Why Entrepreneurship Is Important To The Economy
Entrepreneurship is the lifeblood of any countries economy. It is characterized by free markets where businesses create value by producing goods and services with a higher value than what they paid to produce them. Capitalism strives when there is a reduced amount of government involvement and it gets wealth flowing throughout the economy as everybody trades goods and services with each other for money.
While Capitalism is not a perfect system, it has a much better track record of success than alternative systems such as socialism and communism which have often lead to collapse, stagnation and even worse throughout history.
Entrepreneurs risk their time and capital with the hope of creating something of value. When their customers pay them more than cost, they make a profit and these profits can be used to fuel further business expansion and generate more economic activity.
Entrepreneurship is central to almost all developed nations as the food, clothing and entertainment needs can be met without any intervention from the government who will often miss the mark with their goods and services.
Countries can vary on a scale of Capitalism (Private Sector) to Socialism (Public Sector). Almost all countries will have government run police and emergency services but not all countries have public healthcare such as the USA. Governments will give a public wage or unemployment benefit to those who can’t find work or are unable to work. The more entrepreneurship in a country the higher the governments tax take will be and the lower the unemployed benefits that will be needed.
In this article we look at some of the most important aspects of Entrepreneurship to every country.
Produce Goods And Services That People Want
Since an Entrepreneur puts their own capital on the line to start a new venture, they work hard to produce goods and services that people actually want. If the entrepreneur fails to add value to the raw materials, they will not make any profit and the capital will be lost.
Even if the capital is lost, it will still have flowed to the other business owners who produced the raw materials or the services needed to produce these goods and services so it will still flow through the economy and distribute the wealth to others who will then pass it on to other etc and get the capital circulating.
Once the Entrepreneur is successful, he can use his profits to produce more goods and services that people want or they can increase their output and get their products in the hands of more people.
Increase A Nations GDP
An entrepreneur that can export their goods and services into different countries, increases his own countries GDP and makes the nation wealthier.
Entrepreneurs add wealth to a nation by creating value that people are willing to pay for. They take $20 worth of raw materials and organise them in a way that they can sell them for $50 and the profit is left as wealth created in the entrepreneurs economy.
Successful Entrepreneurs are wealthy and they can buy other peoples goods and services which leads to a growing and healthy economy which will benefit everyone going forward as the money circulates.
If you look at the living conditions of the poor today compared to 50 or 100 years ago in capitalist countries, you will see an incredible increase in food supply, medicine and the luxuries that they possess and this is down to the value added by capitalism.
Creates Jobs
As Entrepreneurs grow, they need to produce more and more products to satisfy their customer demand and this means they can employ people to perform the tasks needed to keep the supply in line with the growing demand.
Entrepreneurs put systems in place so they can hire people to perform certain roles, freeing up the time of the Entrepreneur to focus on more important aspects of the business.
The employee receives wages for their labour that can be used for food, clothing, accommodation and have money left over to buy luxuries and start their own enterprise. All the money that the employee gets and spends goes to other providers of goods and services and money flows around the economy for everybody who is willing to work or enterprise to grab their share.
One of the key criticisms of capitalism will say that entrepreneurs are taking advantage of their employees and all sorts of minimum wages and unions have been set up to protect employees.
We would say that there is nothing stopping an employee from saving their money and starting their own enterprise if they are being taken advantage of.
Employees will also pay taxes that are used for public services like healthcare, social welfare and essential services.
Innovation
Competitive markets lead to innovation as people strive to produce things faster, better and more cheaply than their competition. This healthy competition benefits consumers with lower prices and better products.
Consider the competition between Apple and Samsung to produce the best phone or Pepsi and Coke to produce a winning formula or even two restaurants next to each other competing for the same business.
The businesses know that the better their offering, the more custom they will get and the more profit they will generate to pump back into the economy.
Sports brands compete to make lighter and more flexible shoes, watch makers strive for perfection and unique selling points, leaving the customer with better products and these innovations find their way into every day uses for the public, businesses and the essential services like medicine, fire fighting equipment or ventilators for hospitals.
When you consider the alternative, where the government produces everything, you will be eating the same brands everyday and wearing the same clothes as everyone else which is hardly appealing.
Generate Taxes
The wealth generated by companies and all of the wages it pays to its employees can be taxed by the government and used for essential services like police, military, fire departments, hospitals, schools, infrastructure projects and unemployment benefits.
Without Entrepreneurship and capitalism a country may soon go broke with its inefficiency and this can lead to serious problems like we see in Venezuela today and have seen with communism throughout history like the USSR and other failed projects.
Capitalism may not be perfect but it is surely the best system we have by far!
Less Government Dependence
By creating employment and economic activity, it reduces the role of the state in providing people with social welfare and other support services.
