Importance Of Entrepreneurship Capital – Mr Rahul Baijal

Entrepreneurs are often thought of as national assets to be refined, motivated and remunerated to the greatest possible extent. Entrepreneurs can change the way we live and work. If successful, their revolutions may improve our standard of living. In short, in addition to creating wealth from their entrepreneurial ventures, they also create jobs and the conditions for a flourishing society.

Entrepreneurship capital is defined as “a region’s endowment with factors conducive to the creation of new businesses” and it exerts a positive impact on the region’s economic output.

Regions with a higher level of entrepreneurship capital show higher levels of output and productivity, while those lacking entrepreneurship capital have a tendency to generate lower levels of output and productivity. The impact of entrepreneurship capital is stronger than that of knowledge capital. Evidence indicates that entrepreneurial capital plays a very important role in the production function model presented.

The following are six reasons why entrepreneurship capital is important to the economy:

Entrepreneurs Create New Businesses
Path breaking offerings by entrepreneurs, in the form of new goods & services, result in new employment, which can produce a cascading effect or virtuous circle in the economy. The stimulation of related businesses or sectors that support the new venture add to further 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.

Businesses in associated industries, like call centre operations, network maintenance companies and hardware providers, flourished. Education and training institutes nurtured a new class of IT workers offering better, high-paying jobs. Infrastructure development organizations and even real estate companies capitalized on this growth as workers migrated to employment hubs seeking new improved 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 enables benefits across a broad spectrum of the economy.

Entrepreneurs Add to National Income
Entrepreneurial ventures literally 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 offerings, products or technologies from entrepreneurs enable new markets to be developed and new wealth created.

Additionally, the cascading effect of increased employment and higher earnings contribute to better national income in 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 Also 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. Overall, this results in an improved quality of life, greater morale and 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 in people’s home water containers automatically. Such an installation will ensure people are able to focus on their core jobs without worrying about a basic necessity like carrying water. More time to devote to work means economic growth.

For a more contemporary example, smartphones and their smart apps have revolutionized work and play across the globe. Smartphones are not exclusive to rich countries or rich people either. As the growth of China’s smartphone market and its smartphone industry show, technological entrepreneurship will have profound, long lasting impacts on the entire human race.

Moreover, the globalization of tech 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 individual entrepreneur from an underdeveloped country can take on the might of the multi-million-dollar existing product from a developed country.

Community Development
Entrepreneurs regularly nurture entrepreneurial 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 an “upper limit” for 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 States
Regulations play a crucial role in nurturing entrepreneurship, but regulation 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.

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 inequalities, making citizens more – not less – unhappy.

The interesting interaction of entrepreneurship and economic development has vital inputs and 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 will definitely result in a positive impact on economy and society.

The writer is a Founder & CEO, Wheelyz Mobile Café