The Role of Entrepreneurship
in Economic Development

The Role of Entrepreneurship in Economic Development
There are various definitions of entrepreneurship. However, the
key concept is innovation. This refer to new or different ways of doing
things, like technology, marketing, human relations, management, and
so forth. When an individual creates a new product, it is innovation.
When he sells his product in a different approach, it is also innovation.
Evidently, a more efficient way of producing goods and services
contributes to economic development. Likewise, a more economical
and faster method of distributing goods and service accelerates
economic development. A more appropriate system of utilizing the
inputs of production, such as money, materials, machines and
manpower, can favorably contribute to economic development. All the
three aforementioned situations comprise entrepreneurial activities.

The Role of Entrepreneurship in Economic Development
In view of the innovative nature of entrepreneurship, it is
capable of generating more jobs, incomes, goods and services.
Ultimately, this means better economy and higher standard of living for
the people. However, the real contributions of entrepreneurship is
measured in terms of the welfare of the masses. It should be Filipino
entrepreneurship for Filipino economic development – whose benefits
seep down to the level of the masses.

Entrepreneurship Defined
Entrepreneurship, according to Professor Nathaniel Left, is the
capacity for innovation, investment and expansion in new markets,
products and techniques. This definition implies that an enterprise is
at work whenever an individual takes the risks and invest resources to
make something unique or something new, designs a new way of
making something that already exists, or creates new markets.
However, entrepreneurship is not only applicable to business
enterprises. It can also be done in schools, hospitals, and other social
services institutions. Entrepreneurship has special or extra-ordinary
features, such as the creation of something new or something
different. In short, it is innovation which distinguishes
entrepreneurship from other activities.

Entrepreneurship Defined
Any person who can create something new or something
different has already acquired a competitive advantage. Because it
means an improvement. Consumers like to buy an improved product
or service. Japanese businessmen are successful due to their
innovations. If someone can introduce a better way of public service, it
is certainly good for the people, especially for the poor masses. Any
new technology that can reduce money, labor and time is obviously
favorable to the economy. Hence, the importance of entrepreneurship
for ordinary people, businessmen and the government.

Entrepreneurship Defined
Professor Hirsh said:
“Entrepreneurship is more than a word. It is a mission. We must
perceive opportunities inherent in change; we must create a desire for
pursuing the opportunities that arise; and we must create an
environment in which success is possible and the consequences of
failure are tolerable.”

Economic Development and Growth Explained
Development is a process while growth is a product. So, growth
is the result of development. In agriculture, the application of
fertilizers, insecticides, labor, machines and other productive inputs
represents a process or development. The results or outputs are crops
like rice, corn or sugar. In simple terms, development is input while
growth is the output.
In economics, development does not only include economic
factors like money, machines and materials, but also other factors
which are non-economic, such as culture, values, religion, government
and education. These mixtures of economic and non-economic factors

Economic Development and Growth Explained
which are applied in the creation of goods and services constitute
economic development. Clearly, it is not effective to solve economic
problems with economic solutions alone. For instance, extravagance is
not only an economic problem. It is also caused by unfavorable culture
or social values.
In poor countries which are usually dominated by poverty,
illiteracy, unjust distribution of wealth, income and power, the concept
of economic development has a more relevant definition. Under this
socio-economic context, economic development refers to a progressive
process of improving human conditions by eliminating or reducing
poverty, unemployment, disease, illiteracy, injustice and exploitation.

Economic Development and Growth Explained
What are needed in poor countries are more economic activities
through the operations of factories, agricultural production, trade and
service industries. In concrete terms, such economic activities multiply
jobs and incomes. However, social justice must prevail. There should
be a fair distribution of wealth, income and power. Unfortunately, it is
almost impossible to redistribute wealth in poor countries. Their land
reform programs are failures, because there was no political will on the
part of top government officials who obviously prefer to sustain the
existing socio-economic order.

Economic Development and Growth Explained
In view of the very limited access to economic opportunities by
the masses, a better option is to develop an entrepreneurial class.
With the strong support of the government and the private sector,
small scale enterprises can flourish in the countryside. Such
community-based projects can generate jobs and incomes for the poor.
This is all what they need to uplift their social and economic conditions.

Development and Growth Theories
LAISSEZ FAIRE THEORY
These are French words introduced by the Physiocrats to mean
economic freedom. This theory explains that the government should
not interfere in economic activities. It is absolute free-enterprise
economy. The role of the government is only confined in education,
justice and public works. It is argued that with economic freedoms,
business can be more efficient through free competition. And this
benefits the economy.

Development and Growth Theories
KEYNESIAN THEORY
The government should play the key role in economic
development, particularly in less developed countries, or those with
depressed economic conditions. This theory contends that during
economic depression the government should put up massive public
works, like construction of roads and bridges, and other labor-intensive
projects. These generate large-scale employment resulting to more
incomes for more people. Such situation increases the demand for
goods and services. This means more production, and this enhances
economic development.

