Entrepreneurship

Possible Ways Entrepreneurship Has Affected The Growth and Development of Economy

Entrepreneurship has a big role it plays in the economy of many countries ranging from owning a business to being self-employed. The economy of most countries (capitalist and mixed economy) has made it possible for entrepreneurship to thrive. Individuals now have the opportunity to harness resources and create job opportunities.

Entrepreneurship is the process of identifying problems, generating ideas to proffer solutions to the identified problems thereby creating a business opportunity and channeling resources towards exploiting this opportunity with the aim of satisfying the needs of the customers and also to make profit. This process helps in the creation of jobs and wealth and eventually leads to the growth and development of economy.

Many countries of the world are benefitting from the influx and prevalence of entrepreneurs like U.S.A, Germany, Japan, Canada and many others. You reading this article have also seen that entrepreneurship has changed the world as a whole and benefitted many economies tremendously.

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Many countries now encourage entrepreneurship by introducing it into school curriculum so as to shape the mind of the young ones into becoming job creators instead of job seekers. You cannot overemphasize the impact of entrepreneurship on the economy of a country that encourages it because the GDP (Gross Domestic Product) will increase and there will be efficiency in the production of quality goods to meet the needs of the citizens.

Great nations of the world are addressed so because of the acceptance of entrepreneurship and contribution to its rising thereby giving the average individual the ability to create wealth, create jobs and contribute to the growth and development of economy.

In this write-up, we will be discussing:

  • What type of economy encourages entrepreneurship?
  • Positive impact entrepreneurship can have on an economy
  • Negative impact entrepreneurship can have on an economy

We will also be looking at some questions relating to entrepreneurship and also the answers to these questions.

So without further ado, let’s get to the point…

WHAT TYPE OF ECONOMY ENCOURAGES ENTREPRENEURSHIP?

Some countries of the world are struggling with economic growth and development because their economies do not appreciate the importance of entrepreneurs. The type of economy that encourages entrepreneurship are capitalist economy and mixed economy but mainly the capitalist economy.

Let’s explain these two types of economy for a better understanding…

THE CAPITALIST ECONOMY

A capitalist economy is an economy where private individuals are allowed to control the production and distribution of resources. These individuals play a greater role than the government in taking decision on what to produce, how to produce, for whom to produce and how to distribute what has been produced.

In this type of economy, individuals are allowed to invest their capital into any enterprise they can operate so as to maximize profit. They identify problems and see those problems as business opportunities and an avenue to create a business enterprise.

This type of economy certainly encourages people to be entrepreneurs and leads to economic growth and development of a country.

THE MIXED ECONOMY

A mixed economy carries both the features of the capitalist economy and socialist economy (where the government is in charge of the means of production and distribution). In the mixed economy, there is private and public ownership of the means of production and distribution.

This means that government and private individuals of the country participate in the production and distribution of goods and services. This type of economy will encourage entrepreneurship but to an extent unlike the capitalist economy.

POSITIVE IMPACT ENTREPRENEURSHIP CAN HAVE ON AN ECONOMY

Do you know that the reason for an evolution in technology and impressive change in the world today is as a result of entrepreneurship?

Entrepreneurs through their activities foster change in every country and drives economic growth and development. Check out all the successful entrepreneurs from different countries of the world and imagine they were not there; what would have happened to the world? What would have happened to the economies of the countries, U.S.A, Germany, Japan, China and many others?

Let us look at some of the positive impacts of entrepreneurship to an economy…

  • It increases the national income

The ability for individuals to start-up businesses means creation of new and improved goods and services and also long lasting innovations. Entrepreneurs create wealth and jobs with their activities and this helps the government generate revenue from taxes both on the entrepreneurs and the employees.

When the entrepreneurs establish companies, they pay corporate taxes and also their workers pay direct taxes and this adds to the national income of the country. The money can be used by the government to invest in other sectors of the economy thereby fostering economic growth and development.

  • It helps to control inflation due to mass production

This is obviously true. Entrepreneurs help to control the rise in the prices of goods and services when they engage in mass production. For instance, a country that has many companies producing cars or phones, there will be a reduction in the prices of these products because the consumers or customers have different alternatives and also a mass production by these companies will definitely reduce the prices of these products as there would be a corresponding supply matching the demand.

The control of inflation will help to stabilize the currency value and prevent depreciation of currency.

