Entrepreneurship and Economic Development.

Topics: Economics, Innovation, Joseph Schumpeter Pages: 5 (1723 words) Published: January 17, 2012
Discuss the relationship between entrepreneurship, innovation and economic development. What roles do creativity and problem solving play in this relationship? Refer to both theory and examples from the business world to support your case.

It seems inevitable that there will be a strong link between entrepreneurship, innovation and economic development and that creativity and problem solving play a key part in this. It is important, however, to first have a better understanding of the definition of these terms. This in itself will give us a better understanding of the relationship between them.

Entrepreneurship is particularly difficult to define. Entrepreneurship is the result of what entrepreneurs do and their impact on society. Defining the characteristics of an entrepreneur is where is gets difficult. Jean Baptiste Say remarked in the 19th century that an entrepreneur is an economic agent who “unites all means of production” and the possesses the judgement to “estimate the importance of the product, the probable amount of demand and the means of its production”. This is a good start but it is Joseph Schumpeter who really focuses on defining the missing characteristics of JB Say’s work. Schumpeter’s work focuses on the need for entrepreneurs to be innovative, different and unique. “Whatever the type, everyone is an entrepreneur only when he actually carries out a new combinations and loses that character as soon as he has built up his business”. This famous quote from Schumpeter shows us his belief in the need for innovation and change for it to be considered entrepreneurship. Harvey Leibenstein added to this definition in the 20th century by stating the need for an entrepreneur to be an opportunity spotter or a “gap-filler”. Pulling together the various ideas from these prominent thinkers we can define an entrepreneur as someone who unites means of production in a profitable, innovative way that fills a gap in the market. This seems like a good general definition. Entrepreneurship is therefore the impact on society of the individuals with these characteristics. Innovation and creativity should be slightly easier to define. The Oxford English dictionary defines innovation as “the action or process of innovating” whilst defining innovating as “making changes in something established, especially by introducing new methods, ideas, or products”. This is an accurate description of the process of change that, as we have noted earlier, is central to the ideas of entrepreneurship. It is important here to differentiate between creativity and innovation. Creativity refers to the formative process where ideas are made but not necessarily the implementation of these ideas. Innovation is the acceptance of these ideas. This ideas changing the what was once established in their favour. The Segway, is a great example of a very creative idea that cannot yet be termed innovative. It is not untill the Segway truely challenges the established forms of transport that get us from A to B that we can consider it an innovative idea.

Closely linked with economic growth, economic development is defined by the World Bank as “qualitative change and restructuring in a country's economy in connection with technological and social progress”. Oregon State University defines it as “the institutional changes made to promote economic betterment. It is the social organizational changes made to promote growth in an economy.” Both definitions refer to the idea of social change or progress which results in an improvement in a country’s economic outlook. Again the theme of change and innovation is central here.

Returning to Joseph Schumpeter’s work allows us to study the relationship between these three concepts. Schumpeter’s theory of economic development is key to linking the three. This theory highlights the role of the entrepreneur as the catalyst for economic development. He portrayed any economy as a collection of businesses and enterprises...

References: Oxford Dictionary definition of Innovating
World Bank Definition of Economic Development http://www.worldbank.org/depweb/english/beyond/global/glossary.html
OSU Definition
Entrepreneurial Economics Wiki
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