Entrepreneurs are important to market economies because they can act as the wheels of the economic growth of the country.
By creating new products and services, they stimulate new employment, which ultimately results in the acceleration of economic development. So public policy that encourages and supports entrepreneurship should be considered important for economic growth.
A large number of new jobs and opportunities are created by entrepreneurship. Entrepreneurship creates a huge amount of entry-level jobs that are very much important to turn unskilled jobholders into skilled ones. It also prepares and provides experienced workers to large industries. The increase in the total employment of a country largely depends on the rise of entrepreneurship. So the role of entrepreneurship in creating new job opportunities is huge.
By bringing innovation to every aspect of businesses, entrepreneurial ventures enhance production utilizing the existing resources in the most effective ways. Entrepreneurs develop new markets by introducing new and improved products, services, and technology. Thus, they help generate new wealth and add more to the national income. So the government can offer the citizens more national benefits.
2. Entrepreneurship Promotes Innovation
Through the right practices of research and development, entrepreneurs bring new innovation that opens the door of new ventures, markets, products, and technology. Entrepreneurs have a role to play in solving problems that existing products and technology have not yet solved. So by producing new products and services or bringing innovation to existing products and services, entrepreneurship has the potential to improve peoples’ lives.
3. Entrepreneurship Can Promote Social Changes
Entrepreneurs change or break the tradition or cultures of society and reduce the dependency on obsolete methods, systems, and technologies. Basically, entrepreneurs are the pioneer of bringing new technologies and systems that ultimately bring changes to society. These changes are associated with improved lifestyle, generous thinking, better morale, and higher economic choice. In this way, social changes gradually impact national and global changes. So the importance of social entrepreneurship must be appreciated.
At Duke, the Innovation and Entrepreneurship Initiative has a special program aimed specifically at Social Innovation. The program is “building upon and extending the strengths of the university to create a transformational learning environment to inspire, prepare, and support entrepreneurial leaders and scholars to turn knowledge into action in pursuing innovative solutions to the world’s most pressing problems.”
For example, one of the most recent projects of the initiative is the Duke-UNICEF Innovation Accelerator, which is focused on entrepreneurship for menstrual health and hygiene for women and girls in vulnerable communities in three African countries.
4. Entrepreneurship Promotes Research and Industrial Development
Along with producing new business ideas and thinking out of the box, entrepreneurs also promote research and development. They cultivate their ideas, shape them into a new form, and turn them into a successful business endeavor.
Entrepreneurs are a special kind of people, they are always working to discover new ideas and improve existing ones. But their impact extends beyond their own companies and ventures: when an entrepreneur develops a new product, service, or idea, others often follow (and sometimes even further refine the ideas).
Innovation and industry is accelerated through the combined action of entrepreneurs. They can motivate each other, share ideas and inspiration, and share planning to establish new industries. The change of the existing industrial climate opens the doors for others at the same time. Therefore, we see that the importance of entrepreneurship to the economy is multi-functional.
5. Entrepreneurship Develops and Improves Existing Enterprises
We often think of entrepreneurs as inventing totally new products and ideas, but they also impact existing business. Since entrepreneurs think differently, they can come up with innovative ways to expand and develop the existing enterprises. For example, modernizing production processes, implementing new technology in the overall distribution and marketing processes, and helping the existing enterprises to utilize existing resources in more efficient ways.
To sum up, supporting and promoting entrepreneurship can have a positive impact on the country’s economy and even existing businesses, and social entrepreneurship increases the likelihood of finding innovation solutions to social challenges faced by communities around the world.
Similarly, future development efforts in other countries require robust logistics support, capital investments, and a qualified workforce. From the highly qualified programmer to the construction worker, entrepreneurship benefits a large part of the economy. In the U.S. alone, small businesses created 1.6 million net jobs in 2019.2
Entrepreneurs Add to National Income
Entrepreneurial ventures help generate new wealth. Existing businesses may remain confined to existing markets and may hit a limit in terms of income. New and improved products, services, or technology from entrepreneurs enable new markets to be developed and new wealth to be created.
Additionally, increased employment and higher earnings contribute to better national income in the form of higher tax revenue and higher government spending. This revenue can be used by the government to invest in other struggling sectors and human capital. Although it may make a few existing players redundant, the government can soften the blow by redirecting surplus wealth to retrain workers.
Entrepreneurs Create Social Change
Through offering unique goods and services, entrepreneurs break away from tradition and reduce dependence on obsolete systems and technologies. This can result in an improved quality of life, improved morale, and greater economic freedom.
