Looking forward: Creative construction as a road to recovery from the COVID‐19 crisis

• Published date: 01 December 2020
• Author: Rajshree Agarwal,David Audretsch
• DOI: http://doi.org/10.1002/sej.1378
• Date: 01 December 2020

REFLECTIVE PIECE

Looking forward: Creative construction as a road

to recovery from the COVID-19 crisis

Rajshree Agarwal

1

| David Audretsch

2

1

Robert H. Smith School of Business, University of Maryland, College Park, Maryland

2

Indiana University and Department of Innovation Management and Entrepreneurship, University of Klagenfurt, Austria

Joseph S. Schumpeter (1942, pp. 82–83) coined the term “creative destruction”to characterize the process by which

entrepreneurial entrants displaced stagnant incumbents, resulting in “industrial mutation that continuously revolu-

tionizes the economic structure from within (emphasis added), incessantly destroying the old one, incessantly creating

a new one.”Schumpeter's insights regarding economic structures apply not only at the industry and country levels

but also at a global level. Over the last century, the emergence of many economies from “third world status”by

leveraging the twin engines of entrepreneurship and innovation in global markets for resources, products, and ser-

vices has challenged the competitiveness of many developed economies (Leamer, 2007), even as it provides higher

levels of consumer surplus across all economies through enhanced productivity and increased efficiencies.

When we (and our dear departed coauthor MB) coined the term “creative construction”in Agarwal, Audretsch,

and Sarkar (2007), our intent was not to challenge Schumpeter (1942) as being wrong, nor to suggest that creation

of the new did not manifest in destruction of the old. Rather, it was to dig deeper into the term “from within”—how

the “old”resulted in the birth of the “new”—by asking the questions of “how new entrants emerge, why the process

of displacement occurs, and whether increasing returns to knowledge investments could benefit entrants, incum-

bents, and the economy alike (Agarwal et al., 2007; p. 263).”To answer these questions, we relaxed two implicit

assumptions in the rich literature on creative destruction—potential zero-sum games between “new”entrants and

“old”incumbents and exogeneity of entrepreneurial opportunities. This enabled us to develop a framework that

linked the endogenous creation of opportunities to new firm formation through the interface between knowledge

spillovers (from incumbents) and strategic entrepreneurship (by entrants). Moreover, we extended our framework in

Agarwal, Audretsch, and Sarkar (2010) to include entrepreneurial activity by incumbent firms for strategic renewal.

In doing so, we provided the microfoundations of industrial and economic growth. The same framework is also appli-

cable to “born global”industries, such as mobile money, that have facilitated economic growth through new financial

systems. Wormald, Agarwal, Braguinsky, and Shah (2020) report that the rapid international diffusion in the industry

is underpinned by creative construction: Incumbents and entrants created and captured value through sharing of

complementary knowledge and capabilities within and across national boundaries.

The health crisis induced by the Covid-19 pandemic has created economic challenges “from without”for each

and every country in the world and has additionally threatened established global supply chains. The causal link

established by Schumpeter—where the creative forces precede and result in destruction of the “old”in favor of the

“new”—is in this instance broken: Covid-19 has resulted in an “exogenous”destruction in all aspects of economic

DOI: 10.1002/sej.1378

© 2020 Strategic Management Society

Strategic Entrepreneurship Journal. 2020;14:549–551. wileyonlinelibrary.com/journal/sej 549