Is Being Entrepreneurial a Social and Economic Solution to Poverty?
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Part of: Entrepreneurship
What is being Entrepreneurial?“The entrepreneur is the central actor in the creation of a new venture” (Mueller et.al. 2012). At its core, being entrepreneurial is about recognising opportunities. “It is ultimately the entrepreneur who identifies and shapes a business opportunity, and who must sustain the motivation to persist until the job is done” (Shaver et. al, 1991). An entrepreneur is someone who tries to focus on the big picture with the ultimate goal of innovation in mind.
Is being Entrepreneurial a Social and Economic Solution to Poverty?One could argue that the reason people are unemployed is that they are dependent on employers. With entrepreneurship, they could potentially start up a small business and become more self-sufficient. “Market based solutions such as entrepreneurship offer the best opportunity to create substantial and significantly positive change within poverty settings” (Bruton et. al, 2013). Therefore, if being entrepreneurial was encouraged more in areas where poverty is particularly high then there could perhaps be a prominent change in the country’s economy for the better. In addition, not only would the entrepreneur benefit themselves by starting up a business, but they would also affect the people around them. “Firm start-ups hire employee’s, resulting in subsequent decreases in unemployment” (Lin et.al. 1998). Moreover, if self-sufficiency generates wealth within the economy, then that would suggest that in high poverty areas it would be more beneficial to generate wealth from within as opposed to the government coming in and trying to help. This would advocate the idea that being entrepreneurial would be an economic solution to poverty. To counter that, there is the argument that since people in poverty do not have the money to start up a small business then being entrepreneurial will not help. “This inability to prove one’s creditworthiness prevented lenders from being able to minimize their exposure to loss, thereby perpetuating the cycle of poverty” (Prahalad, 2005). Consequently, if someone is in poverty and is earning less than $2 per day then they are not able to generate enough wealth to break the cycle and begin to open up bank accounts and get good credit. In addition to that, “high unemployment rates may correlate with stagnant economic growth, leading to fewer entrepreneurial opportunities” (Audretsch, 1995). This demonstrates that as the total amount of poverty increases, the total amount of potential for entrepreneurship decreases, ultimately leading to no economic growth. As a result, this proposes that being entrepreneurial would not be an economic solution to poverty as the opportunities are simply not there and will not be there until unemployment is reduced by other means. Looking at the issue from a different perspective, it is an entrepreneur’s job to recognise and develop sustainable opportunities. If their main goal is to innovate and create new things, then it could be potentially through social entrepreneurship that a solution to poverty is found. Whether that be through starting up a small business in impoverished areas or generating wealth elsewhere, a solution should be achievable. Moreover, “entrepreneurs are inclined to work longer hours and more efficiently as their income is closely related to their working effort” (Thurik, 2007). This would suggest that due to social entrepreneurs being motivated by the overall goal of eradicating poverty they will not rest until a feasible solution has been created. In the article, “Entrepreneurship as a Solution to Poverty” it is their opinion that “ultimately, entrepreneurship among those in poverty will create a long-lasting solution to their poverty” (Bruton et.al, 2013). On the other side of things, one could argue that being entrepreneurial cannot solve poverty if people in poverty aren’t already educated. As of 2013, there were 2.47 billion people living in poverty earning less than $2 per day (Burton et. al, 2013). In addition, between 1981 and 2013 poverty number only declined from 2.59 to 2.47 billion (Bruton et.al, 2013). This would strongly suggest that whatever entrepreneurial efforts that are currently being made are not working. According to the article “Recognising sustainable development opportunities” (Patzelt et. al, 2011), in order for an entrepreneur to be able to recognise an opportunity for sustainable development regarding something such as poverty, they must have certain pre-existing qualities. They created a model stating that entrepreneurial knowledge will only help you recognise opportunities if you have knowledge of and are able to perceive threat towards the natural and communal environment, if you can be altruistic towards others and then lastly, if you are properly motivated. Based off of this, if you haven’t been taught about the natural and communal environment then entrepreneurial knowledge will not help. In order for entrepreneurship to benefit poverty, some form of sustainable development must be made and based off this just under a third of the world is unable to do so.
