Why and How Do Policy Makers and Practitioners Intervene to Encourage New Firm Formation - Essay Example

WHY AND HOW DO POLICY MAKERS AND PRACTITIONERS INTERVENE TO ENCOURAGE NEW FIRM FORMATION AND DEVELOPMENT? By + Professor’s Name University Name City, State Date Introduction Any country would want its economy and per capita income to increase. As such, encouraging new business and firm formation tops the list in the bid to realize this. For the companies that have already been set up, development, growth and expansion are encouraged. These companies certainly do not exist in a vacuum. They are subject to the various legal factors as well as the environmental factors which may either influence them positively or negatively. Policy makers and practitioners are thus charged with the responsibility of ensuring that growth is realized, and it plays an important vital role in new firm foundation and development (Audretsch, Grilo, & Thurik, 2007). New firm formation is not limited to the local people only. International investors who mostly engage in large enterprises form a large part of the potential entrepreneurs and thus their role cannot be underestimated. It is the role of policy makers to devise ways of ensuring that the policies and rules favor entrepreneurship and thus are attractive to potential investors. They should consider all factors that may inhibit growth and device ways of doing away with them thus encouraging business start-ups and development of the already established enterprises (Bridge, Oneill & Cromie, 2003). Importance of new firm formation and development New business formation cannot be underestimated. The biggest advantage is that with new businesses come new employment opportunities. Therefore, this results in more people getting a source of income and as such improves the living standards of persons. Studies show that old businesses gradually fire some of their employees due to factors such as the recession, change in consumer demand and irrelevance in the market sector. As time goes by, technology and the general overall business sector changes and these results to the irrelevance of the old companies. A good example is the fashion industry. This is a dynamic industry which changes far too fast. Some cloth lines have had to close since what they produce is considered outdated and each and every day new fashion experts sprout up and put their products on the market. Considering this, it is obvious that some jobs are lost in the process. New firms help fill this gap since they require people to work for them to make their products a success. New businesses also help fill the gap that is realized every day. As people change, their preference also changes and this results in deficiencies which require to be supplied. New firms will have identified this gap and will work towards filling it hence meeting the wants of the people (Blackburn & Schaper, 2012). Creativity has become the norm today. Each and every day people are thinking of better ways to provide services and products. New firms are the ones which are mostly involved in this. Innovation, therefore, helps in the growth of the economy since more efficiency is realized. A small idea when developed can eventually turn into a lucrative business venture which not only benefits the entrepreneur but the business at large (Deneulin & Shahani, 2009). New firms add to the taxes realized by the government. This is earned through permits, levies, and operational taxes. With this increase comes the increased development of the country and as such better infrastructure development can efficiently be met. The government will be able to undertake projects such as building of roads more easily and effectively and this will benefit the country as a whole (Great Britain, 1886). Why policy makers and practitioners intervene Setting up a new firm and development is not always automatic and natural. Decision makers know this and as part of their strategy to encourage the development of new businesses and development, they have to intervene. Decision makers are a group of people or a body designed to come up with laws pertaining rules as to how the entry into the market should be carried out, the legal requirements and the general responsibilities of the people involved. These people have powers and will most ensure that the procedure is performed in accordance with the laws. Practitioners on the other hand refer to the people who are qualified in that particular profession and have practiced in and thus have first hand information regarding the activities, benefits and struggles of the individual enterprise. These people’s involvement in the intervention is very beneficial since they will be able to give the best advice regarding how the activities can best be governed. Practitioners have the best interest of the entrepreneurs at heart (Organisation For Economic Co-Operation And Development, 1900). The policy makers and practitioners share the shared goal of ensuring the success of new firms and the development of the new and existing ones. They are well aware that the policies that they come up with will ultimately either discourage or encourage the new firm formation process. As such, they will always strive to create laws that will encourage potential investors to go ahead and invest in the businesses. Practitioners must work hand in hand with the policy makers since they are the experts here and have been involved in the activities at hand and will thus make sober decisions pertaining the rules set up. A good example of this includes potential private medical practices. Many doctors might not want to be employed in the public sector and will wish to engage in private practice. The government, being the biggest policy maker cannot effectively make rules pertaining to this alone (Ledgerwood, Earne, & Nelson, 2013). This is because the government officials may not be doctors and will thus know nothing about the struggle involved. Getting medical practitioners in the decision making process is effective since they will give advises, e.g., who gets the permit, the level of education to warrant a license, the tax rate on the practice and such. Policy makers will also intervene in order to protect the public against general harm that may be caused as a result of individual firm practices. Some of this include getting companies to provide a detailed description of the waste expected and how they will handle it. Some companies, if allowed to operate, may end up producing waste such as toxic smoke which will ultimately affect the people around it and this is a significant health hazard. The health sector is also a sensitive area and thus the policy makers will want to protect the public against practitioners who are not experts and will thus pose more harm to the patients than good (Ledgerwood, 1999). The policy makers will still intervene so as to create the best enabling environment possible, thus enticing the potential investors to invest and form new businesses as well as encouraging their development. An enabling environment here refers to an environment where a business can comfortably thrive with minimum problems such as