GE-EM: ENTREPRENEURIAL MIND

CHAPTER 2: Entrepreneurship and Economic Development

ROLE OF ENTREPRENEURSHIP IN ECONOMIC DEVELOPMENT:

Entrepreneurship continuously plays an increasingly important role in a country’s economic development.
FOUR (4) THEORIES THAT EXPLAIN ECONOMIC GROWTH
Theory #1:

 The theory of Mercantilism was the first major economic theory known in the world.
 It was based on the idea that a nation’s wealth will increase only if government regulated all the nation’s
commercial interests.
 The government, according to mercantilism, should take care of all the economic activities of a country.
 Mercantilism states that the global supply of wealth is a fixed amount, and that therefore any gain of
wealth by one nation must necessarily represent a loss by another.
 National strength was based on limiting imports thorough high tariffs and exporting as many goods as
possible.
 Due to its system of “me-first” and “no imports”, mercantilism could not maintain forever, because the
reality was that it led to a stagnant global economy.
 Each country wanted to import and no one wanted to export. After sometime, many people began to
revolt against the idea of mercantilism and stressed the need to conduct free trade among nations.
Theory #2:

 Toward the 18th century, Adam Smith wrote ‘An inquiry into the Nature and Causes of the Wealth of
Nations” where he documented industrial development in Europe.
 He expounded the need to minimize the role of government intervention and taxation in the free
markets, saying that an “invisible hand” guides supply and demand, reflecting the concept that each
person, by looking out for herself, creates the best outcome for all.
 Smith called this the Laissez-Faire theory, which along with other philosophers claimed, “It is not from
the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their
regard of their own interest.” By selling their products, the butcher, brewer, and baker will make money.
If they meet the customers’ needs they will be rewarded financially, which is the point of being in
business.
 According to Smith this creates wealth not only for the people in business, but also for the whole
country where the citizens work to provide for themselves and others and where they take care of their
own financial needs.
Theory #3:

 Meanwhile, Karl Marx disagreed with Adam Smith and the laissez-faire theorists. He interrupted human
history as a class struggle between workers and employers.
 He declared that free enterprise would lead to increasingly severe losses and would eventually bring
about revolution by the workers. They called for an economy where the government owned all the
property and distributed everything equally among all the people through socialism.
Theory #4

 In 1934, an economist named Joseph Schumpeter explained that economic growth is started by people
(whom he called entrepreneurs) who produce goods not only for personal profit but also for the goods
of everyone around them.
 He called entrepreneurs the backbone of the economy.
 Entrepreneurs according to him are people who find joy in creating or producing goods; who find self-
fulfillment in getting things done; and who have a strong need for achievement.
 This entrepreneur centered theory is widely used to answer the need for socio-economic development.
RELATIONSHIP BETWEEN ENTREPRENEURSHIP AND ECONOMIC DEVELOPMENT

 Entrepreneurship is a key factor in assuring improvements not only in the personal life of the
entrepreneur, but also in the lives of other people: the family, the community and the country.
 The businesses in the community, if taken as a whole, become a sort of huge basket that supports all
the lives of the people there.
 These businesses provide the people with all the goods they need to carry on with their lives, while
making their money circulate and grow within the community as well as within the country, or region,
and the whole world.
 Entrepreneurship improves the well-being of all.
  Entrepreneurship helps provide the following:
o Products and necessities that sustain life;
o Freedom from servitude, ignorance, social deprivation and misery and;
o Self-esteem for the entrepreneur: to be a person with a sense of self-worth and self-respect,
and being of service to the community.
SOCIO-ECONOMIC BENEFITS OF ENTREPRENEURSHIP IN ONE’S FAMILY IN THE LARGE
COMMUNITY

 Enterprises and communities need each other to survive. Enterprises in the community often help
each other too. For example, the products of one enterprise can be a raw material needed by
another enterprise. Thus, money circulates. The combined efforts and cooperation of everyone in
the community create more opportunities for citizens to work and earn.
 National well-being brings about development because people are assured of having the necessary
goods on time, within reach, as needed, even as money circulates and entrepreneur make profit.
 Enterprises are a big factor in any country’s development and nation well-being and true
development.
 The following are indicators proving that a country has reached national well-being and true
development:
1. Owners live within the community where their enterprise is located.
2. Enterprises serve the needs of the residents for products and services and make a living
from doing this.
3. The community has an adequate supply of raw materials that the enterprise would need.
4. The community offers the enterprise a steady source of labor and in turn is provided gainful
employment by the business.
5. The community willingly patronizes the enterprise and its products and services.
6. Local government executives are supportive of the business enterprises.
7. There is an abundance of water and power supply.
ROLE OF ENTREPRENEURSHIP IN THE 21ST CENTURY

 According to research done by the United Nations University (UNU), countries in the West are
becoming more reliant on smaller firms for specialized knowledge-driven goods and services because
of their flexibility and creativity.
 In emerging countries, innovative entrepreneurship makes economic growth possible through new
resources, technology, markets and environmentally-friendly production processes.
 Youth entrepreneurship has become a vital strategy among development organizations.
 Entrepreneurs’ satisfaction over what they are ding should be the outcome of development so that
being an entrepreneur is not forced upon people; rather it is taken as a matter of choice.
 The combination of production, profit, and savings of entrepreneur will contribute to the nation’s overall
economic activity.
 When the volume of production increases, the potential for further investment expands and this
eventually increases the economy’s capacity for growth. The population is given a greater chance to
select from the goods and services available for them. This can help improve the standard of living,
provide more job opportunities, greater prosperity and economic growth.
ROLE OF GOVERNMENT IN ENTREPRENEURSHIP DEVELOPMENT

 The government should create an environment where entrepreneurship can grow.

 Access to finance should be made easier so that most entrepreneurs are helped in raising funds in the
early stages of their business.
 Access to technological, legal and socio-psychological support must be made available through
government’s assistance and simulation to help entrepreneurs that are just starting their businesses.
 Policies, laws, regulations and procedures should be simplified to ease the way for new entrepreneurs
as they go through the administrative complexities of starting a business.
-End of Chapter 2-

Prepared by:

Louella Martina B. Era, BSPA

Faculty, College of Business and Accountancy
louera.psu@gmail.com