An Introduction to Economics with Emphasis on Innovation - Term Paper Example

? Entrepreneurship can be d as a procedure rather than a static development. An entrepreneur initiates innovation in order to convert it into aneconomic product. Schumpeter has defined entrepreneurship as a particular form of social leadership. Generally, present definitions of entrepreneurship often narrate the practical roles of entrepreneurs which include harmonization, creativity, improbability, capital funding, decision making, proprietorship and resource distribution. There are three major roles of entrepreneurship which are, risk seeking, innovativeness and opportunity seeking. Entrepreneurship can help to develop new business, which in turn creates more employment, strengthens competition, and thus increases the productivity of organizations (Arena, 2002). Economic theory provides a set of thoughts and methods for examining the distribution of limited resources. Unless entrepreneurship ultimately develops products from limited resources, it can be of minimum economic interest, even though it may possess greater social significance. The idea of selection and therefore decision making is essential to economic theory. Entrepreneurship acts as an individual quality which allows certain persons to make decisions with long run outcomes. When economic development is viewed from historical viewpoint, the role of an entrepreneur arrives into central focus. By acting in different ways, entrepreneurs can achieve success which causes other people to change their thoughts and therefore help to alter the historical economic progression. Entrepreneurial efforts are needed for developing an enhanced distribution of resources and transmitting their significant experience to other nations. If two nations differ in their talents of entrepreneurship, then there will be a propensity for developments to invent new things with the copious ability of entrepreneurs. If there is lack of native entrepreneurs in any nation, then foreign entrepreneurs from economically prosperous nations enter the backward country and develop new innovation through proper distribution of resources. At a macroeconomic level, an entrepreneur plays a vital role in the establishment of organizations. Economic theory suggests that there is close relation between personal qualities of entrepreneur and economic success of organization. One of the most exciting aspects of successful entrepreneurs is that they are often drawn from marginal groups in society which try to find alternative possibilities of social progression near them. Thus, it is evident that society and its traditions have a significant impact on the development of entrepreneurs (Casson, 2003). Schumpeter had defined the “entrepreneur as innovator” as one who drives economic development. According to Peter F. Drucker, “Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or a different service.” The innovative activity of entrepreneur nourishes the pioneering procedure of creative destruction by initiating continuous instabilities to the economic system and by generating prospects for economic growth. Schumpeter’s theory expects that an entrepreneur can contribute in economic development (Wong & Et. Al., 2005). He was of the view that an entrepreneur can innovate, motivated by competition to develop technology, business and organizational structure. He characterized innovation as an “industrial mutation” which continuously transforms the financial structure and destroys the existing ones. The procedure of creative destruction is a vital element of entrepreneurship (McCraw, n.d.). Creative destruction is made on dynamic, cautious and commercial efforts to modify market arrangements and can be favourable for further innovations and revenue opportunities. Schumpeter’s business cycle is viewed as the outcome of innovation which involves the development of new thoughts and its application in a new product, procedure or service. It can result in the dynamic development of a national economy, growth of employment opportunity, and creation of clean revenue for the innovative organization. Once an economy enters into the industrial stage, a qualitative modification in the drivers of economic development arises. In a progressive industrial economy, the development is driven by the procedure of technological progression, knowledge accumulation and innovation (Carroll & Et. Al., 2006). Schumpeter had recognized innovation as a significant element of economic revolution. He wanted to demonstrate that innovation initiated market can provide enhanced outcomes compared to price competition market. Innovation can generate short-term monopolies in the economy which lets abnormal returns for certain period of time until the competitors imitate that innovation. Schumpeter had alleged that these short-term monopolies are essential to deliver the encouragement necessary for organizations to improve new products and business practices (Carroll & Et. Al., 2006). One of most significant attributes of Schumpeter’s theory is idea of entrepreneurial profit in the theory of economic development. According to