government interference, political instability, and adverse climatic conditions. Obviously this poses less risk and will thus be more attractive to the investors. How policy makers and practitioners intervene To facilitate the smooth entry into the market, decision makers must strive to create an enabling environment for the same. Some of the ways through which they will achieve this include; Business incubation services. Sometimes one may have an idea which when exploited will most be possible. Sometimes one does not have the funds to turn this thought/idea into a business. This is where business incubation comes in. The government or various private incubation facilitators help nurture and support this idea when convinced that it will turn into a lucrative business. This goes a long way into the establishment of new firms. In other cases, a business may already be established and funds may be required to facilitate its growth, in these cases, the incubators will support the expansion. Reducing entry barriers, some laws may be retrogressive and too harsh on potential business entrepreneurs. The barriers may be too difficult to overcome and as such entry into the market will be hard. The policy makers strive to minimize or completely remove the obstacles so as to encourage investment. Providing incentives, the policy makers may provide incentives aimed an enticing the potential investors. Some of these incentives include; Grants. This is funds which are not expected to be paid back. It is like sponsoring the project and with the availability of these resources the business is bound to grow. Subsidies, this may be termed as the removal of an individual burden. In this case, the government pays for various factors of production thus reducing the overall cost of production (Paloni, & Zanardi, 2005). Tax reduction, some people may shy off from getting involved in business since they are familiar with the high tax rates. Tax reduction, therefore, serves as an attraction to the potential investors and they are enticed to invest. Dealing with the language barrier, is a common inhibitor to investments in various environments. The different policy makers cannot address this obstacle but they can always encourage the learning of different languages by setting up schools teaching the different languages at a cheap rate. The practitioners can hold workshops and expositions to teach the potential aspiring young investors how to effectively start a business and when they impact this knowledge into them, the young people can then start investing and set up new firms. Infrastructure, the policy makers, should strive to ensure that the infrastructure is at par with the recommended one and that social amenities such as roads and electricity are of quality standard (United States, 1986). This will be an attraction to potential investors as they will then be sure that their activities would be carried out more efficiently. Imposition of trade quotas, restrict the quantity of commodities that can be imported in a particular country. This goes a long way in encouraging local firms since they are sure that they will have a market for their products. Some imported materials are always cheap and will thus pose a significant threat to the local industries producing the same. Discouraging unhealthy competition, It does not benefit anyone. Some traders who engage in this such as extreme price reduction either end up using cheaper inferior quality raw materials for their production or end up completely closing down their business as a result of losses realized (Kusek & Rist, 2004). Conclusion The policy makers, as well as practitioners, have a role in new firm formation and development cannot be undermined. They go a long way to encourage setting up of the companies and device ways to facilitate and encourage this growth. These results to an improved economic status and the people also benefit from employment thus significantly improving their living standards and conditions. New firms are a significant boost and it benefits everyone. More seminars and workshops should be encouraged especially by the practitioners in order to teach the potential aspiring young investors how to effectively start a business so as to start investing and set up new firms. As the upcoming firm formation is not only limited to the local people there is great need for the International investors who are primarily interested in large enterprises form a large part of the potential entrepreneurs, therefore, it is clear that their role cannot be given a blind eye. It is the role of policy makers to devise ways of ensuring that the policies and rules favor entrepreneurship which in return attract potential investors. They should consider all factors that may inhibit growth and device ways of doing away with them thus encouraging business start-ups and development of the already established enterprises. New businesses always should be encouraged since these results into more individuals getting a source of income which leads to improvement in the living standards of persons. Research proves that old businesses gradually fire some of their employees due to factors such as the recession, change in consumer demand and irrelevance in the market sector. As time goes by, technology and the general overall business sector changes and these results to the irrelevance of the old companies in the market space due to ever changing dynamics. References Audretsch, D. B., Grilo, I., & Thurik, A. R. (2007). Handbook of research on entrepreneurship policy. Cheltenham, UK, Edward Elgar. http://public.eblib.com/choice/publicfullrecord.aspx?p=301685. Bridge, S., Oneill, K., & Cromie, S. (2003). Understanding enterprise, entrepreneurship, and small business. Basingstoke, UK., Palgrave Macmillan. Blackburn, R. A., & Schaper, M. (2012). Government, SMEs and entrepreneurship development: policy, practice and challenges. Farnham, Surrey, England, Gower. Deneulin, S., & Shahani, L. (2009). An introduction to the human development and capability approach: freedom and agency. London, Earthscan. Great Britain. (1886). Board of Trade journal. London, H.M. Stationery Off., etc.]. Organisation For Economic Co-Operation And Development. (1900). OECD working papers. Paris, Organisation for Economic Co-operation and Development. Ledgerwood, J., Earne, J., & Nelson, C. (2013). The new microfinance handbook: a financial market system perspective. Washington, DC, World Bank. Ledgerwood, J. (1999). Microfinance handbook an institutional and financial perspective. Washington, D.C., World Bank. http://site.ebrary.com/id/10383968. Paloni, A., & Zanardi, M. (2005). The IMF, World Bank and policy reform. London, Routledge. United States. (1986). The cost and availability of liability insurance for small business: hearings before the Committee on Small Business, United States Senate, Ninety-ninth Congress, first session. Washington, U.S. G.P.O. Kusek, J. Z., & Rist, R. C. (2004). Ten steps to a results-based monitoring and evaluation system a handbook for development practitioners. Washington, DC, World Bank. http://public.eblib.com/choice/publicfullrecord.aspx?p=515775. . , Read More