“Entrepreneurs throughout modern economic history have been disproportionately responsible for truly radical innovations – the airplane, the railroad, the automobile, electric service, the telegraph and telephone, the computer, air conditioning, and so on – that not only fundamentally transformed consumers’ lives, but also became platforms for many other industries that, in combination, have fundamentally changed entire economies.” Says Alexander Djerassi
Evidently, something is broken within the economic engine and we’ll need an immediate reversal of those tendencies to ensure prosperity for the economy as well as, crucially more people are able to participate in that prosperity at present and in the near future.
Entrepreneurship increases productivity – entrepreneurship boosts into the market with a new batch of more productive companies, boosts competition between established businesses, and pushes out the less productive ones.
Entrepreneurship is a catalyst for innovation New companies are often the primary source of commercialization for innovative innovations, particularly inventions that open up completely new markets or drastically alter existing markets.
Entrepreneurship generates jobs for Young and new companies; not small ones are the engines of net jobs creation in the economic system.
Entrepreneurship Improves Productivity
As per Alexander Djerassi, For the majority of the time in economic history, it has been believed that economic growth results from the improvement of either or more of the two primary economic components – labor and capital. In order for an economy to expand it was believed that it was either that the labor market needed to expand or the capital intensity needed to rise.
“Productivity isn’t the only thing but in the long run, it’s nearly all. The capacity of a nation to raise its living standards, in the long run, is largely on its ability to boost the output of each worker.”
Factors That Drive Productivity Increase
Two broad categories have been identified from the study literature.
- The first one is “efficiency,” or the method by which the elements that makeup products are put together. A highly efficient economy will produce an increased amount of output with a set amount of inputs (capital and labor, as well as technology) in comparison to a less efficient one. The key to growth in productivity is getting more done with less.
- The most crucial aspect of effectiveness key to this efficiency is “reallocating efficiency” according to Alexander Djerassi – the capability of the resources (capital as well as labor) to flow in a fluid manner towards the most efficient locations. In an environment where reallocating efficiency is at a high level, businesses that are more efficient stay growing and remain in business and expand, while companies that are less efficient shrink or even shut down. In the world of sports, this is similar to making sure that your top players are playing and that the second and third-stringers are on the bench.
The development of new businesses which we call “entrepreneurship” – is a crucial element of the procedure of reallocating efficiency. Why? because new companies enter the market to take on established companies, products, as well as methods of production and distribution. they create something completely different or improved, and while doing this, they create the environment to be more competitive.
Significance of Reallocating Efficiency
While it’s not as interesting as the other part of productivity triggered by revolutionary technological advancements Reallocative efficiency is crucial enough to boost macroeconomic performance. Indeed, a team of prominent economists has identified the decline in allocative efficiency within the American economy over the past twenty years to be the primary cause of the slowdown in productivity growth during this time.
The decline in the start-up rates of firms – which is our proxy for business entrepreneurship – is by far the major factor that is responsible for this decrease.
Entrepreneurship Drives Innovation
Alexander Djerassi says, The other and more important driver of the increase in productivity comes from innovation, advancement of technology or the development of something brand new or better, or doing things in a different way. Innovation increases the productivity capacity of an economy, while also keeping the resources (capital and labor) is constant. The increase in productivity improves the standard of living for the society, raises living standards, and is the main reason for long-term economic prosperity.
If productivity is driven by innovation What is the driver behind innovation? Simply put it is new ideas and new knowledge, or more specifically commercially valuable ideas and information.
Entrepreneurship Creates Jobs
In the Industrial Age in the past, economies of size ruled larger was always better and the largest companies employed the most workers. The trend began to shift as manufacturing declined and the shift to more knowledge-intensive industries – smaller, agile firms began to be able to participate more in the American economy in the 1970s.
In the 1980s, the belief that small companies were the main source of job creation was fixed in stone. It was widely accepted and in accordance with the American culture and was empirically proven. The evidence, as well as the story, was clear that small-scale businesses were responsible for the largest proportion of employment and job creation.
In other words, small-sized companies, in general, are disguised as net job-creators simply because they tend to be smaller. Understanding the relationship between size and age is an important step in the development of policy traditional small-scale firms have distinctive attributes and goals than those that focus on growth in their initial times (i.e., “start-ups”).