Academic journal article Academy of Entrepreneurship Journal

Economic Development: Changing the Policy to Support Entrepreneurship

Academic journal article Academy of Entrepreneurship Journal

Economic Development: Changing the Policy to Support Entrepreneurship

Article excerpt

ABSTRACT

This article explores the traditional approach to economic development which embodied the battle cry, "What's good for General Motors is good for America." The authors explore and explain the changes in the world economy which have made the traditional approach passe. They explore the impact of entrepreneurship on employment and the U.S. economy, and demonstrate that the greatest impact on the economy during the decade of the 1990s, as well as the greatest potential for future economic development, is vested in those firms with less than 20 employees. The authors propose specific economic development policy changes which can result in creating an atmosphere which is more conducive to entrepreneurial activity, and suggest that the battle cry should be changed to, "What's good for Entrepreneurship is good for America."

INTRODUCTION

The local television news broadcast last night opened with the announcement of the closing of a factory which employed 500 people in the county. The factory is closing its doors and all of the workers will be unemployed within three months. Like most people in the United States, the authors have heard this or a similar story many times in the last few years. This is, indeed, a dismal story, and yet, one which was completely predictable. In fact, had one cared to look into the future 20 years ago when that factory was first built and first began operations, one would have known that it would close some day; the only unknown factor was when it would close. Since all factories are subject to declining efficiencies, all of them will eventually close. When they do, the effects are likely to be devastating. In the opinion of the authors, economic development which is based upon wooing large manufacturing firms is not sustainable. What is sustainable? In the opinion of the authors, economic development based upon entrepreneurial activity is sustainable. In the following pages we will demonstrate the bases for both of these conclusions.

ECONOMIC EVOLUTION

Schumpeter (1942) predicted the managed economies which emerged after World War II with their emphases on giant corporations practicing economies of scale. These managed economies performed well for western nations for more than 40 years, fostering a period of economic prosperity, jobs growth, stability and security (Audretsch & Thurik, 1997; Wennekers & Thurik, 1999). However, the end of the Cold War ushered in a new economic era and a true global economy which made maintaining jobs in high wage nations problematic (Audretsch & Thurik, 2000).

This "new economy" which emerged in response to the new economic era, or which likely caused the evolution of the new era, functions differently and the effects of entrepreneurship are more dramatic. For example, IBM faced 2,500 competitors for its products in 1965; in 1992, it faced 50,000 competitors (Atkinson & Court, 1998). The turbulence and competitive intensity which emerged during the 1980s and continue today is accelerating. The number of firms being born and dying each year is growing and this undermines the stability of old economic arrangements. As less innovative and less efficient companies die or contract, more innovative and more efficient companies take their place (Atkinson & Court, 1998). In the 1950s and 1960s, it took 20 years for one third of the Fortune 500 to be replaced by other firms; another one third was replaced in the following 10 years; but it only took 5 years to accomplish the same replacement during the 1980s (Audretsch, 1995). Consumer choices are exploding with more than 50,000 new products appearing each year, in comparison to a few thousand annually in 1970 (Atkinson & Court, 1998). Innovation and intellectual capital are soaring. Consider that 80,000 trademark applications were filed in 1989, a record year, but 180,000 were filed in 1995 (Atkinson & Court, 1998). In the new economy of the 1990s and 2000s, entrepreneurial effort and innovation emerged as the dominant factors of employment growth and economic development. …

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