Is there evidence to suggest that current Trade and Business Conditions are ripe for Global and Local Entrepreneurs?In order to clarify what business conditions, exist today, PEST analysis helps greatly. Originally ETPS (Aguilar, 1967). A PEST analysis examines the political, economic, social and technological factors in the current market so that entrepreneurs know what direction to take their idea in. In the UK today, one of the most prominent political and economy affecting business conditions is Brexit. “Brexit represented the collective, if (to my mind) often misguided, efforts of those ‘left behind’ in Britain to protect themselves from the predatory nature of market fundamentalism” (Pettifor, 2017). This strongly suggests that the people of Britain have voted for Brexit without thinking of the consequences. One of them being that it could potentially hurt smaller businesses. “Immigration accounts for one-half of UK GDP growth since 2005, with more than 2 million jobs created” (Kierzenkowski, 2016). This demonstrates that being part of the EU has played a vital role in the economy and that post-Brexit there will be much fewer jobs and much higher rates of unemployment and as stated earlier, higher unemployment leads to less entrepreneurial opportunities (Audretsch, 1995). Lastly, a huge implication of Brexit is that “its (The UK) trade with countries in the EU will fall by about a quarter” (Dhingra et.al, 2016). With the EU being the UK most common trader, Brexit will result in a substantial loss which could ultimately lead to hundreds of small business owners struggling to thrive. However, on the other hand, with Brexit comes a host of new opportunities. “Leaving the EU (‘Brexit’) would lower trade between the UK and the EU because of higher tariff and non-tariff barriers to trade This would suggest that local business could potentially thrive if the overall trade price is reduced as they could focus on other parts of their business. In addition, it may provide local entrepreneurs the opportunity to work together. In “Sleeping with Competitors”, Kraus et.al discuss ‘coopetition’. This describes the benefits that small beer breweries had working with their competitors. “Smaller breweries coopete with each other to face large, dominant, already established, mass producing competition (Kraus et.al, 2007). This suggests that the current trade markets are potentially ripe because if smaller breweries are able to succeed over huge companies then that format should be compatible in other business as well. In addition to that, focusing on Josh Valman (CEO of RPD International) when discussing Brexit, he stated: “rather than think about what Brexit is, let’s think about what we can do about it” (Valman 2016). This demonstrates that there is potential for opportunities among the Brexit decision if a young entrepreneur is still able to find success throughout it. Looking at it on a global scale, however, Brexit has a completely different effect. For huge corporations and business that are based outside of the EU, it may not have as large an effect as they most likely have the money and markets elsewhere to cope with the changes. Although, for the global companies based in the UK there will be very big changes, one of them being the increased competition due to the changes that will be made to trade. “Competition, access to superior intermediate goods and a larger export market can also stimulate innovation” (Dhingra et.al, 2016). This proposes that, as a result of Brexit, there will be room expansion and improvements for global entrepreneurs showing that, despite the changes, there are still opportunities. Above all else, it gives the entrepreneurs fewer rules and regulations and more freedom. “The UK will be free to directly negotiate a set of mutually beneficial conditions for their companies and USA and Canada” (Cumming et.al, 2016). This means that global entrepreneurs have the to potential expand different parts of their companies and grow more in places where they previously could not. On the other hand, there are several downsides to Brexit which affect global entrepreneurs. According to Coyle, “The UK’s ‘leave’ vote could be seen as a vote against globalisation and its uneven impact on different parts of the country” (Coyle, 2016). This suggests that global entrepreneurs as going to suffer as Brexit equates to such strong views against globalisation. Furthermore, “a gradual loss of export-oriented inward foreign direct investment especially in manufacturing and financial services (Kierzenkowski et.al, 2016). Kierzenowski et.al argue that due to Brexit, less money is going to be coming into places such as company warehouses which would ultimately hurt the overall growth of global entrepreneurs. Lastly, “Industries currently enjoying high preferential prices as a result of the current customs union would have to adjust to lower world prices” (Bourne, 2016). This puts forward the idea that global entrepreneurs who are currently thriving, will be hit hard by Brexit as it will result in substantial losses to their profit. In conclusion, both questions have very strong points to each argument. Firstly, it is easy to say that if it is an entrepreneurs job to recognise an opportunity and innovate then they should be the ones responsible for solving issues such as poverty. However, that doesn’t fully take into account the condition of the people who are impoverished. Starting up business’s may have a positive effect in the long run but starting them up could be an issue due to their education and lack of capital. Then looking at Brexit, local entrepreneurs could potentially suffer as the vote will most likely lead to high levels of unemployment which as stated equals far less entrepreneurial opportunities. But at the same time, increased competition could increase the performance of smaller companies. Lastly, for global entrepreneurs, the fewer regulations on trade leads to so much potential as they are now able to freely negotiate however they please. Although on the other hand, with less money coming into the UK, the overall profits of these companies may take a massive hit. Overall, there are strong arguments to each side, for both questions and only time will tell how these problems will turn out.
- Aguilar, F.J. (1967). Scanning the business environment. New York: Macmillan
- Pettifor, A. (2017). Brexit and its Consequences, Globalizations, 14:1, Pg 127-132
- Audretsch, D.B, (1995). Innovation and Industry Evolution, Cambridge, MA: MIT Press.
- Bourne, R. (2016). The Economy After Brexit: Economists for Brexit. Pg 16-17
- Bruton, G.B., Ketchen Jr, D.J., Ireland, R.D. (2013). Entrepreneurship as a Solution to Poverty: Journal of Business Venturing. New York: 28 (6) pg. 683-689
- Cumming, D.J, Zahra, S.A. (2016). International Business and Entrepreneurship Implications of Brexit: British Journal of Management. Vol. 27, 687–692
- Dhingra, S, Ottoviano, G, Sampson, T, Van Reenon, J. (2016). The consequences of Brexit for UK Trade and Living Standards. London: School of Economics and Political Science. Pg 7
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- Mueller, S., Volery, T. and von Siemens, B. (2012), What Do Entrepreneurs Actually Do? An Observational Study of Entrepreneurs' Everyday Behaviour in the Start-Up and Growth Stages. Entrepreneurship Theory and Practice, 36: 995–1017.
- Patzelt, H. and Shepherd, D. A. (2011), Recognizing Opportunities for Sustainable Development, Entrepreneurship Theory and Practice. 35 (4) pg. 631-652
- Prahalad, C.K. (2005). The fortune at the bottom of the pyramid: Eradicating poverty through profits. Upper Saddle River, NJ: Wharton School Publishing.
- Kraus, S, Klimas, P, Gast, J, Stephan, T. (2018) Sleeping with competitors: Forms, antecedents and outcomes of coopetition of small and medium-sized craft beer breweries: International Journal of Entrepreneurial Behavior & Research. Emerald Publishing
- Shaver, K.G. & Scott, L.R. (1991). Person, process, choice. The psychology of new venture creation. Entrepreneurship Theory and Practice, 16(2), 23–45.
- Thurik, A.R, Martin A.C, André J.V.S, Audretsch,D.B. (2007) : Does self-employment reduce unemployment?: Jena economic research papers
- Valman, J. (2016). Brexit as Catalyst: iT NOW. Oxford 56 (4) pg 50-51
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