An entrepreneur is an individual who takes the risk to start their own business based on an idea they have or a product they have created while assuming most of the risks and reaping most of the rewards of the business. An entrepreneur is a person who starts a new business and usually risks his own money to start the venture. Examples of well-known entrepreneurs include Bill Gates, Steve Jobs, Mark Zuckerberg, Pierre Omidyar, Arianna Huffington, and Caterina Fake.
A degree in entrepreneurship prepares graduates to start their own businesses. They can also find careers as budget analysts and financial managers. Professionals with a wide variety of interests and goals can succeed as entrepreneurs.
Entrepreneurship is the creation or extraction of value. With this definition, entrepreneurship is view as change, generally entailing risk beyond what is normally encounter in starting a business, which may include other values than simply economic ones.
An entrepreneur is an individual who creates a new business, bearing most of the risks and enjoying most of the rewards. The process of setting up a business is known as entrepreneurship. The entrepreneur is commonly seen as an innovator, a source of new ideas, goods, services, and business/or procedures.
How Entrepreneurship Affects the Economy
Entrepreneurship is a blanket term related to starting a business. Howard Stevenson of Harvard Business School, for example, has defined entrepreneurship as the “pursuit of opportunity beyond resources controlled,” considering it as a kind of managerial approach rather than a specific time, like a business’s creation, or a specific person within a business, such as its founder.
While there are some complicating factors to the relationship between entrepreneurship, economic growth, development, and welfare, discussed below, the increase in economic growth from entrepreneurship is considerable. It is not, however, a magic bullet, and as discussed below broader economic conditions outside of entrepreneurship are important in determining whether economic growth occurs.
Entrepreneurial efforts have forced new social, political, and economic changes, holding out the promise for new innovations that will address intractable social problems such as climate change and structural racism. Notably, however, the results can vary, sometimes not creating as much social justice or positive development outcomes as initially promised.
Entrepreneurs and Economic Growth
Innovation and entrepreneurs undeniably contribute to economic growth and they are a particular area of concern for policymakers. However, scholars say that the economic growth offered by entrepreneurship can be exaggerated.
Growth from the entrepreneurial activity doesn’t occur evenly across sectors of the economy. Studies of economic growth have pointed towards an apparent paradox where productivity growth has been “at best modest in recent years,” despite the pervasiveness of innovation, entrepreneurs, and innovation ideology. According to research from the National Bureau of Economic Research, this is because innovation affects industries very differently, meaning that it has a large impact on the growth of some sectors of the economy but not across all sectors.
While generally positive, the link between entrepreneurship and improving welfare is also complicated, influenced by factors such as regional population, entrepreneurship density, and the specific industry in which the entrepreneurial activity is taking place, according to reviews of the scholarly literature.
Stages of Economic Development
The level of economic development of a country will affect whether entrepreneurship will lead to greater economic growth.
It seems as though the relationship between economic growth and entrepreneurship may be U-shape, according to the economist Zoltan Acs. In countries in the early or middle stages of economic development, economic growth is negatively connect to entrepreneurship; the two are positively connect in highly developed economies, a trend that emerge in the second half of the twentieth century.
In the twentieth century, fueled by the decline in manufacturing and the shift towards a service economy, industrialized market economies in later stages of economic development—like the United States and areas of western Europe such as Germany and Sweden—were able to benefit greatly from entrepreneurship, Acs’ writings have indicated. Those countries saw a rise in the amount of entrepreneurship, starting in the 1970s, which reversed the previous trend of those economies which was towards larger firms and less self-employment as workers tried to get high-paying managerial jobs with large firms.
Other factors may be relevant as well
Other factors may be relevant as well. Scholars point out that the US, in particular, has benefited from a large and competitive domestic market, a highly developed financial system, and a high level of long-term government support for basic science.
For developing countries, on the other hand, entrepreneurship isn’t a panacea to growth. A study of 74 economies across a six-year period concluded that less developed countries should not base their economic policy on “generic entrepreneurship” if they desire to stimulate economic growth. The authors argue that focusing on programs that develop human capital, take advantage of economies of scale, and entice foreign capital are more effective in leading to economic growth.
Italy may provide an additional 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.
Entrepreneurs and Social Progress
With concerns over sustainability, inequality, and social impact generally, many entrepreneurs have become more intensely interested in the social consequences of their economic activity. In particular, the rise of social awareness among entrepreneurs has led to many attempts to use entrepreneurship to create a more just and sustainable world. Since the protests over the death of George Floyd, entrepreneurs have also looked to combat systemic racism through their work.
Social entrepreneurship, which has been around as a concept since the 1950s, has become increasingly common. It describes a category of entrepreneurship that attempts to both make a profit and solve societal problems. It has become a way of pushing for social change within the social justice and entrepreneurial frameworks, but it differs from the typical nonprofit model in that it pursues both profits and socially desirable ends simultaneously.
Innovations in Investing
In investing, socially responsible investing (SRI) and environmental, social, and governance (ESG) criteria have promised to spur on more socially conscious results, especially as regards sustainability, while other innovations look to address the root causes of societal problems.
Although, neither are without their controversies.
ESGs, for instance, have caused skepticism from some investors, including the former chairman of the board of visitors for Japan’s Government Pension Investment Fund, Eiji Hirano, who has warned of the risk these investments may bring. SEC Commissioner Hester Pierce has commented that she believes mandating ESGs would violate the agency’s authority and could also “undermine financial and economic stability.”
Upsides and Downsides
From the perspective of social justice, which prizes a world with equal rights and access to opportunity, the reliance of the economic system on entrepreneurship presents both upsides and downsides.
Theoretically, socially conscious entrepreneurship offers the opportunity to generate solutions for marginalized communities, and the motivations for social entrepreneurs around the world tend to come from a genuine desire to uplift communities and to fix serious problems.
Entrepreneurship (construed broadly), then, offers the opportunity to catalyze creative solutions to long-standing problems, promote research, and energize social change. However, it’s important to note that sometimes attempts to solve the underlying structural problems lead to murkier results. The dual motives of profit and social good can sometimes clash, as the example of microfinancing in India reveals.
Entrepreneurship presents an important aspect of the current economic model, especially in post-industrial economies like the US where the “knowledge economy” and platform-driven companies, often relying on specific inventions or “disruptions,” have captured large shares of the market.
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 balance approach to nurturing entrepreneurship to be taken, which can, if handle correctly, result in a positive economic and societal impact.
However, if there is anything you think we are missing. Don’t hesitate to inform us by dropping your advice in the comment section.
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