For example, the water supply in a water-scarce region will, at times, force people to stop working to collect water. This will impact their business, productivity, and income.
However, with a project such as the U.S. Agency for International Development's Kenya RAPID program, an innovative and automatic pump powered by smart sensors fills people's water containers automatically, ensuring more than 184,000 people now have improved access to clean and safe drinking water.3 This type of innovation ensures people are able to focus on their jobs without worrying about a basic necessity like water. More time to devote to work translates to economic growth.
For a more contemporary example, smartphones and apps have revolutionized work and play across the globe. Smartphones are not exclusive to wealthy countries or people, as more than 5 billion people have mobile devices around the world.4 As the growth of the smartphone market continues, technological entrepreneurship can have a profound, long-lasting impact on the world.
Moreover, the globalization of technology means entrepreneurs in developing countries have access to the same tools as their counterparts in developed countries. They also have the advantage of a lower cost of living, so a young entrepreneur from a developing country can compete with a multimillion-dollar existing product from a developed country.
Community Development
Entrepreneurs regularly nurture ventures by other like-minded individuals. They also invest in community projects and provide financial support to local charities. This enables further development beyond their own ventures.
Some famous entrepreneurs, such as Bill Gates, have used their money to finance good causes, from education to public health.5 The qualities that make one an entrepreneur can be the same qualities that help motivate entrepreneurs to pay it forward through philanthropy, in a later chapter of life.
Is All Entrepreneurship Good?
Are there any drawbacks to cultivating entrepreneurs and entrepreneurship? Is there a limit to the number of entrepreneurs a society can hold?
Assistant Professor of Business at Columbia Business School Tania Babina, in a report written alongside Assistant Professors Wenting Ma and Christian Moser, Associate Professor Paige Ouimet, and Assistant Director of the Board of Governors of the Federal Reserve System Rebecca Zarutskie, found that "employees at young firms receive lower earnings as compared to employees at older firms.
Italy may provide an example of a place where high levels of self-employment have proved to be inefficient for economic development. Research has shown that Italy has experienced large negative impacts on the growth of its economy because of self-employment.7 There may be truth in the old saying, "too many chefs and not enough cooks spoil the soup."
The Role of Government
Regulation plays a crucial role in nurturing entrepreneurship. Unregulated entrepreneurship may lead to unwanted social outcomes, including unfair market practices, pervasive corruption, and criminal activity.
Findings from the United Nations University also indicate the possible implications of "over-nurturing" entrepreneurship. European economist Wim Naudé argues that "while entrepreneurship may raise economic growth and material welfare, it may not always result in improvements in non-material welfare (or happiness). Promotion of happiness is increasingly seen as an essential goal."8
Paradoxically, a significantly high number of entrepreneurs may lead to fierce competition and loss of career choices for individuals. With too many entrepreneurs, levels of aspirations usually rise. Owing to the variability of success in entrepreneurial ventures, the scenario of having too many entrepreneurs may also lead to income inequality, making citizens unhappier.
The Bottom Line
The relationship between entrepreneurship and economic development is important to understand for policymakers and business owners. Understanding the benefits and drawbacks of entrepreneurship allows a balanced approach to nurturing entrepreneurship to be taken, which can result in a positive economic and societal impact.
This book is about why Entrepreneurship can be considered a national asset, and entrepreneurs are the drivers of that asset for any country. It is a dynamic process that not only increases wealth and but can also create value that results in improved well-being.
Entrepreneurship plays an important role in changing society, so it makes sense to cultivate, motivate, and remunerate this greatest asset to the greatest extent possible.In entrepreneurship, unutilized resources, labor, and capital are utilized most efficiently. Entrepreneurs take on risks in the hopes of making profit, or in the case of social entrepreneurship, of solving a problem facing communities. So the significance of entrepreneurs and the role of entrepreneurship go beyond the business world. The importance of entrepreneurship is so broad that it’s quite tough to explain all the aspects of it in a short blog post. However, I would like to shed some light on the importance and role of entrepreneurship in economic development and society.
New products and services created by entrepreneurs can produce a cascading effect, where they stimulate related businesses or sectors that need to support the new venture, furthering economic development.
For example, a few information technology companies made up the IT industry in India during the 1990s. The industry quickly expanded and many other sectors benefited from it. Businesses in associated industries—such as call center operations, network maintenance companies, and hardware providers—flourished. Education and training institutes nurtured a new class of IT workers who were offered better, high-paying jobs.
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