Chapter 1

ENTREPRENEURSHIP IN ECONOMIC DEVELOPMENT

Learning Objectives:

At the end of lesson, students are able to:

 Assess innate characteristics contributory for entrepreneurial success.
 Differentiate business and entrepreneurship.
 Identify the existing situation of entrepreneurship in the Philippines.

Entrepreneurship has become widely recognized as a key driver of the Ogunlana economy (2018) from
the creation of a new venture that generates income for the economy to the creation of social and
community development. Improving the quality of living, morality and economic freedom. The new age
found the individuality of the entrepreneur. Eugen von B''ohm-Bawerk has shared an entrepreneurial
spirit. Israel Kirzner concluded that alertness is essential in realizing the potential to identify
entrepreneurship. Either the developer finds a way to find a solution to the problems that his company
has faced or refuses. Although Harvey finds the developer to be a gap-filler who can assess the patterns
of the sector, the production of new products or systems are people-friendly and developed through the
ages.
FOUR THEORIES OF ECONOMIC GROWTH
Theory 1: The theory of mercantilism was the first major economic theory known in the world. It drove
the economic system during the 16th to 18th centuries in the “known” world. It was based on the idea that
a nation’s wealth will increase only if government regulated all the nation’s commercial interests. The
government, according to mercantilism, should take care of all the economic activities of a country. The
theory of Mercantilism holds that the wealth of a nation can be measured by its ready supply of capital,
generally held in the concrete form of gold or silver. Mercantilism states that the global supply of wealth
is a fixed amount, and that therefore any gain of wealth of one nation must necessarily represent a loss
by another. National strength was based on limiting imports through high tariffs and exporting as many
goods as possible. Due to its system of “me first” and “no imports”, mercantilism could not be
maintained forever, because the reality was that it led to a stagnant global economy. Each country
wanted to export and no one wanted to import. After some time, many people began to revolt against the
idea of mercantilism and stressed the need to conduct free trade among nations. The continued pressure
resulted in the implementation of laissez faire economics in the nineteenth century. Mercantilism
therefore in many ways opposes the later laissez capitalism promoted by economists such as Adam
Smith.
Theory 2: Towards the 18th Century, Adam Smith wrote “An Inquiry into the Nature and Causes of the
Wealth of Nations” where he documented industrial development in Europe. He expounded the need to
minimize the role of government intervention and taxation in the free markets, saying that an “invisible
hand” guides supply and demand, reflecting the concept that each person, by looking out for herself,
creates the best outcome for all. Smith called this the laissez-faire theory, which along with other
philosophers claimed, “It is not from the benevolence of the butcher, the brewer, or the baker, that we
can expect our dinner, but from their regard for their own interest.”
By selling their products, the butcher, brewer, and baker will make money. If they meet the customers’
needs, they will be rewarded financially, which is the point of being in business. While engaged in
enterprises to earn money, they provide the products that people need and want. According to Smith, this
creates wealth not only for the people in business, but also for the whole country where the citizens work
to provide for themselves and others and where they take care of their own financial needs.
Theory 3: Meanwhile, Karl Marx disagreed with Adam Smith and the laissez faire theorists. He
interpreted human history as a class struggle between workers and employers. He declared that the free
enterprise (laissez faire) would lead to increasingly severe losses and would eventually bring about
revolution by the workers. They called for an economy where the government owned all the property
and distributed everything equally among all the people through socialism.
Theory 4: Today, experts realize that there is not one single theory that can explain economic growth.
In 1934, an economist named Joseph Schumpeter explained that economic growth is started by people
(whom he called entrepreneurs) who produce goods not only for personal profit but also for the good of
everyone around them. He called entrepreneurs the backbone of the economy. Entrepreneurs, according
to him, are people who find joy in creating or producing goods; who find self-fulfillment in getting
things done; and who have strong need for achievement. This entrepreneur-centered theory is widely
used to answer the need for socio-economic development.

Roles of Entrepreneurs in Economic Development

1. Promotes capital formation.
2. Create large-scale employment opportunities
3. Promotes balances regional development
4. Reduces concentration of economic power
5. Wealth creation and distribution
6. Increasing Gross National Product and Per Capita Income
7. Improvement in the Standard of Living
8. Promotes Country’s Export Trade
9. Induces backward and forward linkages
10. Facilitates overall development
11. Creating innovation
12. Entrepreneurs creates new businesses
13. Entrepreneurs also creates social change
14. Personal Growth
15. Entrepreneurs puts new business ideas into practice

