New products and services created by entrepreneurs can produce a cascading effect, where they stimulate related businesses or sectors that need to support the new venture, furthering economic development.
For example, a few information technology companies made up the IT industry in India during the 1990s. The industry quickly expanded and many other sectors benefited from it. Businesses in associated industries—such as 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.
Similarly, future development efforts in other countries require robust logistics support, capital investments and a qualified workforce. From the highly qualified programmer to the construction worker, entrepreneurship benefits a large part of the economy. In the U.S. alone, small businesses created 1.6 million net jobs in 2019.
Entrepreneurial ventures help generate new wealth. Existing businesses may remain confined to existing markets and may hit a limit 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 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, such as Bill Gates, have used their money to finance good causes, from education to public health. The qualities that make one an entrepreneur can be the same qualities that help motivate entrepreneurs to pay it forward through philanthropy, in a later chapter of life.
Regulation plays a crucial role in nurturing entrepreneurship. Unregulated entrepreneurship may lead to unwanted social outcomes, including unfair market practices, pervasive corruption, and criminal activity.
Findings from the 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. Owing to the variability of success in entrepreneurial ventures, the scenario of having too many entrepreneurs may also lead to income inequality, making citizens unhappier.
The relationship between entrepreneurship and economic development is important to understand for policymakers and business owners. Understanding the benefits and drawbacks of entrepreneurship allows a balanced approach to nurturing entrepreneurship to be taken, which can result in a positive economic and societal impact.
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