Economic Approaches to Entrepreneurship
This essay will focus on economic factors that affect the nature and growth of
entrepreneurship. Economic aspects such as economic inflation, high taxation, and high prices
will be reviewed with respect to entrepreneurship. Also, the essay will cover economic themes
that can be used to explain entrepreneurship.
The economic approach to entrepreneurship deals with economic factors responsible for
the nature and growth of entrepreneurship. Each entrepreneur requires a platform, and the
economic state of a country is the basic platform for the growth of an entrepreneur. Westhead
Paul, (2011) argue that bad economic state of a country affects the success and survival of
entrepreneurship within a state, in particular in the line of economic inflation (Westhead Paul,
2011). For instance, consider an entrepreneur who has a modern idea and knows how to create
the product. This entrepreneur can have a good market for the product, but the E-factor
(economic factor) may not be ready. For instance, due to economic inflation, the cost of
materials can become expensive for entrepreneurs which would hamper their growth.
According to Cuervas,(1994), an entrepreneur requires at least minimum conditions to do
some basic activities before he/she starts to improve. For instance, if there are attitudinal,
operational, strategic, government failure barriers, other factors especially economic factors
should be supportive. Cuervas,(1994) explains that high taxation can lead to inadequate incomes,
high product prices, shoddy products, lost jobs, low real tax revenues and poverty and high
crime. Although some of these effects can be attributed to initiate entrepreneurship, mostly they
work against the operating entrepreneurs. For instance, the aspect of lost job caused by high
taxation can initiate a person to start his/her business. Also, high taxation may limit the number
of products in the market which would affect entrepreneurs who sell those products. The
relationship between entrepreneurship and inflation can be understood using Gartner’s (2001)
concept. This author says that when multiple governments levy several taxes on an entrepreneur,
this makes such taxes be the highest budget items on the ledger sheet of the entrepreneur.
Consequently, the entrepreneur has to raise prices of his/her products as a way of obtaining
money for paying such taxes. As a result, prices of such products hike which in turn reduce their
uptake from consumers. Therefore, the growth of an entrepreneur will be negatively impacted
(Gartner, 2001). Overly, the following are some of the economic factors that affect
entrepreneurship: interest and exchange rates, public spending and inflation policies.
In line with economic approaches to entrepreneurship, there are theoretical themes
concerning the generation and economic development of entrepreneurial opportunities. In the
theme imagination and creativity (the new idea, products, and businesses), Shackle (1966) argues
that creativity and spontaneity can limit the span of economic rationality. The main idea in this
theme is that it is not possible to entirely explain human activities based on the past activities and
fixed preferences (Shepherd, 2006).
The theme new combinations, radical innovation, new industries and economic
development consider entrepreneurship as a venture bringing extraordinary events, and there is a
need for genuine entrepreneurs to be radically innovative. Radical innovation, in this case
implies new technological processes, products and organizations. To be an entrepreneur, one
should be ready to bear uncertainty, identify opportunities and evaluate demand, supply and
arbitrage. This can be summed up in the theme opportunity identification, evaluation, and
pursuit: demand, supply, and arbitrage (Ucbasaran, 2001).
Possessing the ability to make good judgments concerning the way to coordinate
resources is an essential character of entrepreneurs. The entrepreneur should possess the skill of
evaluating the risks and uncertainty. This can collectively be placed in the theme of functions
and judgments of entrepreneurs (Shepherd, 2006).
Entrepreneurial activities involve accumulating and managing knowledge resources
because knowledge and organizational forms are related (Storey, 1994). For instance, a business
uses knowledge to experiment a particular process and product in line with the expected demand.
Therefore, the idea of managing knowledge is essential for an entrepreneur. Accumulation and
management of knowledge resources may be classified to fall under the theme knowledge
management, incremental innovation, and resource (Storey, 1994).
Of all the above economic themes presented, I find the theme imagination and creativity:
new ideas, products and businesses to be the most important theme since it explains
entrepreneurship based on imagination and creativity. The theme is based on knowledge and
argues that without knowledge, it is not possible to make relevant decisions. This is true
considering that entrepreneurship is a venture in which decision making is an obligation
(Ucbasaran, 2001). Of all skills an entrepreneur should possess, an essential skill is being
innovative and imaginative. Making pre-emptive products and processes that are hard to be
duplicated is vital in keeping the entrepreneur in the industry for a long time. Creativity and
imagination powers processes and products which ultimately drive entrepreneurship.
This essay focused on economic approaches to entrepreneurship. The essay briefly
discussed economic factors that affect the nature and growth of entrepreneurship. Also, the essay
covered the economic theme that help to explain entrepreneurship. The theme imagination and
creativity: new ideas, products, and businesses was considered most important in explaining
entrepreneurship since it is based on knowledge, imagination, and creativity which are critical
for an entrepreneur.
Cuervas, J. (1994). Towards a Taxonomy of Entrepreneurial Theories. International Small
Gartner, W. (2001). Is There an Elephant in Entrepreneurship? Entrepreneurship Theory and
Shepherd, M. a. (2006). Entrepreneurial Action and the Role of Uncertainty in The Theory of
Entrepreneur. Academy of Managemen, 132-152.
Storey, D. (1994). Understanding the small Business Sector. London: Thomson Learning.
Ucbasaran, W. (2001). The Focus of Entrepreneurial Research: Contextual and Process Issues.
Entrepreneurship Theory and Practice, 57-80.
Westhead Paul, W. a. (2011). Entrepreneurship: Perspectives and Cases. Financial