 18th century that saw increasing maritime trade between China and Western Europe. Denmark was a leading maritime power during the time with the Asiatisk Kompagni leading the charge up until the Napoleonic Wars brought the end of the first Florissant era.
Iversen describes the current globalisation age as the Third Florissant era, with Maersk very much at the forefront. All three periods featured modern technologies that represented new opportunities, from telegraphy in the mid- to late-19th century, to digitalisation today. But within the context of Schumpeter, how does one identify the entrepreneurs with a creative response?
“I would like to go down to the individual entrepreneurs to understand: To what extent can we talk about creative responses? To what extend did they do things that were not seen in the market at the time? Why did they succeed?
“I analysed 10 start-ups by and thought, ‘What were their main competences?’ A lot of people can start a company, but not so many people are still around after five years because it's very difficult to get the initial steps going and go from one person or a couple of partners to a real company. Very few companies actually do that.”
He adds: “The most important reason for success was actually personal networks.”
Iversen identifies Hafnia CEO Mikael Skov as an entrepreneur that excelled in building networks and then leveraging it to create a successful business.
“Mikael Skov is a very strong networking person,” Iversen explains, pointing to his start at an established shipping company, Torm, and building relationships across the industry. “He was also able to create a strong team around him. The way he presented the company to potential investors [when he was building Hafnia] and customers at the time, they emphasized two things.
“They emphasised experience. They highlighted the 500+ years of shipping experience in the management team coming from TORM. He then emphasised a thoroughly thought-out business model, distinguishing Hafnia from the competitors.”
Lessons learnt?
As each Florissant age came and went with crises – the end of the first two Florissant ages coincided with war – the current COVID pandemic makes prediction an especially difficult activity.
“I think we should learn from the past and maybe we can learn something from Schumpeter because we have to be very modest in our predictions. Being modest means that we have to be careful. It can both be more difficult than we predicted, and it can be a more severe crisis than we had predicted, but it can also be – and this is also Schumpeter's point – be that there will be some specific actors, including organisations and companies and individuals, even societies who actually will be able to respond to these new, difficult circumstances in creative ways and prosper.”
Martin Jes Iversen is Vice Dean of International Education at the Copenhagen Business School. He was the speaker at the SMU International Trading Institute (ITI) leadership conference titled “Entrepreneurship – from the Schumpeterian Hero to the Critical Process" that was held on 7 April 2022 as part of Singapore Maritime Week 2022.
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Last updated on 04 May 2022 .
