THE ENTREPRENEURIAL MIND 2020

Topic 1

Role of Entrepreneurship in
Economic Development
Description

This topic focuses on the theories and concepts of entrepreneurship, as well as its important
role in the economic, social, and human development of nations in general and the Philippines
in particular.

Objectives

This topic will enable the students to:

• enumerate four theories that explain economic growth

• discuss the meaning of entrepreneurship

• present current developments related to entrepreneurship worldwide and various aspects of

globalization

• explain the relationship between entrepreneurship and economic growth as well as the socio-
economic benefits of entrepreneurship in a community

• discuss the factors that affect entrepreneurship in the Philippines

Discussion Point 1:

Four Theories that Explain 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 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
by 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-faire capitalism promoted by
economists such as Adam Smith.

Theory 2:

Toward 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

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benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from
their regard for their own interest.”

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 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 a strong need for
achievement. This entrepreneur-centered theory is widely used to answer the need for socio-
economic development.

Discussion Point 2

Entrepreneurship as a Concept
Entrepreneurship is the “process of creating or seizing an opportunity, and pursuing it
regardless of the resources currently controlled.” This definition is propounded by Howard H.
Stevenson, Sarofim-Rock Professor of Business Administration at the Harvard Business
Schoo. Stevenson, who has steered the study of entrepreneurship at Harvard Business School
through the past 30 years, has been quoted by Rick Goossen as saying, “At Harvard, we define
entrepreneurship as the pursuit of opportunities without regard for the resources controlled.”

Professor Stevenson, who has co-authored one of the leading textbooks in the field, New
Business Ventures and the Entrepreneur, through six editions (Roberts, Stevenson, Sahlman,
Marshall, and Hamermesh, eds. New York: McGraw-Hill/Irwin, 2006), spells out four tenets on
entrepreneurship. These are as follows:

1. Entrepreneurship flourishes in communities where resources are mobile.

2. Entrepreneurship is greater when successful members of a community reinvest excess

capital in the projects of other community members.

3. Entrepreneurship flourishes in communities in which success of other community members

is celebrated rather than derided.

4. Entrepreneurship is greater in communities that see change as positive rater than negative.

As quoted from Rick Goossen’s interview with Stevenson, three tenets or basic philosophies of
teaching entrepreneurship should hold true:

“One of Stevenson’s three tenets of teaching entrepreneurship at Harvard is to convey to

students that entrepreneurship is an opportunity-focused orientation to general management,
one which is applicable in many situations, regardless of near-term career aspirations. He
encourages students that an entrepreneurial career may be a more interesting alternative to a
standard-issue investment banking or management-consulting job. According to his
philosophy, students can learn “controlling your own life is something an entrepreneur does.”
Stevenson believes students need to be exposed to an entrepreneur-friendly culture and

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positive entrepreneurial role models. Finally, entrepreneurship is like having children: it requires
a moment of enthusiasm, followed by decades of hard work, in order to be successful. As
Stevenson expresses, Harvard Business School teaches three simple attitudes: “Every
situation can be improved; you can make a difference, no matter how minimal your power or
your current resources; and, experts and experience may be wrong.

“While the world has its share of problems, if I solve them for other people, I will make money
—and just because I don’t presently have the resources, doesn’t mean I shouldn’t try to solve
the problem.” In essence, Stevenson’s teaching approach is, “Don’t tell me what you would do
if you were God; instead, what are you going to do as a product manager with inadequate
power and resources?” He also advises students, “If somebody tells you it hasn’t been done
that way before, treat that as good news rather than bad news.”

Stevenson lists in the matrix below the key business dimensions and the differences between
the entrepreneur and the administrator.

Discussion Point 3

Current Developments Related to

Entrepreneurship Worldwide and the Various
Aspects of Globalization
At present, we are experiencing an economic phenomenon called “global capitalism”
commonly called globalization.

Globalization is characterized by free circulation of capital worldwide and regulation by market

forces or “free trade” where there is an easy or “free” flow of goods from one country to
another because the taxes coming into a country has been lowered or even removed.

