Why Entrepreneurship Matters to the Economy
Why Entrepreneurship Matters to the Economy
Entrepreneurship is important for a number of reasons, from promoting social change to fostering innovation. Entrepreneurs are often seen as national assets to win, motivate and reward as much as possible. In fact, some of the most developed nations, like the United States, are world leaders due to their unprecedented innovation, research, and entrepreneurship.
Great entrepreneurs have the potential to change the way we live and work, both locally and nationally. If successful, their innovations could improve living standards and, as well as creating wealth with entrepreneurial businesses, they also create jobs and contribute to a growing economy. The importance of entrepreneurship need not be exaggerated.
key takeaways
- Entrepreneurship is important, because it has the potential to improve living standards and create wealth, not only for entrepreneurs but also for related businesses.
- Entrepreneurs help drive change with innovation, where new and improved products can develop new markets.
- Too much entrepreneurship (ie high level of self-employment) can be detrimental to economic development.
Entrepreneurs foster economic growth
The new products and services created by entrepreneurs can produce a cascading effect, where they encourage companies or related sectors that need to support the new company, promoting economic development.
For example, some IT companies entered the IT industry in India during the 1990s. The industry expanded rapidly and benefited many other sectors. The companies have found success in related industries such as call center operations, network maintenance companies, and hardware vendors. Education and training institutions have fostered a new class of IT workers who have been offered better and better-paid jobs.
Similarly, future development efforts in other countries require strong logistical support, capital investments, and a skilled workforce. From the highly skilled programmer to the construction worker, entrepreneurship benefits a large part of the economy. In the United States alone, small businesses created 1.6 million net jobs in 2019.
Entrepreneurs contribute to the national income
Entrepreneurial initiatives help generate new wealth. Existing businesses may remain limited to existing markets and may be capped in terms of revenue. New and improved products, services, or technologies allow entrepreneurs to develop new markets and create new wealth.
In addition, increased employment and higher incomes contribute to a better national income in the form of higher tax revenues and higher government spending. The government can use these revenues to invest in other struggling sectors and in human capital. While it may get some existing players laid off, the government can mitigate the blow by redirecting excess wealth to retrain workers.
According to the US Small Business Administration, there are 31.7 million small businesses in the US in 2019.
Entrepreneurs create social change
By offering unique goods and services, entrepreneurs break with tradition and reduce their reliance on outdated systems and technologies. This could lead to a better quality of life, better morale, and greater economic freedom.
For example, sometimes the water supply in a water-scarce region will force people to stop working to collect water. This will affect your business, productivity, and income.
However, with a project like the US Agency for International Development’s RAPID Kenya program, an innovative sensor-powered automatic pump automatically fills people’s water containers, ensuring that more than 184,000 people now have better access to clean and safe drinking water. This type of innovation ensures that people can focus on their jobs without worrying about basic needs like water. Spending more time working is economic growth.
For a more contemporary example, smartphones and apps have revolutionized work and play around the world. Smartphones are not exclusive to rich countries or people, as more than 5 billion people around the world have mobile devices.As the smartphone market continues to grow, tech entrepreneurship can have a profound and lasting impact on the world.
Furthermore, the globalization of technology means that 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 that a young entrepreneur from a developing country can compete with an existing product worth thousands of dollars from a developed country.