Development and Growth Theories
RICARDIAN THEORY
This is the theory of David Ricardo, an English classical
economist. He believes that the key factor in economic growth is land.
This means that agriculture plays a major role in economic
development. Such theory was earlier supported by the Physiocrats.
They claim that all wealth comes from the land. People cannot live
without food and natural resources. Hence the importance of land or
agriculture.

Development and Growth Theories
HARROD-DOMAR THEORY
This was conceptualized by Sir Harrod of England and Professor
Domar of the U.S. The key factor in economic growth is physical capital
like machines. The theory claims that more products can be produced
through the use of machines. In other words, production is far more
efficient with the use of machines. This theory appears to explain the
industrial success of rich countries.

Development and Growth Theories
KALDOR THEORY
Nicholas Kaldor maintains that the key factor is technology. This
theory explains that the application of modern technology in the
production of goods and services has been responsible for the
economic success of the highly developed countries like the U.S.,
Japan, Great Britain, France, Italy and Germany. In the case of Japan, it
can raise vegetables without the use of soil. Only fertilized water is
used. Such technology has been exported to the Middle East where
agricultural lands are scarce.

Development and Growth Theories
INNOVATION THEORY
This was developed by Joseph Schumpeter. He stresses the role
of innovators or entrepreneurs in economic development. Schumpeter
says that it is the innovator who has the courage and imagination to
handle old systems, and be able to transform theory into reality. It is
the innovator who introduces change for the better.

Development and Growth Theories
NON-ECONOMIC THEORIES
There are several other theories which are non-economic in
nature. Their key factors are political stability, efficient public
administration, open society, and positive cultural values. Maxx Weber,
author of Protestant Ethics and the Spirit of Capitalism, claims that
Protestant countries are more prosperous than Catholic countries and
others. He says that thrift, industry and an entrepreneurial spirit have
contributed much to the economic growth of Protestant countries.

Development and Growth Theories
Not a few economists argue that corruption in the government is the
No. 1 enemy of economic development in Asia. Others say that inefficient
public administration has resulted to wasteful and improper use of
resources. Likewise in a close society, there is no economic and social
mobility. The poor have no right to improve their miserable conditions. All
these unfavorable factors clearly drive away economic growth.
IN the case of highly developed countries, their values and institutions
are conducive to economic growth. Their government are efficient and
honest. Their values such as punctuality, industry, and dedication are
effective instruments of development. Above all, they have many good
entrepreneurs who have created employment and wealth for their
economies.

The Importance of Entrepreneurship
Statistics in both rich and poor countries show that small enterprises
are leading in the generation of jobs and wealth. In fact, the small business
sector saved the U.S. economy from economic stagnation or depression
during the 1960s and 1970s. Professor Peter Drucker, America’s foremost
management specialist, stated that the entrepreneurial economy had been
the most important development in American economy. It created 335
million jobs at a time when traditional big business and the government has
lost 5 million jobs in 1970s and early 1980s.
In the Philippines, most of our economic activities fall under the micro
and small business categories. There are many retailers, vendors, and other
small sole proprietors. As long as they perform some risk-taking ventures,
innovations, and creative undertakings, they are considered entrepreneurs.

The Importance of Entrepreneurship
Because of the proven importance of entrepreneurship, subjects
in entrepreneurship have been included in the curriculum of high
schools, colleges and universities in many countries. Harvard President
Derek Bok said:
“The Harvard Business School is beginning to see that its role is
not just training general managers, but also training and providing
preparation for people to start their own business…It is a kind of a new
freedom to go out and take some risks and run your own show… It’s a
kind of a new frontier for people of some boldness and creativity.”

Contributions of Entrepreneurs
1. Develop new markets. Under the modern concept of marketing,
markets are people who are willing and able to satisfy their needs. In
economics, this is called effective demand. Entrepreneurs are
resourceful and creative. They can create customers or buyers. This
makes entrepreneurs different from ordinary businessmen who only
perform traditional functions of management like planning,
organization and coordination.

Contributions of Entrepreneurs
2. Discover new sources of materials. Entrepreneurs are never
satisfied with traditional or existing sources of materials. Due to their
innovative nature, they persist on discovering new sources of materials
to improve their enterprises. In business, those who can develop new
sources of materials enjoy a comparative advantage in terms of supply,
cost and quality. In Japan, due to the extreme scarcity of local raw
materials, entrepreneurs give top priority to research and development
in order to discover alternative materials.

Contributions of Entrepreneurs
3. Mobilize capital resources. Entrepreneurs are the organizers and
coordinators of the major factors of production, such as land, labor and
capital. They properly mix these factors of production to create goods
and services. Capital resources, from a layman’s view, refer to money.
However, in economics, capital resources represent machines, buildings
and other physical productive resources. Entrepreneurs have initiative
and self-confidence in accumulating and mobilizing capital resources
for new business or business expansion.

Contributions of Entrepreneurs
4. Introduce new technologies, new industries and new products.
Aside from being innovators and reasonable risk-takers, entrepreneurs
take advantage of business opportunities, and transform these into
profits. So, they introduce something new or something different.
Such entrepreneurial spirit has greatly contributed to the
modernization of our economy. Every year, there are new technologies
and new products. All of these are intended to satisfy human needs in
a more convenient and pleasant way.

