punkish: What Would Schumpeter Think Of Open Source

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# What Would Schumpeter Think Of Open Source
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The Doctoral Seminar in Technology Entrepreneurship, School of Business, University of Wisconsin-Madison • Feb 13, 2007

Puneet Kishor (Plazi)

Released under a [CC0 Public Domain Dedication](https://creativecommons.org/publicdomain/zero/1.0/).

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## What is ""Creative Destruction""?

*   “Creative Destruction is when you *think* before smashing; otherwise it is 
    just Destruction” — William Anderson, Co-chair, CODATA

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## Capitalism Misunderstood

*   Is capitalism unfavorable to achieving maximum performance in production?
*   That is what theories of monopolistic and oligopolistic competition might 
    suggest

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## Capitalism is Evolutionary

*   It is a form or method of economic change and is never stationary
*   “The process of industrial mutation incessantly revolutionizes the 
    economic structure from within, incessantly destroying the old one, 
    incessantly creating a new one”
*   “This is the process of *Creative Destruction*, and is an essential fact 
    of capitalism”

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## What Does *Creative Destruction* Do?

*   "We are dealing with an organic process, analysis of what happens in any 
    particular part of it, say, in an individual concern or industry, may 
    indeed clarify details of mechanism but is inconclusive beyond that. Every 
    piece of business strategy acquires its true significance only against the 
    background of that process and within the situation created by it. It must 
    be seen in its role in the *perennial gale of creative destruction;* it 
    cannot be understood irrespective of it or, in fact, on the hypothesis that 
    there is a perennial lull." – Joseph Alois Schumpeter. 1950. 
    *Capitalism, Socialism and Democracy*

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## Change is Constant

*   Even the best system today is likely to become second to something better 
    tomorrow

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## Growing Through Change

*   Seeming monopolies are also constantly changing
*   For example, Wal-Mart continually seeks to keep prices low by innovations 
    in supply-chain
*   Target differentiates itself from Wal-Mart through perceived style
*   Even so, upstarts such as iTunes can gain competitive advantage and become 
    their own monopolies

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## Striking Established Monopolies

*   It is competition from the new commodity or technology, or 
*   the new source of supply, or 
*   the *new type of organization*

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## Open Source As *Creative Destruction*

*   Is an organization with *process* (intentionality and exchange) and 
    *structure* (resources and boundaries)
    * McKelvey would agree, perhaps grudgingly – Katz and Gartner. 1988. 
    ""Properties of Emerging Organizations"" 
*   ""Is a way of organizing production, of making things jointly"" – 
    Steven Weber. 2004. _The Success of Open Source_ 
*   Is a threat to existing monopolies that either embrace innovation or die

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## Structure of Scientific Revolutions

*   SSR (1962) – periodic revolutions or ""paradigm shifts"" in three stages
    * pre-science (chaos)
    * normal science (routine work)
    * revolutionary science (crisis)
* Creative Destruction could be seen as *Structure of Economic Revolutions*
    * Economic landscape seems to undergo a similar trajectory — chaos, 
      routine, crisis

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## The Network Effect

*   Distance is immaterial – Mitchell and Rajan. 2000. ""Does Distance 
    Still Matter? The Information Revolution in Small Business Lending"" 
*   Cost is minimal
*   Work is divisible
*   It strikes at the very "foundations of how.. markets.. and.. democracies 
    have coevolved for almost two centuries" – Yochai Benkler. 2006. 
    *Wealth of Networks*