The Schumpeter Corporation Paradox: Corporations as the Communal Investment

Mark Warren (Central European University)

Abstract

Joseph Schumpeter, in his 1942 book Capitalism, Socialism and Democracy, recognised that
the insatiable capitalist process was increasingly relying on corporations as the form of
business organisation that maximises profits. However, this advance of capitalism, the
corporation, was creating a communal vehicle that was diminishing the individual rights and
relationships that supposedly distinguish capitalism from socialism. The author labels this the
Schumpeter corporation paradox.
This paper considers the modern manifestation of the Schumpeter corporation paradox but
places this phenomenon in both its historical and legal context. In terms of history, the early
corporations were recognised as closely tied to the state, holding sizable economic and
political power that often extended to foreign lands. In terms of law, corporations have
always derived their power from the legal rights afforded by the state. In this respect, this
paper reminds readers of the historical significance of the corporate form and that the modern
manifestations of corporate power are neither unique to our time nor necessarily an indication
of capitalist excess. Rather, as highlighted by Schumpeter, the capitalist corporation may still
unwittingly serve as a conduit towards social objectives and communal investment that
(directly or indirectly) determines the wealth of the population.

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