Contributions of Entrepreneurs
5. Create employment. The biggest employer is the private business
sector. Millions of jobs are provided by factories, service industries,
agricultural enterprises, and the numerous small-scale businesses. For
instance, the super department stores like SM, Uniwide, Robinson and
others employ thousands of workers. Likewise, giant corporations like
SMC, Ayala and Soriano group of companies are great job creators.
Such massive employment has multiplier and accelerator effects on the
whole economy. More jobs mean more incomes. This increases
demand for goods and services. This stimulates production. Again,
more production requires more employment.

Participation of Women
As stated earlier, human resources are the most important
productive resources. Unfortunately in poor countries or
underdeveloped economies, most of the women are engaged in
unproductive activities. It is true that in the rural areas, women help in
the farms. But their economic contributions are insignificant. Even
without their help, farm production remains the same. This simply
means there is no need for them to work in the farms. Their labor is
just a surplus one. In economics, such situation is referred to as
disguised unemployment.
Women constitute a big portion of the total population. Their
exclusion from productive enterprises is a great economic loss. They

Participation of Women
should be producers and not merely consumers. The business
potentials of women have gained the attention of some United Nations
agencies and other non-governmental organizations (NGOs). As a
result, there are now programs/projects for women, especially in the
rural areas of poor countries, which are envisioned to train women for
business enterprises and livelihood endeavors.
Bangladesh, formerly East Pakistan, is a very poor country.
Women comprise about 49% of the population. They were bypassed
by the development programs of their country. Most of the women are
unschooled, socially depressed and have conservative attitudes.

Participation of Women
Having recognized the vast economic possibilities of including women
in the development scheme of the country, the government of Bangladesh
finally set up entrepreneurial projects for poor rural women. Skills training
were conducted for micro handicrafts or cottage industry enterprises. The
program of the government is planned to encourage rural women to be
entrepreneurs. Credit facilities have been extended to entrepreneurial
projects.
Women’s participation in socio-economic development as
entrepreneurs has tremendous impact in terms of additional jobs, incomes,
goods and services. This can speed up the economic development of
Bangladesh. If all poor urban and rural communities have small enterprises
run by women, poverty will be greatly reduced. According to Schumacher,
the legendary author of Small Is Beautiful, the presence of one small factory
in every village heralds the coming of prosperity.

Filipino Entrepreneurial Economy
One of the top programs of the government is the development
and promotion of Filipino entrepreneurship. There are many
government agencies and private organizations which extend financial
and technical assistance to micro and small-scale enterprises. Many
are not aware of such assistance, especially the poor and unschooled
rural folks. Those who know are not enthusiastic about the program
due to numerous conditions and paperworks, not to mention red tape.
For the same reason, the rural poor prefer to depend on usurers for
their credit needs, rather than borrow from lending institutions.
Our economic resources are mostly in the hands of few local elite
and multinational corporations. A great majority of the people are
workers, laborer and office clerks. They only get salaries which are not

Filipino Entrepreneurial Economy
even enough to support their basic needs. Such unjust distribution of
income can be corrected by giving people easy access to business
activities. Through business, even the poor are likely to improve their
social and economic conditions.
Claro M. Recto, considered the father of modern Filipino
nationalism, said that we need economic nationalism to attain real
economic growth. He defined economic nationalism as the control of
the economic resources of the country by its own people, and their
use of such resources for their own benefit and enjoyment. Recto also
claimed that the cause of our poverty is that we allow foreigners to
dominate our economy. He blamed the U.S. educational system.

Filipino Entrepreneurial Economy
“The educational system fired our people’s desire for political
liberty, but it purposely neglected to develop economic nationalism
among the citizens, and instead insidiously inculcated in them ideas of
economic dependence on America.”
At present, our educational system should stress patriotism and
economic nationalism. Although this is mentioned in our Constitution,
it appears that colonial mentality is still infused in the minds and
actions of many Filipinos. Such attitude is clearly counter-productive as
far as the Philippine economy is concerned. Pride and preference for
foreign goods, especially American products, are still strong. Peoples in
other countries patronize their own products. And this is good for their
economy.

Filipino Entrepreneurial Economy
Our educational system should also emphasize in its curriculum
the importance of local entrepreneurship. By and large, Filipinos are
employee-oriented, especially for white-collar jobs. We are not risk-
takers. Many of us are afraid to put up our own business because of
the possibility of bankruptcy. Such lack of entrepreneurial spirit,
particularly among professionals, has encouraged foreigners to take
advantage of our cheap labor and rich natural resources. They are the
ones who are now rich. And they are our masters in our own country.

VALUING
• List down your three main takeaways in the topic “The Role of
Entrepreneurship in Economic Development.”
• What particular learning/lesson/realization have you gained in this
topic that you think could eventually contribute to your future role as
an entrepreneur.