Small Scale Entrepreneurship Has a Role to Play in Helping the UK Out of the Financial Crisis - Essay Example

Name: University: Course: Tutor: Date: Social Worker, 2009, Why Britain’s Recession is Along Way From Over. Available At: http://www.socialistworker.co.uk/art.php?id=19731 Does the small scale entrepreneurship have a role to play in helping the uk out of the financial crisis? In this paper I will attempt to answer this question but before I do that I feel that it is only just fair that I give a brief analysis of the financial crisis not facing the uk only but the whole globe. The fact is that every ne is feeling the pinch of the global financial crisis but the only difference is the extent or the degree of the crisis. Several economists and financial analysts have given several causes of the financial crisis but I will only look at them briefly. The financial crisis started in 2007 and was first called by many credit crunch or credit crises. There was lack or reduced credit in the developed world and –the chie5f reason for these was thought to be illiquidity of financial institutions. Around October 2008 several financial institutions in the uk us and in other European countries collapsed others were merged or bailed out by the respective governments. Rising rate of default on subprime mortgages is seen by analysts as the main catalyst to the crisis. Defaults led to ultimate decline in investor confidence in the market for structured financial instruments. the crisis hit even the institutions that one could have thought to be very stable and unshakable. Financial institutions like Lehman brothers, Fannie mae and Freddie Mac which were thought to have noteworthy exposure to the subprime market also failed in 2008. There are other explanations as to the cause of the financial crisis: decline in lending standards the reason for this being that financial institutions could always transfer risk of principal contracts; undervaluation of assets such that the pricing of financial assets could did not reflect the primary credit quality; remuneration, in this case the financial institutions encouraged risk taking by rewarding short term gains even those that would be reduced or exhausted by losses in the lengthy term; financial institutions resulted to panic selling of assets and this led to reduced asset prices and finally, financial institutions relied wholly on the credit rating allocated to products by credit rating agencies without doing their own ratings. My article of choice has indicated that a study done by the office for national statistics (OFNS) has found out that the real gross domestic product of the uk fallen has fallen by 0.4per cent. The article has also indicated that small scale businesses have suffered more from the credit crisis. From here on, we try to discuss what the role of small scale entrepreneurs is in improving the level of gdp and whether the lack of capital (credit) should be a justifiable excuse for the dismal performance of small scale businesses. The small and medium scale enterprises have a major role to play in the economy of the uk. In fact about 99 per cent of all businesses or 20, 000,000 enterprises are small and medium enterprises popularly known as the SMEs and these are a key driver of economic growth. The European Union understands this and for that reason formed an eu commission to promote entrepreneurship and create conducive environment for smes. However it is true to say that these businesses are not operating at their full potential. Statistics indicate that 66 per cent or two third of new small businesses collapse at fancy i.e. before they have lasted for five years. The main reason for this failure is given as lack of entrepreneurial skills and/or lack of capital. Entrepreneurial skills, however, is the main reason of the two. A basic definition of an entrepreneur is: a person (male or female) who organizes manages and undertakes to take risks of a new enterprise. Joseph Schumpeter’s definition has emphasized on the following in his definition of entrepreneurship: the willingness to take risks; the ability or knowledge to produce new products; the knowledge to discover new markets; the ability to invent new production methods and lastly but not the least the ability to re organize an enterprise. Most definitions do not include the aspect of capital. The possible reason is that businesses that have already been started lack any of the five aforesaid components of entrepreneurship. Most business analysts agree with the fact that although capital is necessary in business it is not the most important thing. As I have indicated earlier the, small scale businesses contribute more to the growth of the economy than any other sector. But what happens when two thirds of these businesses close down after every five years. What happens is that many lives are literary lost as families get torn up and health problems arise. Dependency ratios rise and government burden increase as it has to provide social amenities to its people. This is in verity the real cost of failure in entrepreneurship. The reduction in GDP levels due to business failure as indicated by these explanations clear. The previous paragraph has drawn a conclusion that only a, few people in business are entrepreneurs. This leads to the question who is an entrepreneur or haw is he/she different from the other business people. An entrepreneur is not necessarily the person who is confident, organized, hardworking, focused, aggressive or dominant but is one who has an “independent spirit”.(Nicholas A. Bibby, 2009). In addition to this successful entrepreneurs exhibit an executive talent. This thus answers the question whether entrepreneurs are born or made. The answer is any one can be an entrepreneur, one needs not to be born as one. To be an entrepreneur seems to be an easy thing but the reason why there is a lot of entrepreneurial failure is because two things always lack: one reason is because here is lack of passion for the job involved and two; there is lack of personal fit with the undertaking. This is to say that there must exist a good relationship between the owner and the business. Otherwise if this is lacking this is lacking the business will be going no where it will be just a matter of time before the business collapses. this is to say that root cause of failure is lack of business-owner fit and not capital or knowledge as many would like to think or argue. In the preceding paragraphs I have tried to discuss the role of entrepreneurship in the success of business enterprises. In conclusion I’ll briefly give suggestions on how entrepreneurship can be improved. One way is integrating the subject of in school’s curriculum. These will ensure that every student who goes through the education system gai9ns knowledge of business and needs not to be employed but can employ self. The second way is use of legislation measures that will allow or encourage people to take risks and finally the introduction of national entrepreneurship campaigns to enlighten people about this topic. The UK has already adopted the latter strategy and launched the national enterprise week in 2004. These campaigns are already bearing fruits and soon the numbers of small businesses that die at infancy are expected to reduce drastically. references Bibby, Nicholas, 2009, The Entrepreneurial Personality available at :< http://emerging-entrepreneurs.com/entrepreneur-personality.php Cranson, lori, (2001), Entrepreneurship: Creating a Venture Authors, Nelson Thomson Learning, London Kuratco, d, (2001) Entrepreneurship Harcourt Canada, Limited, Ottawa Kuratko, Donald, 2003, Entrepreneurship: Theory, Process, and practice, Cengage Learning, cengage Social worker, 2009, Why Britain’s recession is along way from over, available at: http://www.socialistworker.co.uk/art.php?id=19731 telegraph.co.uk, uk, 2009 financial crisis, available at :< http://www.telegraph.co.uk/finance/financetopics/financialcrisis/ wiley interscience, 2009, Entrepreneurship, available at :< http://www3.interscience.wiley.com/cgi-bin/fulltext/118907886/PDFSTART Read More