Entrepreneurs are frequently thought of as national assets to be cultivated, motivated and remunerated to the greatest possible extent. Entrepreneurs can change the way we live and work. If successful, their innovations may improve our standard of living, and in addition to creating wealth with their entrepreneurial ventures, they also create jobs and the conditions for a prosperous society.
Entrepreneurs Create New Businesses
Trailblazing offerings by entrepreneurs, in the form of new goods and services, can produce a cascading effect by stimulating related businesses or sectors supporting the new venture, furthering economic development.
For example, a few IT companies founded the Indian IT industry in the 1990s as a backend programmers' hub. Soon the industry gathered pace in its own programmers’ domain. But more importantly, millions from other sectors benefited from it. (For more, see: Top Indian Billionaires And How They Made Their Money.)
Businesses in associated industries, like 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. Infrastructure development organizations and even real estate companies capitalized on this growth as workers migrated to employment hubs seeking better lives.
Similarly, future development efforts in underdeveloped countries will require robust logistics support, capital investment from buildings to paper clips, and a qualified workforce. From the highly qualified programmer to the construction worker, the entrepreneur benefits a large part of the economy.
Why Are Entrepreneurs Important?
Entrepreneurs Add to National Income
Entrepreneurial ventures generate new wealth. Existing businesses may remain confined to the scope of existing markets and may hit the glass ceiling 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 their unique offerings of new goods and services, entrepreneurs break away from tradition and indirectly support freedom by reducing dependence on obsolete systems and technologies. This results 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. Imagine an innovative, automatic, low-cost, flow-based pump that can fill people's water containers automatically. 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 either. As the growth of China's smartphone market and its smartphone industry shows, technological entrepreneurship will have profound, long-lasting impacts on the entire human race.
Moreover, the globalization of technology means entrepreneurs in lesser-developed countries have access to the same tools as their counterparts in richer countries. They also have the advantage of a lower cost of living, so a young entrepreneur from an underdeveloped country can take on the might of a multi-million-dollar existing product from a developed country.
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, like Bill Gates, have used their money to finance good causes, from education to public health. The qualities that make one an entrepreneur are the same qualities that motivate entrepreneurs to pay it forward.
The Other Side of Entrepreneurs
Are there any drawbacks to cultivating entrepreneurs and entrepreneurship? Is there a limit to the number of entrepreneurs a society can hold?
Italy may provide an example of a place where high levels of self-employment have proved to be inefficient for economic development. Research reveals that Italy has in the past experienced large negative impacts on the growth of its economy because of self-employment. 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 and requires a fine balancing act on the part of the regulating authority. Unregulated entrepreneurship may lead to unwanted social outcomes including unfair market practices, pervasive corruption, financial crisis and even criminal activity.
Findings from 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.”
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. Owning to the variability of success in entrepreneurial ventures, the scenario of having too many entrepreneurs may also lead to income inequality, making citizens more, not less, unhappy.
The Bottom Line
The interesting interaction of entrepreneurship and economic development holds important inferences for policy makers, development institutes, business owners, change agents and charitable donors. If we understand the benefits and drawbacks, a balanced approach to nurturing entrepreneurship can result in a positive impact on economy and society.