Schumpeter, entrepreneurial profit falls in the purview of temporariness. By applying new aspects of production, entrepreneurs earn the advantage of being the first mover. For example, through innovation of more effective production procedure, entrepreneur will be the only manufacturer to gain the advantage of related lower expenses only for a certain period of time. As information is shared, other organizations will try to compete with the new innovation of the entrepreneur. The gain of entrepreneur lies in uncertainty, because the demand for new innovation or new production procedure is clearly unpredictable. Entrepreneurs are also unacquainted of the period of their risk-taking profit. Thus, Schumpeter had strengthened his refusal of the marginalism in explaining economic development and progress as these factors are incapable to clarify or accommodate the innovation process i.e. how much entrepreneur can gain from an innovation (Arena, 2002). Entrepreneurship acts as a motivating force for economic development. Schumpeter stated that every person who carries out new inventions is an entrepreneur. These new inventions establish better means to satisfy present demand or create new demand by making existing products, technologies or processes obsolete. Organizations with innovative entrepreneurs subsequently develop their businesses through dual procedures of gaining market share from existing dealers and growing overall demand for the products presented in the market. A few real life examples from the business world are Andrew Carnegie, Walt Disney, Pierre Omidyar, William Harley and Arthur Davidson, Jeff Bezos, Henry Ford, Bill Gates and Steve Jobs among others. Andrew Carnegie was responsible for developing US Steel through innovation in distribution network. Walt Disney is the creator of popular animation character named “Micky Mouse” that is renowned all over the world. Pierre Omidyar, the creator of eBay, has revolutionized the uses of internet for developing business connection with people. William Harley and Arthur Davidson established Harley-Davidson brand by their pioneering idea of setting engine on bicycle, Jeff Bezos the creator of Amazon.com had successfully taken advantage of marketplace through internet and thus minimize the production expenses by his online business idea. Henry Ford had gained success in the automobile industry because of creative products. Similarly, Bill Gates has flourished in the computer industry because of his entrepreneurial initiatives. Steve Jobs invented personal computer which was a revolution in the electronic industry and certainly gained high reputation and benefits. These are only some of the many famous entrepreneurs who have invented products and gained benefits from them. In turn, their products unanimously developed the United States economically (Holcombe, 1998). The Global Entrepreneurship Monitor (GEM) is one of the most significant research programs, which examines the relationship between entrepreneurship and economic development. The assessment of GEM is based on the comparison between counties’ entrepreneurial activities. According to the research of GEM in the year 2002, it can be observed that countrywide entrepreneurial activities have positive correlation with subsequent degree of economic development. The study of GEM suggests that no country with a high level of entrepreneurship suffers from lower economic growth (UNCTAD, 2005). Entrepreneurship manifests itself at an individual level and recognition is accomplished at the organisational level. In this way, entrepreneurial spirit generates positive revenues for world economies through the activities of the entrepreneur’s organisation. Innovations are the means of transportation for converting personal entrepreneurial potentials and spirits into actions. At the macroeconomic level the addition of entrepreneurial accomplishments create a blend of challenging experiments, new thoughts and creativities. The competition between companies results in increased diversity and changes in the markets which foster innovation. Entrepreneurial actions within competitors increases and renovates the productive capability of national economy by encouraging higher yield and development of new positions and businesses. Entrepreneurs can study from their own as well as others’ achievements or failures, which allow them to increase their talents and adjust their approaches (UNCTAD, 2005). The link between entrepreneurship and creativity is quite transparent. In the economic context, creativity is often transformed to idea development, new product invention, and adjusting or developing existing inventions. Practically, creativity in entrepreneurship has been described by intellectual procedures, approaches, inspiration, knowledge, work environment and personality traits. Several authors have acknowledged creativity and entrepreneurship as vital contributors to countries’ economic development. The common characteristics of creativity and entrepreneurship are innovation and worth. According to Theodore Levitt, “Creativity is thinking up new things and innovation is doing new things”. While