ENTREPRENEUR is a person who is willing and able to convert a new idea or invention into a
successful innovation. An entrepreneur is someone who sees needs and takes on the financial risk to start
a business to fill that need. Being an entrepreneur is being an expert to things that makes life difficult.
According to the Global Entrepreneurship Monitor, over 100 million businesses are launched each year.
That is 11,000 per hour or 3 new business per second. The word entrepreneur was invented by Richard
Cantillon, he derived the concept of “entrepreneur” from French “entreprendre” which may be
translated into Enlish as “to undertake”. He discovered the concept of entrepreneurial activity which
includes buying from a certain price and the risk that is relating to selling from an uncertain price.
ENTREPRENEURSHIP - is the act and art of being an entrepreneur or one who undertakes
innovations or introducing new things, finance and business acumen in an effort to transform
innovations into economic goods.
- It is also the “process of creating or seizing an opportunity, and pursuing it regardless of the
resources currently controlled”.
- Is the process and creating something new with value by devoting the necessary time and
effort, assuming the company financial, psychic, and social risk. And receiving resulting
rewards of monetary and personal satisfaction and independence
This definition is propounded by Howard H. Stevenson, Seraphim-Rock Professor of Business
Administration at the Harvard University Business School.
BUSINESS is an organization involved in the trade of goods, services, or both to consumers.

Difference of Entrepreneurial Venture and Small Business Owner

Entrepreneurial venture Small business venture

• Engages in behavior that is aimed at • Independently owned and operated
profitability and growth. • Not dominant in its field.
• Business characterized by innovative strategic • Doesn’t engage in any new marketing or
practices innovative practices.
Difference of Entrepreneurs and Small Business Owners
Entrepreneur Small Business owner
• Establishes and manages a business for • Establishes and manages a business for principal
principal purpose of profit and growth. purpose of furthering personal goals.
• Characterized by innovative behavior. • Business primary source of income and consumes
majority of one’s time and resources.
• Will employ strategic management • Business perceived as extension of personality,
practices in the business family needs, and desires.

Entrepreneurial Process
The process has four distinct phases:
1. Identification and evaluation of the opportunity
2. Development of the business plan
3. Determination of the required resources
4. Management of the resulting enterprise.

ADVANTAGES OF ENTREPRENEURSHIP
 ENTREPRENEURS ARE THEIR OWN BOSSES. Nobody tells an entrepreneur what to do.
They control their own destinies.
 ENTREPRENEURS CAN CHOOSE A BUSINESS THAT INTERESTS THEM. Entrepreneurs
work in fields that interest them. Many combine hobbies and interests with business.
 ENTREPRENEUR CAN BE CREATIVE. Entrepreneurs are always implementing creative ideas
they come up with themselves.
 ENTREPRENEUR CAN MAKE LOTS OF MONEY-entrepreneurs can make a lot of money if
their business succeeds.

DISADVANTAGES OF ENTREPRENEURSHIP
 ENTREPRENEURSHIP IS RISKY. All small businesses face the possibility of going out of
business or of losing money.
 ENTREPRENEURS FACE UNCERTAIN AND IRREGULAR INCOMES. Entrepreneurs may
make money one month and lose money the next.
 ENTREPRENEURS WORK LONG HOURS. Entrepreneurs never really are finished with their
jobs and they may have to work evenings and weekends.
 ENTREPRENEURS MUST MAKE ALL DECISIONS BY THEMSELVES. Unless they have
partners, entrepreneurs must make all the decisions alone.
 TYPE OF ENTREPRENEURIAL BUSINESS
1. MANUFACTURING BUSINESSES- actually produce the products they sell.
2. WHOLESALING BUSINESSES- sell products to people other than the final customer.
3. RETAILING BUSINESSES- sell products directly to the people who use or consume them.
4. SERVICE BUSINESSES- sell services rather than products. They include hotels, hairdressers
and repair shops
5. AGRICULTURAL BUSINESSES- generate fresh produce and other farm products
6. MINING AND EXTRACTING BUSINESSES- take resources like coal out of the ground so
they can be consumed.

Activity No. 1

1. Take an imaginary walk around your neighbourhood. Notice the many enterprises that beckon people
to buy from you, to eat their food, or to have a manicure or pedicure in your parlor.

2. Now, imagine your community without its business enterprises.Imagine what would happen if the
people selling all those goods were not there. Imagine what would happen if there were no commerce at
all. What would you see? What will happen to everyone? People will have to prepare everything they
need from scratch. They will have to trap animals for food, plant their own rice, and sew their own
clothes. Each one will have to do all that now because there’s no one who will do it for them. There are
no enterprises selling all the things that the people need.

3. Now, come back through time and see and feel your community again. Let them imagine the noise,
people talking aloud, and haggling, laughing, buying, and selling goods in the market. “Which picture
do you prefer: a town without enterprises or a town with enterprises?”

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