  • It leads to industrialization

A country that has a lot of entrepreneurs will have industries. Entrepreneurship is the drive for industrialization and industrialization leads to economic growth and development. The industrial sector of a country greatly contributes to the economic growth of a country whether it is the manufacturing industry, processing industry, mining industry, construction industry, etc.

  • Entrepreneurship helps to provide employment opportunities

Like we have said earlier, entrepreneurship makes you a job creator instead of a job seeker. An entrepreneur through creating a business venture doesn’t only create job for himself or herself but also for others that are willing to be employed.

The creation of industries by entrepreneurs will help provide employment opportunities in a country thereby adding to the GDP and reducing crime rate.

  • Entrepreneurship fosters international trade

The countries of the world leading in international trade are countries that have a growing rate of entrepreneurs. The establishment of industries will lead to the production of goods which a country can export to other countries so as to generate revenue and increase its balance of payment and trade.

Also when an entrepreneur has his or her business in more than one country for example KFC , it adds to the GNP (Gross National Product) of his or her country and also increases interrelationship between the countries.

  • It spurs diversification of economy

Having many entrepreneurs in a country will help to diversify the economy and prevent the over-dependence on only one product. There will be provision of different variety of products and alternatives for the consumers to choose from.

In an economy that encourages entrepreneurship like the capitalist economy, individuals can engage in production of goods from different sectors of the economy such as agriculture, petroleum, agriculture, mining, etc.

The country will not have to rely so much on one sector of the economy and this will help boost economic growth and development.

  • Technological development

Entrepreneurship is what drives innovation and most innovations in the world today are the creation of technologies. It is entrepreneurship that has driven the creation of technology all around the world; that technology is the reason you are reading this article.

The ability for individuals to produce and establish businesses led to the establishment of Apple Inc. by Steve Jobs and also Microsoft by Bill Gates. The United States encouraged entrepreneurship and this made these entrepreneurs invest their capital in their business venture and this has led to technological development in the United States and also the world.

Every country you go to, you will see an iPhone, iPad, iPod and computers. These inventions and innovations have made the United States the world leaders today.

  • Improved standard of living

No country of the world that has a large number of entrepreneurs suffers a low standard of living. This is because entrepreneurs help to create wealth and jobs by establishing firms and industries and this in turn leads to the production of goods and services that are cheap and affordable.

A country that enjoys economic development will have a high standard of living because the people in the country will be able afford the goods and services produced in the country.

  • Production of goods and services to meet needs

We all know that entrepreneurship is driven by the need to solve an existing problem in the society. Entrepreneurs establish businesses to provide the goods and services that the people need and this leads to production of new products or the modification of an existing product to better suit the need of the people.

Many entrepreneurs conduct a market research to know what to produce, how to produce, for whom they will produce and the best way to make their product reach their target consumers.

Therefore, the promotion of entrepreneurship will certainly lead to the production of goods and services to meet the needs of a teeming population and contribute to the growth and development of economy.

  • It brings about competition

The rising fame of entrepreneurship globally has led to an increase in competition in the market. The presence of competition leads to creativity and innovation. Every entrepreneur wants to produce a unique brand and always remain relevant in the market and so they try to come up with innovations that keep them ahead of competitors.

The freedom of individuals to control the means of production and distribution (capitalist economy) will create room for different individuals engaging in production of goods thereby promoting competition.

This competition will make entrepreneurs produce high standard products or services thereby improving the standard of living of the people in the country and influence economic growth and development.

  • It boosts national integrity and pride

Let us take the United States for instance; the increasing number of entrepreneurs in the country has led to different innovations which has boosted their national image and pride. The technology invented by these entrepreneurs and also the establishment of businesses goes back to making some countries world figures for other countries to look up to.

Production of goods and services by entrepreneurs make a country self-reliant.

  • It fosters community development

Entrepreneurship is about adding value to your society. Many entrepreneurs like Bill Gates and Warren Buffet have made it a habit of giving back to their communities. They help to fund education, build medical centres and establish other infrastructural facilities and this helps to raise the standard of living of the people.

They also establish firms in their communities so as to create employment opportunities and foster development.

NEGATIVE IMPACT ENTREPRENEURSHIP CAN HAVE ON AN ECONOMY

As we have discussed the positive impact entrepreneurs can have on an economy, we will also be looking at the negative impact they can have on an economy. Having too many entrepreneurs in a society is really good for the growth and development of the country but there are also some negative effects that the activities of entrepreneurs can bring on the country and its economy.

