The Relationship Between Entrepreneurship
In order to completely understand the relation, it is Important to define what Is meant by each of the terms before Identifying any links between them. Joseph Schumacher defined entrepreneurship as “whatever the type, everyone is entrepreneur only when he actually carries out a new combination and loses that character as soon as he has built up his business, when he settles to running it as other people run their 1934, p. 78) I agree with most of this definition as this basically means that a person is only an entrepreneur when something new Is created.
After this point, they are not considered entrepreneurs as whatever they have created Is no longer new. Schumacher also said that Innovation Is the creation of a new product, new method of production, new markets or new ways of directing resources. It is also important to distinguish between incremental and radical Innovation. Incremental innovation refers to a small change whereas radical change means a revolutionary change, For example, the Invention of the first mobile phone was a radical innovation. The release of Apple’s latest phone is an incremental innovation.
Firstly, I will examine the correlation between Just entrepreneurship and innovation. In my opinion, it is impossible to be an entrepreneur without being innovative. Summerset’s definition supports this belief. The person needs to create something incrementally or radically new in order to be an entrepreneur. A good example of this would be Steve Jobs, one of the founders of Apple. His Innovation towards portable music was radical In the sense that his product was compact. However, since then, he has made more products such as phones and computers.
Schumacher also argued that innovation allows firms to generate abnormal profits which are required as they encourage research and development. However, I believe that this research and development often leads to incremental change rather than radical change. This can be seen by looking at Apple as well. Apple constantly makes incremental changes to FIFO However, incremental change is essential for economic development. Economic development is defined as the rise in the general standards of living and quality of life. It is measured by the Human Developmental Index (HID).
The HID is a “way of measuring development by combining indicators of life expectancy, educational attainment and income” (UNDO, 2011). Economic development can only be achieved if there is economic growth. Economic growth is the rise in a nation’s real gross domestic product (GAP). Considering that “Development requires the removal of major sources of unfounded: poverty as well as tyranny, poor economic opportunities as well as systematic social deprivation, neglect of public facilities as well as intolerance or overcapacity of oppressive states. (Mammary Seen, 1999, p. 3), I firmly believe that economic growth can lead to economic development. Entrepreneurship and innovation fuels economic growth as it makes demand rise. An entrepreneur innovates and creates something to meet a pre-existing yet unfulfilled demand. As a result, people buy that product, allowing the entrepreneur to earn profits. These profits can be invested back into the business. The process then starts again and causes the economy to grow. A growing economy results in increasing expenditure.
This means that unemployment falls and incomes rise. This means that consumption of necessity goods increases. The provision and consumption of services such as health care and education can also increase. Governments can also generate more revenue from tax as incomes and expenditure rises. This means the provision of public goods such as clean drinking water, sanitation and law and order increases. A rise in the supply of public goods causes a reduction in inequality gap and improves income distribution.
All of these constitute to economic development as the standard of living has now been improved and this can be proven by calculating the values for the HID indicators. Furthermore, economic growth is also an incentive for more innovation as it signals to the potential entrepreneurs that the economic conditions are suitable for making profits. It is due to all these conditions that I believe that the ‘uninformed’ mentioned in Ken’s definition are removed and aptly addressed during a period of economic growth, thus, resulting in economic development.
An example, from Kenya, of the process above supports my argument. According to an article published by The Guardian, a Kenya telecommunications company, Safari, started providing a mobile banking service called ‘M-Peas’ in 2003. This service permitted its users to store money on their phones and pay for items or transfer money via SMS. This provided people with an alternative source of banking that was better than the traditional method because it was portable and did not impose heavy charges for transactions. As a result, demand for mobile phones went up.
A study done by the London Business School showed that for every 10 extra mobile phones per 100 people, GAP in a developing nation went up by 0. 5%. Mobile phones also aided in economic development because they “can also be used to spread vital information about farming and healthcare to isolated rural areas send symptoms of a disease to a doctor via text and receive a diagnosis. Farmers could find the market price of the crops to ensure that they are not cheated. Mobile banking is not a radical innovation however; incremental change can be more beneficial for less developed countries.
This service helps improve the quality of life for people in remote, rural areas that are hard to get to due to poor infrastructure. Although, entrepreneurship and innovation can cause economic growth, it isn’t the only way. Economic growth can also be found in situations from which entrepreneurship is completely absent. A prime example of this would be the Russia during the sass. During this time, Russia was a centrally planned economy. By definition this means that all decisions were made by the state rather than individuals. “The decade of sass was thus the “golden period” of Soviet economic Roth.
The patterns of Soviet growth of the sass in terms of growth accounting were very similar to the Japanese growth of the sass-ass and to Korean and Taiwanese growth in the 1960-ass – fast increases in labor productivity counterweighted the decline in capital productivity’ (Vladimir Pop, 2010) These nations saw an increase in their GAP even during a lack of entrepreneurship due to increased labor productivity. However, the rise in GAP only lasted a decade. As it can be inferred by inspecting the current economic conditions in the former Soviet states, the growth was not sustainable.
Sustainability looks at the level of self-sufficiency a product or notion has. It is related to entrepreneurship and innovation in the sense that if a product, idea or procedure is not sustainable, the likelihood of its existence is low. It’s obvious to me that an entrepreneur is less likely to follow through with an idea that cannot continuously generate profits. Conversely, the concept of sustainable development has to be discussed while trying to understand the relationship between economic development and sustainability.
Sustainable development is defined as “development that meets the needs of the resent without compromising the ability of future generations to meet their own needs. ” (NUANCED, 1987)This means that entrepreneurs have to be innovative in a manner that satisfies the current demand but does not harm the future generation’s capacity to innovate and satisfy their demands. Sustainable entrepreneurship can help achieve economic development. For example, the invention of the catalytic converter by Eugene Hydro was a radical innovation that was meant to reduce the air pollution created by exhausts from chimneys and automobiles.
This kind of radical innovation benefits the developed nations more as they have a higher rate of institution and more factories and automobiles that create emissions. In this case, sustainable entrepreneurship increases economic development because impact on health, one of the factors measured by the HID, is reduced. In conclusion, the relationship between entrepreneurship, innovation and economic development is a bilateral one. I think it is impossible to be an entrepreneur without causes economic growth which is required for economic development.
However, economic growth does not equate to economic development, as shown by the report on Soviet growth rates. Even though there was economic growth, there was a very insignificant, if any, rise in the standards of living. For me, this highlights the importance of entrepreneurship in achieving economic development. Even though I think radical innovation is a better reflection of entrepreneurship, I think that incremental innovation is of greater importance for the purposes of promoting economic development in less developed countries.
The incremental innovations done by entrepreneurs in less developed nations, such as Safari in Kenya, are vital for economic development due to the nature of the infrastructure in these countries. Radical innovations such as the creation of the catalytic converter and whiney scrubbers that reduce emissions are significant for improving the standards of living in developed nations due to the opulence and levels of consumption. Sustainability and sustainable development play a noteworthy role in this relationship.
