Creative destruction or just a reshuffle? why business turnover in South Africa has not sparked growth

Abstract

The entry and exit of businesses generally signify healthy competition and economic vitality. In theory, new entrants introduce fresh ideas, products, and techniques that spur economic modernization, diversification and sustainable employment creation. This is the idea behind Jospeh Schumpeter’s concept of ‘creative destruction’, in which firms must continually reinvent themselves to remain profitable, often at the cost of jobs, products, and industries that become obsolete and disappear. Lack of churn can cause economies to ossify and stagnate. The World Bank’s recent diagnostic report points to precisely this problem in South Africa. It states that too few new firms have been created and too many old firms have survived when they should have folded.