Let’s look at some of the negative effects

  • Economic inequality

In a capitalist economy that encourages entrepreneurship, private individuals are in control of the means of production and this can create room for few individuals having full control of the means of production and when this happens, there will certainly be unequal distribution of wealth in the country.

These individuals will do all they can to maximize profit even at the detriment of other individuals. This will lead to a distant gap between the rich and the poor as only few individuals will be poor.

  • It leads to economic exploitation

The prevalence of entrepreneurs in a country will in a way lead to exploitation. Due to the uneven distribution of resources and wealth, the lower class of individuals can be exploited by the richer ones.

Also in an imperfect market (monopoly) where the producer or seller can influence the prices of products or services in the market, they can use this medium to exploit the buyers or consumers of their product or service.

Not every individual has the entrepreneurship spirit and therefore, the individuals that had the capacity to take risk and establish a business venture can pass the risk or burden on to their consumers or customers in form of high prices for their product.

  • Maximization of profit at all cost

Many people believe that the main aim or reason of being an entrepreneur is to make profit and get rich quick. This motive can make some individuals do all they can to make profit without considering the welfare of other individuals.

When entrepreneurship is prevalent in a society, there will definitely be some individuals that want to make profit by all means. They do everything possible to accumulate wealth and continue being relevant in the market and industry.

  • Unhealthy competition

When individuals are able to control the means of production and distribution of goods, there will be competition among these individuals. Competition fosters production and innovation. But on negative effect competition can have is that in some cases, there is an unhealthy competition among these individuals (entrepreneurs).

Competition is good for the growth of an economy but some entrepreneurs go extra miles to stay ahead of competition and cause and unhealthy rivalry which spell doom on the economy.

  • Unemployment or loss of jobs

The competition created by the prevalence of entrepreneurship in a society can force some businesses or companies to close down and lay off workers thereby causing unemployment. The innovations of some firms keep them at an advantage when compared to others and this could make other firms stop production or go out of the market as they cannot compete due to some reasons.  This will affect the unemployment rate and also the national income of the country.

  • It causes waste and inefficiency

The prevalence of entrepreneurs in a society leads to wastage of resources. Entrepreneurs are seen to be risk takers and when they take this risk, their success is never certain and many might fail leading to waste of the resources invested.

MY FINAL NOTE

It is evident that entrepreneurship has an impact on many economies of the world. Entrepreneurs are seen as a driving force to economic growth and development of a country and this is the reason many countries are encouraging entrepreneurship.

Entrepreneurs boost economic growth through their creations and innovations and also accelerate social and structural changes in the society. They are nation builders and most of the top countries of the world do not joke with their entrepreneurs.

Every great and successful business in the world was started by an entrepreneur and they create wealth and jobs in a society.

So this article is not only about highlighting the importance of entrepreneurship on the economy; we also want to encourage you reading this to see the reason you should become an entrepreneur and have the entrepreneurship mindset. We want to have more job creators instead of job seekers.

Questions and Answers

  • Is there any limit to the number of entrepreneurs a country should have?

Answer:

In a capitalist economy where individuals are in control of the means of production and distribution, there will be no limit to the number of individuals that would own businesses. Therefore, there is no limit to the number of entrepreneurs a country should have instead the higher the entrepreneurs in some cases, the better the economy and standard of living of that country.

An economy that allows individuals (entrepreneurs) to harness resources and establish business outfit, creates room for creativity and innovativeness and this will in turn help in the growth and development of that economy.

Entrepreneurship should be encouraged in every country and the young ones especially students should be taken into consideration when talking about entrepreneurship so they would end up being wealth creators and job creators.

  • What is the difference between entrepreneurship and self-employment?

These two term are used interchangeably and are summed up in some cases to men the same thing but they are not really the same.

All entrepreneurs are self-employed but not all self-employed are entrepreneurs. Are you confused? Alright let us shed more light on that.

An entrepreneur is a person that identifies a problem that he or she sees as a business opportunity; generates ideas on how to proffer solution to the identified problem and channels his or her resources into solving this problem thereby taking the risk of creating a business venture to meet needs and also make profit. An entrepreneur is creative and innovation. He or she creates new products or modifies an already existing product to become better.  

A self-employed person on the other hand is someone that works for him or herself. A self-employed person work for different clients and gets paid for every work done. You don’t necessarily own a business outfit; you work at your own convenience which might be the comfort of your home or moving from one place to another to sell your product or render your services. Self-employed jobs are flexible and do not really entails innovation or invention.

image source: Pixabay.com

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