Creative Destruction and Entrepreneurial Obstruction
Abstract: As Joseph Schumpeter developed his argument for “creative destruction,” it was motivated, in part, as a warning against contemporary policies intended to obstruct it. Little work has examined the consequences of obstructing it, even though Schumpeter warned of the dangers of nations that were “determined not to allow [it] to function.” This paper addresses that issue by contrasting two post-crisis periods in which one would expect the process of creative destruction to be active – that is, in two important episodes in the economic history of Cuba, from 1898 to 1929, and from 1929 to 1939, through the examination of entry, survival and exit patterns of sugar mills and firms. Discrete survival analysis tests for differences in entry, survival and exit patterns in the favorable institutional environment of the former period against the unfavorable institutional environment of the latter. An institutional environment that obstructed the process of creative destruction in the latter period is shown to have had a distortionary effect with negative long-run consequences, as Schumpeter predicted.
