‘IS NEW ENTREPRENEURIAL ACTIVITY IMPORTANT TO
THE ECONOMIC GROWTH OF A NATION ECONOMY?’
1. INTRODUCTION
This paper aims to critically explore and answer the question “is new entrepreneurial activity important to the economic growth of a nation economy?” Global reference is made throughout, but concentrates on the UK. The question is explored via definitions, difficulties, statistics, reference to the work of the GEM, and specific discussion of the relationship between new entrepreneurial activity and economic growth.
2. MAIN BODY
2.a. Definitions
Burns states: “there is no universally accepted definition of the term entrepreneur” (Burns, 2007), but there are numerous attempts such as: “an entrepreneur is an innovative, risk-taking individual who identifies a need in a market and finds a way to fill it, whether by using his or her own expertise and passion, the knowledge of others, or a combination of the three” (Schrage, 2012). Entrepreneurs differ from the self-employed and small business owner/managers in that they are creative, proactive, innovative, strategically-minded, risk-takers and leaders.
“Entrepreneurial activity is the enterprising human action in pursuit of the generation of value, through the creation or expansion of economic activity, by identifying and exploiting new products, processes or markets” (Ahmad & Seymour, 2008).
Economic growth may be defined as “an increase in the capacity of an economy to produce goods and services, compared from one period of time to another” (Investopedia, 2014). Numerous methods are utilised to measure economic growth. One is the percentage annual change in Gross Domestic Product (GDP) calculating the value of everything produced by a nation state. Other methods, amongst many, are measurements of a nation’s incomes, savings, assets, investments and productivity.
2.b Difficulties
Considerable difficulties arise in defining what an entrepreneur is and what entrepreneurial activity is and how it may be quantified. It is highly debatable whether self employment such as the owner-manager should be included in such.
Further complications arise from considerable entrepreneurial distinctions regarding national economies dependent on whether the economy in question is highly developed such as in the UK whereby most new entrepreneurial activity is in service sectors and also in new technologies which seems to have had a positive impact on economic growth, or is a transitional or developing economy where a greater percentage may be in the area of consumer goods and which, for various reasons such as low personal incomes, seems to have had little or no impact.
Some research has been done regarding entrepreneurial activity at company, industry and regional level, but less at national level. What constitutes economic growth is also somewhat difficult to define, although there are far more established measures than for entrepreneurial activity.
2.c UK Statistics
There were 90,000 new British businesses established in the first six months of 2013 (up 3.4% from the same period in 2012). Rebecca Burn-Callander quotes Richard Phelps MD of Barclays Wealth and Investment Management – “It is clear to see that new businesses – and the individuals that set them up – are becoming an economic tour de force.” – Rebecca Burn-Callander ‘Start-Up Activity on the Rise in the UK….25 Nov 2013…WWW.telegraph.co.uk
There are a number of reasons which may be cited as playing their part in the recent UK growth of small businesses: the growth of the service sector; advances in new technology industries; public sector re-organisation and reduction; high levels of unemployment encouraging the unemployed to go into business for themselves; a general increase in public awareness of the ‘Enterprise Culture’ not least due to very high-profile figures such as Richard Branson, Alan Sugar, James Dyson, David & Victoria Beckham and Katie Price amongst others.