creativity concerns with having innovation and worth in business, entrepreneurship is also concerned with innovation in business, new thoughts, and the certainty of accomplishing positive yields in the market. Both creativity and entrepreneurship have followed equivalent courses with respect to the focus on the individual and the process. Creativity and entrepreneurship result in designing something innovative which can provide new opportunity in existing market or at times, the establishment of a new market. The early phases of developing new thoughts are characterized by different thinking and it results in active process and changing outline of activities. The principles of creativity and entrepreneurship can be found in bigger organizations which generate thought for new initiatives. For example, Proctor and Gamble clearly uses “Creativity Scale” to examine creativity procedures in generating new ideas for products and commercial project development (Matthews, 2007). Creativity can be described as finding a problem, breaking down that problem, and solving it. Through problem solving activity, an entrepreneur is able to produce new ideas, rearrange existing ideas, change people’s thoughts, and deal with the difficulties of the problems. As a result, problem solving can help to find out new alternatives or new inventions which are vital for the organization to enhance the performance (Matthews, 2007). Creativity and entrepreneurship is extensively recognized to support economic development. Existing organizations that are not focused on creative competition are compelled to innovate and become more productive. An increased number of smaller new enterprises are more beneficial in macroeconomic scale because it can encourage entrepreneurs to develop new products, procedures, to access new markets, raise productivity and deliver more and better employment prospects (Schmiemann, n.d.). Schumpeter also argues that besides economic development, entrepreneurs can also hamper the stability of economy by introducing new products or procedures. It generates resistance among people by harming the traditional habit of organizational practices. Entrepreneurs interrupt the market through their inventions and create prospects for others to monitor in a progression of producing new industry that swap existing organizations. Besides, entrepreneurial revenue, which arrives from monopolistic position, can reduce by the entry of new entrepreneurs (Chang, 2011). Despite the above limitations, entrepreneurship and innovation both are significant phenomena for economic development. Less of entrepreneurship can result in lesser innovation and thus would prompt to lesser economic growth. Entrepreneurs are required to establish, manage and undertake the risks of business or organization which are beneficial for society. Schumpeter in his theory has claimed that economic development is affected by innovation and entrepreneurial activities. More entrepreneurial activities can generate higher price competition which would in turn lead to effective economic development. References Arena, R., 2002. The Contribution of Joseph A. Schumpeter to Economics. Routledge. Casson, M., 2003. The Entrepreneur: An Economic Theory. Edward Elgar Publishing. Carroll, P. E. & Et. Al., 2006. An Introduction to Economics with Emphasis on Innovation. Innovation Planet. Chang, E.P. C., 2011. Exploring The Effects Of Entrepreneurship Capital On The Economic Impact Of American Counties. Arkansas State University. [Online] Available at: http://usasbe.org/knowledge/proceedings/proceedingsDocs/2011/PaperID99.pdf [Accessed November 24, 2011]. Holcombe, R. G., 1998. Entrepreneurship and Economic growth. The Quarterly Journal of Austrian Economics, 1(2), pp. 45 – 62. Matthews, J. H., 2007. Creativity and Entrepreneurship: Potential Partners or Distant Cousins? Queensland University of Technology. [Online] Available at: http://eprints.qut.edu.au/11214/1/11214.pdf [Accessed November 24, 2011]. McCraw, T. K., No Date. Prophet of Innovation: Joseph Schumpeter and Creative Destruction. Princeton University. [Online] Available at: http://www.princeton.edu/~tleonard/papers/McCraw.pdf [Accessed November 24, 2011]. Schmiemann, M., No Date. Linking Creativity And Entrepreneurship: A Description Of The Joint OECD/Eurostat Entrepreneurship Indicators Programme. The Entrepreneurship Indicator Program. [Online] Available at: http://ec.europa.eu/education/lifelong-learning-policy/doc/creativity/report/oecd.pdf [Accessed November 24, 2011]. UNCTAD, 2005. Entrepreneurship and Economic Development: The Empretec Showcase. United Nations Conference on Trade and Development. [Online] Available at: http://www.unctad.org/en/docs/webiteteb20043_en.pdf [Accessed November 24, 2011]. Wong, P. K. & Et. Al., 2005. Entrepreneurship, Innovation and Economic Growth: Evidence from GEM Data. Small Business Economics, 24, pp. 335 – 350. Bibliography Binks, M. & Vale, P. A., 1990. Entrepreneurship and Economic Change. McGraw-Hill. Lumsdaine, E. & Binks, M., 2009. Entrepreneurship From Creativity To Innovation. 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