Lessons of the Nobel Prize in Economics: Restore the Cycle of Creative Destruction

This year’s Nobel Prize in Economics went to the “heirs of Schumpeter,” who demonstrated how capitalism advances through technological innovation—reminding us once again of the power of creative destruction.

Korea, however, is stuck in a blocked cycle. New industries are trapped by regulation, new firms face barriers to entry, growth has fallen to the 1 percent range, and both productivity and industrial vitality are declining. The root of the problem is not simply an economic slowdown, but a stagnation of innovation.

At the center of innovation is always entrepreneurship. Scholars have approached entrepreneurship from different perspectives. Knight saw the entrepreneur as a managerial figure who bears uncertainty and risk, exercises judgment, makes decisions, and takes responsibility for the results. Kirzner defined the entrepreneur as someone who keenly identifies unmet demand and improves market inefficiencies.

Schumpeter found the essence of capitalism in “creative destruction.” He emphasized the power of innovation to tear down the old order and build a new one through new products, new methods of production, and the opening of new markets. This process is capitalism’s intrinsic mechanism of growth, and creative destruction is the core of entrepreneurship that enables the economy to evolve on its own.

In Korea today, that cycle is blocked. New industries are constrained by regulation, and it is difficult for new firms to enter the market. According to the Global Entrepreneurship Monitor (GEM), out of 100 points, Korea in 2024 scored only 40.07 on perceived startup opportunities, 57.03 on perceived startup capabilities, 22.72 on startup intentions, and 59.04 on preference for entrepreneurship as a career choice.

The government’s role has lost direction. The essence of innovation is freedom and competition, yet the government remains trapped in a framework of support and control. Every year, tens of trillions of won are poured into R&D budgets, but the money is consumed through administrative allocation rather than performance-based results. Research that complies with rules is increasing instead of research that encourages experimentation, and safe projects are chosen over new attempts. In other words, the system itself is suppressing innovation.

The structure of policy creates even more fundamental constraints. As redistribution and protection are prioritized over technological innovation, entrepreneurship willing to take risks has lost its place. In a corporate ecosystem dependent on government regulation and subsidies, risk avoidance becomes entrenched, and innovation disappears. An economy in which creative destruction does not occur gradually sinks into a “quiet stagnation.”

Regulatory reform must be the starting point of innovation. Laws and barriers to entry that divide industries must be boldly lowered. Market experimentation must take precedence over government approval, and institutional space must be created so that new technologies and firms can compete freely. Only when market validation, rather than administrative control, is allowed to work can the cycle of innovation begin moving again.

Openness to talent must become a catalyst for growth. As Schumpeter’s heirs have pointed out, innovation is completed not only through internal ideas but through the meeting of external knowledge and talent. Institutions must be made more flexible so that global technology and skilled professionals can move freely and convergence across industries can occur actively. The pace of innovation will accelerate only when closed regulations and excessive qualification requirements are eased to increase talent mobility.

This is the moment to remember that freedom is the condition for innovation. Creative destruction works only when firms are able to try, fail, and challenge again. By reducing regulation and guaranteeing market autonomy, the government must restore an ecosystem in which innovation can emerge spontaneously. When the cycle of innovation that Schumpeter described begins again, the clock of growth for the Korean economy will begin to move once more.

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Original title: 노벨경제학상의 교훈, 창조적 파괴의 순환을 복원하라

Author: Gyu-min Han

Date: 2025-10-22

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=28226