The unemployment rate is one of the key measures that economists will look at to decide how well a country is performing and if there is low unemployment, they can put the increased taxes into infrastructure and building capital projects like stadiums and event centres that can further stimulate the economy and produce wealth for the inhabitants.
Government dependence can be a tough cycle to break and people are left with more time on their hands. This can lead to drug and alcohol abuse, domestic violence, depression and suicide. All of these negative factors require more state resources to manage and the economy can go in a downward spiral due to government dependence.
Inspires Others
The wave of successful entrepreneurs in the world today, especially online, is inspiring for the younger people that are watching their success, learning from their success and creating their own enterprises to generate wealth and employment in the countries and economies.
Employees in successful businesses can often spot gaps in the markets they are serving in and are inspired to strike out on their own and create new enterprises which will create more wealth and employment for the economy.
Provides Choice For Consumers
Increased competition from entrepreneurship leads to more choice for consumers. More business esrequire more business premises and raw materials. All of the extra activity helps to grow the economy as well as providing more choice for the population from where they eat, to what they wear to where they spend their free time.
More choice leads to better circulation of wealth and a higher standard of living.
As an example, think about the number of brands and varieties of sport shoes you can get to suit any sport and any style of foot. Can you imagine the government providing such a lavish choice for its citizens.
Successful Entrepreneurs Can Give Back To Society
It can be said the most successful can be more successful at redistributing the wealth they have generated than the state could ever be.
Famous Entrepreneurs throughout history like Dale Carnegie and Bill Gates have set up foundations for the redistribution of their wealth for the betterment of society.
Carnegie put his wealth to use in building libraries and public buildings that have stood the test of time until today and are still used by people of all ages to learn and as public arenas.
It is hard to find a city in the western world that doesn’t have a building named after Dale Carnegie.
Bill Gates has created the Bill And Melinda Gates Foundation which has a purpose of increasing the health of the world through vaccinations and education.
Develop New Technologies
When you think of any of the great technologies that we take for granted today, it is easy to forget that they came from Entrepreneurship and innovation.
Whether it is the car, the aeroplane, the personal computer, the mobile phone or the television. These types of products can only come from the innovation of entrepreneurs.
If you look at alternatives to the free market systems like Communism, there is a distinct stagnation in the advancement of new technologies and innovations. This hurts us all as human beings as we strive towards the advancement of our species and our inevitable exit from the planet earth to explore the outer reaches of space and the cosmos.
Even if you look at Entrepreneurs like Elon Musk who started off with PayPal before moving onto success with Tesla and then continuing to innovate and create new technologies with the goals of taking humans to Mars in the not too distant future.
This technological advancement benefits mankind and is 100% due to the free market system.
Work Efficiently And Productively
If a company can’t be efficient with its materials and productive with its labour, it can easily be replaced by someone who can create the same product for a cheaper price.
Some brands will inevitably come along to challenge even if they don’t offer the same quality. Entrepreneurs can protect their place in the market with strong branding, trademarks and copyright that will stop others from imitating the key elements of their products.
The efficiency and productivity of the workforce will have a direct impact of profits and firms will put a ton of effort into making the best product and service possible for the lowest cost, even if that means outsourcing certain business tasks that can be done better by another company like production or customer service.
Roles The Government Plays In Entrepreneurship
The biggest role the government plays in the level of Entrepreneurship in a country is it’s corporate taxation rate. With a low corporate tax rate, a country can entice companies from all around the world to set up their operations there.
Ireland is a good example of a low corporate tax rate to draw in big firms from the US who also like the high skilled, English speaking labour force.
States in America with the lowest corporate and income tax levels, automatically draw the best companies. Think of Texas and Florida and the current dispute between Elon Musk and California, where Elon is going to move his operations to Texas and Grant Cardone who traded California for Florida after a tax increase he found unjust.
Other ways governments help is by providing free infrastructure for companies who want to move and also be supplying grants and initiatives to business and start ups through local enterprise boards.
For the most part though, the best way a government can help an Entrepreneur is by simple getting out of the way and letting them get on with creating value, wealth and profits for their business so that the benefits will trickle down into the rest of society.
The truth of the matter is that the government doesn’t do anything that well and that is especially true when it comes to enterprise and creating value.
Entrepreneurship In The Digital World
If you are thinking about setting off down the entrepreneurial route, there has never been a better time to do it. The internet, another innovation that could only come from a free market, has made your task incredibly more achievable.
Never before has there been so much opportunity and every business needs an online presence.
Quality online businesses that anyone can start include Web Design, Digital Marketing, Blogging, Youtube, E-Commerce, Dropshipping, Print-On-Demand, Fulfilment By Amazon, Ebay Selling, Etsy, Affiliate Marketing and the list goes on and on.
If you are the best at Digital Marketing for any business, you can attract a wealth of customers and once you provide a good service you should be successful and a valuable member of your society who can hold their head high and earn the respect of their family, peers and neighbours.
