According to Bylund, markets are crucial to our society because they allow for the free exchange of goods and services. But he argues that because markets don't always distribute resources effectively, they are flawed. Bylund states that
"markets are unbeatable because they cannot be improved upon, but they are imperfect because they are imperfectly understood" (Bylund, 2016, p. 47).
He believes that laws frequently distort markets and keep them from operating effectively. Bylund's claim that markets are flawed is based on the notion that market players do not always possess perfect knowledge and are susceptible to error. When market participants lack the necessary information to make the best judgments, resource allocation goes the wrong way. According to Bylund, this flaw is not a result of the market failing, but, rather, a restriction in human knowledge and comprehension. The concept of a “knowledge-gap” is a long-standing principle of economics and is something that I noticed after trading in the equity markets for a couple years. Larger firms tend to have an advantage over the typical retail trader, not by sheer luck, rather, they have access to more data to make better informed decisions. Over time, the person with more data has a higher likelihood of success compared to someone with minimal data-sets.
Bylund counters that government policies may exacerbate these flaws and further distort markets. He says that regulations sometimes have unexpected effects that are detrimental to both consumers and companies. For instance, laws intended to safeguard consumers may result in greater costs and less competition. Bylund (2016, p. 71) makes the claim that regulations always have unintended consequences that can cause more harm than good. A perfect example of this is the current bank fiasco that the US is experiencing right now. The government is supporting the largest banks, while the smaller, regional, banks are left without excess FDIC insurance beyond the $250K limit. This action has caused many citizens to choose the larger banks over smaller ones, which artificially increases demand in banks like Bank of America. Bank of America saw over $300M worth of inflows in the past couple weeks as a result of these regulations. Instead of capital being naturally dispersed across the banking sector, the largest banks are receiving more customers.
Schumpeter, on the other hand, places a strong emphasis on the contribution of entrepreneurship and innovation to economic progress. He claims that capitalism is defined by a process of "creative destruction," in which business-people launch novel goods, services, and technological advancements that upend established marketplaces. Schumpeter states that
"the essential fact about capitalism is that it is first and foremost an adventure in innovation" (Schumpeter, 1962, p. 83).
He thinks that innovation is the main force behind economic growth and that entrepreneurs are essential to determining how society will develop in the future. Overall, Schumpeter's argument highlights the important role that entrepreneurship and innovation play in driving economic growth and progress. He emphasizes the need for an innovative market environment that allows entrepreneurs to pursue new ideas and technologies. As an entrepreneur, it is important to be aware of the potential for innovation and to be willing to take risks in order to drive economic growth and create new opportunities. I have noticed that the best businesses are always trying to grow, as innovation from competitors will take them out with time if they stay stagnant. This innovation “battle” is only net positive for the consumer and economy as a whole. The main argument made by Schumpeter emphasizes the importance of entrepreneurs as major economic change participants. He claims that business owners are ideally positioned to spot and seize fresh opportunities and that they are eager to take the risks required to see their ideas through to completion. They stimulate innovation and develop new markets as a result, which aids in the advancement of the economy. Based on my research in the space, it is important, as an entrepreneur, to take risks. If enough participants take risks, then there will be large success-stories that outweigh the pool of failed attempts, further pushing the economy forward. Steve Jobs took a massive risk and it paid off handsomely. We often hear about the successes, because of the magnitude of change that they prompted, yet there were numerous failed projects to create a smartphone on the other end. Now, Apple constantly has to find ways to innovate in order to stay ahead of the competition, which is net positive to the consumer and economy.
Bylund's claim that markets are unbeatable but flawed also emphasizes the significance of knowing the limits of market participants and the requirement for ongoing innovation to increase market contribution. Bylund advises business owners to be proactive in looking for solutions to increase market efficiency and adapt to shifting market conditions by acknowledging the flaws in marketplaces. Schumpeter, on the other hand, emphasized the value of innovation and entrepreneurship and emphasized the necessity for businesspeople to be forward-thinking and risk-takers in order to create new ideas for economic progress. This is consistent with the claim that entrepreneurs are the ones that propel economic development and that capitalism's success depends on their capacity for innovation and new ideas. Overall, the perspectives offered by Bylund and Schumpeter are complementary and provide a good understanding of the importance of markets and entrepreneurship. While Schumpeter's emphasis on entrepreneurship and innovation emphasizes the significance of forward-thinking, risk-taking, and creativity in fostering economic growth and progress, Bylund's argument emphasizes the limitations of markets and the need for regulations that promote innovation. Understanding both points of view is key to understanding how to strike a balance, further progressing the economy and society as a whole.
Sources:
Picture: The Entrepreneur Africa. (n.d.). Key difference: Innovation vs entrepreneurship. The Entrepreneur Africa. https://www.theentrepreneurafrica.com/key-difference-innovation-vs-entrepreneurship/
Bylund, P. L. (2016). Chapter 4: Unbeatable, Imperfect Markets. In Seen, the unseen, and the unrealized: How regulations affect our everyday lives (pp. 47–72). essay, Lexington Books.
Schumpeter, J. A. (1962). Chapter VII: The Process of Creative Destruction. In Capitalism, socialism and democracy (pp. 81–86). essay, Harper Torchbooks, Harper & Row.