The word ‘entrepreneurship’ appears in the newspapers, on social media, on radio and television. Our politicians speak about the concept as if it is the new means by which we will alleviate our unemployment problem, particularly among our young people. But what exactly is an entrepreneur and what does entrepreneurship mean?
The word entrepreneur is French in origin, from the verb ‘entreprendre’ and refers to a person who undertakes something. The website ‘Investopedia’ defines an entrepreneur as ‘an individual who creates a new business, bearing most of the risks and enjoying most of the rewards’. The entrepreneur is commonly seen as an innovator, a source of new ideas for goods, services, and business/or procedures. Entrepreneurship, therefore, is the process by which he undertakes the risk of bringing new business ideas and concepts to the market.
Entrepreneurs are important to an economy for the following reasons; they create new businesses and invent goods and services in the economy. The new business creation results in new employment opportunities which lead to what economists refer to as a multiplier effect, the creation of employment and increased output in associated industries. An example of such is the automotive industry in the US which resulted in the formation of the industries which manufactured tyres, brakes and spare parts for the automotive industry. In India, the setting up of information technology firms led to the formation of associated industries such as call center operations and hardware providers which offered support services.
Entrepreneurs add to the increase in national output, which is measured by the Gross Domestic Product. Businesses which currently exist and are confined to their markets usually hit an income ceiling, that is, a level of income they will not go past. However, the creation of new products and services by entrepreneurs leads to the creation of new wealth, increased employment, higher earnings and an expansion in the tax base from which greater government revenue is derived. This enables greater government spending on public projects.
Entrepreneurship also creates social change, and provides what is called disruptive technologies, causing the breakdown of traditional ways of doing things, thus leading to the obsolescence of old methods of the production of goods and services. The invention of the smartphone and the associated applications has led to a revolutionizing of work and leisure over the past 20 years.
The question to be asked now is whether we in Barbados have been able to recognize the difference between encouraging people to develop their own businesses and entrepreneurship. Barbadian authorities have, for sometime, developed systems of government support and financing for small business. However, this has not always resulted in the outcomes expected. This may be due to several reasons, for example, the small size of the Barbados market, difficulties in securing adequate financing, lack of managerial and technical skills of the small business owner, and the tendency within the Barbadian context to copy business ideas of other businessman. A perfect example is the plethora of small village shops in rural Barbados, seen in the 1960s and 1970s.
The reason I asked the above question is that there is a difference between a small business and entrepreneurship; a small business person is not always an entrepreneur and vice versa. An entrepreneur is someone who realizes there is a need in society for some new product and/or service and seeks to fulfil that need in sometimes very innovative ways. An entrepreneur seeks to grow his business, and in doing so creates multiplier effects that generate additional services and goods in an economy. A small businessperson on the other hand, may not have an interest in or the ability to transform his business.
Entrepreneurs require those in the finance field especially to recognize that the new product or service has a greater than average chance of succeeding. This entails considerable risk, and failure among new business is high. At the same time, entrepreneurial start-ups that do succeed tend to have very high rates of growth. It is start-ups like these which Barbados needs to solve its unemployment challenge. Given our small size we may not need that many to succeed. The challenge is if we have the level of savings and the tolerance for risk among our population of investors to succeed.
Despite the advantages entrepreneurs provide to any society, there are some drawbacks. There is some research that supports the view that high levels of self employment may stall economic development. Also, if entrepreneurial enterprises are not properly regulated, this may lead to unfair market practices and corruption. An example is Facebook’s selling of private personal data to marketing firms or Microsoft’s use of market power to lock in vendors and consumers to their products.
What do we in Barbados do to encourage entrepreneurship among our people? The literature on entrepreneurship speaks to the need for an entrepreneurial ecosystem; a social and economic environment for businesses within such environments that serve as incubators for creativity, innovation and entrepreneurship. Successive governments over the years have created programmes to assist small businesses and entrepreneurs in their business endeavours. The high point, I believe, was in the early 1970s when there were many new start-ups, examples such as Husbands’ Wrought Iron Works and Millar Brothers with condiments and sauces. Along with those examples were several furniture and apparel manufacturers.
The reasons for the demise of many of these enterprises are many and were mentioned earlier. However, chief among these was the loss of long-term financing; the collapse of the Barbados Development Bank may have played a significant role in this regard. Commercial banks are notoriously risk-averse entities and are not in the business of offering long-term financing. This suggests there is a need for the creation of an entrepreneurial ecosystem in Barbados which involves the Government, private sector (in particular, those in the finance sector) and the University of the West Indies. These ecosystems exist throughout the developed world. Examples such as Silicon Valley and the Boston entrepreneurial ecosystem have given rise to significant entrepreneurial activity which drives innovation in the US. Perhaps we need such a system here.
Edward Hunte, an attorney-at-law, is the holder of an MBA with concentrations in Economics & Finance. He was also an economist with the Ministry of Finance and Economic Affairs; email: firstname.lastname@example.org.