Business Ownership And Its Impact On the Economy

Mar 24, 2023 By Kelly Walker

To be an entrepreneur is to take the risk of establishing a new business. For instance, Harvard Management School professor Howard Stevenson defines entrepreneurship as the "pursuit of opportunity beyond resources controlled," seeing it as a style of management rather than an event or an individual.

Although various issues are described below that complicate the link between entrepreneurship and welfare, it is clear that entrepreneurship contributes significantly to economic growth.

But, entrepreneurship is not a silver bullet; more extensive economic variables outside entrepreneurship have a significant role in deciding whether or not economic growth happens.

Entrepreneurs and the Development of the Economy

Policymakers rightly focus on innovation and entrepreneurship to stimulate economic growth. Scholars argue that entrepreneurs' claims of bringing about economic progress may be overblown. Not all parts of the economy benefit equally from entrepreneurial growth.

Despite the widespread presence of innovation, entrepreneurs, and innovation philosophy, productivity growth has been "at best moderate in recent years," according to economic growth studies.

This is because innovation disproportionately affects some economic sectors while having little to no effect on others, as shown by studies conducted by the National Bureau of Economic Research.

Although there is a positive correlation between entrepreneurial activity and increased prosperity, the exact nature of that relationship is more nuanced than would initially appear.

Entrepreneurship As A Need vs. Opportunity

Both "necessity entrepreneurship," in which a lack of alternatives prompts a person to start a business, and "opportunity entrepreneurship," in which a person starts a company because of a perceived market niche, exist.

Scholars believe that slow economic growth or trailing economic development may be linked to entrepreneurial activity if it signals that the economy isn't producing enough employment or income possibilities, as in necessity entrepreneurship.

Economics and its Growth Stages

Whether or not entrepreneurialism contributes to economic growth depends on the level of development of the country's economy. Economist Zoltan Acs suggests a U-shaped link between economic expansion and entrepreneurial activity.

While there is a negative correlation between economic growth and entrepreneurship in developing and emerging nations, a positive correlation has evolved in advanced economies since the middle of the 20th century.

Later-stage industrialized market economies, such as the United States and parts of western Europe like Germany and Sweden, benefited greatly from entrepreneurship in the twentieth century due to the decline in manufacturing and the shift towards a service economy, as indicated by the writings of economist and author Albert Acs.

Business Owners and the Betterment of Society

Many business owners care deeply about how their actions will affect the community in light of rising awareness of sustainability, inequality, and social impact. Specifically, the increase in social consciousness among business owners has spawned several efforts to employ entrepreneurial strategies to build a more equitable and sustainable society.

Since the demonstrations following George Floyd's killing, business owners have sought to use their work to confront systematic racism. The notion of social entrepreneurship, which dates back to the 1950s, is becoming increasingly widespread.

Investment Methodological Advances

While some innovations aim to treat the symptoms of societal ills, socially responsible investment (SRI) and environmental, social, and governance (ESG) standards promise to promote more socially conscious results, especially regarding sustainability.

Hester Pierce, a commissioner at the SEC, has said that she thinks mandated ESGs would go beyond the agency's power and may "undermine financial and economic stability."

Advantages and Disadvantages

The economic system's dependence on entrepreneurialism has benefits and drawbacks from the standpoint of social justice, which values a society with equal rights and access to opportunity.

Theoretically, socially aware business presents the chance to create solutions for underserved areas. Most social entrepreneurs are driven by a sincere desire to improve the lives of others and the state of the world.

Hence, entrepreneurship provides a means to accelerate the development of novel approaches to pressing societal issues, advancing scientific knowledge, and stimulating dynamic social change.

Yet, it should be noted that attempts to fix the underlying structural problems can occasionally lead to even more ambiguous outcomes. Microfinancing in India exemplifies how the competing goals of profit and social good may lead to tension.


In post-industrial nations like the United States, the "knowledge economy" and platform-driven enterprises, frequently reliant on individual innovations or "disruptions," have seized significant parts of the market, making entrepreneurship a crucial part of the current economic paradigm. Entrepreneurs and company owners alike would do well to familiarize themselves with the dynamics at play between entrepreneurship and economic growth.

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