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It is common knowledge that people form other countries like the USA (Ford), Japan (Toyota),
and Nestle (Switzerland), to name a few, come to the Philippines, bring in their capital and
technical knowledge, and establish businesses here with Filipinos as partners or co-investors.
In a similar manner, some Filipino companies have opened up branches abroad such as San
Miguel Corporation, which has set up a brewery in Hong Kong, Jollibee, which recently opened
branches in the USA, and Bench, which has opened a branch in China. These are a few of the
examples that show what is meant by “free flow of capital” and, of course, globalization.

On the other hand, when someone shops at the nearest supermarket and department store,
even the tiangge, one will find many items such as food, clothing, and many household items
from places like Australia, China, Korea, Thailand, Indonesia, Taiwan, the United States of
America, and Europe. The coming in of so many goods from other countries is another effect
of free trade, which points to globalization, because taxes on many of these items have been
considerably lowered if not eliminated making it easy for these goods to enter the Philippines.

This surge of a global economy was made possible by loosening and even suppressing the
regulations established by most countries to control trade, investments, and financial
transactions. Deregulation is accompanied by privatization or the transfer to private hands of
publicly owned corporations, industries, banks and other services, leading to globalization.

Globalization was initiated in the 1950s in the United States, then it swept through Europe in
the 1970s, Asia in the 1980s, and it is still progressing. Indeed, in the matter of trade and
exchange of goods, the world has become much smaller. Following are reasons for the fast
development of globalization:

• Globalization has emerged because of the advances in information, communication, and

transportation (ICT) technologies.

• There are new techniques of production and new forms of organization that have given
flexibility to the location of industrial activities and reduced the share of wages in production.

• In the international scene, the most influential organizations, notably the International
Monetary Fund (IMF), the World Bank (WB), and the World Trade Organization are promoting
the emergence of a global market.

• Politically, the United States dominates the world scene and the dollar is the international
currency. The collapse of the Soviet Union and the unification of Germany have removed
obstacles to the spread of capitalism.

This situation made the world smaller not physically but in the sense that travel time of
information and transportation have been made faster. For example, with the use of the
telephone, mobile phone, and Internet, you can communicate with another person in any part
of the world in a matter of seconds. That is why news travels very fast. One can see on
television events in another part of the globe as they unfold. In addition, travel time has
become shorter because airplanes, boats trains, and other modes of transportation have
become faster. About 15 years ago, it took 20-24 hours by plane to reach Western Europe like
Frankfurt, Germany from the Philippines. Now, one can reach the same destination in 12 hours
by commercial airplane.

All these developments have dramatically reduced the geographical barriers for the emerging
international class of entrepreneurs, managers, and financiers. The cost of economic and
financial transactions that crisscross around the world at remarkable speeds have been greatly
reduced. Trade transactions as well as speculative ventures are now possible without physical
and time constraints.

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• Labor is becoming a dispensable commodity. A mobile phone might be designed in London,

made in Finland with parts produced in Canada, Philippines, and the USA. Clothes may be
manufactured in the Philippines but the thread comes from China, the cloth from Korea, and
the lace from Belgium. It is easy for multinational companies to close down its factory in one
country and transfer to another country.

• The feeling pervades that the process of globalization and economic integration is
unavoidable. In many societies, the politicians, the ordinary citizens, and to some extent, the
intellectuals share the conviction that the economy and its current evolution are the forces
shaping human affairs and the future of humanity.

Discussion Point 4

The Relationship Between Entrepreneurship and

Economic Development as well as the Socio-
Economic Benefits of Entrepreneurship in One’s
Family in the Larger Community
Entrepreneurship is a key factor in assuring improvements not only in the personal life of the
entrepreneur, but also in the lives of other people: the family, the community, and the country.

The businesses in the community, if taken as a whole, become a sort of huge basket that
supports all the lives of the people there. These businesses provide the people with all the
goods they need to carry on with their lives, while making their money circulate and grow
within the community as well as within the country, or region, and the whole world.
Entrepreneurship improves the well-being of all.

Entrepreneurship helps provide the following:

• products and necessities that sustain life;

• freedom from servitude, ignorance, social deprivation, and misery; and

• self-esteem for the entrepreneur: to be a person with a sense of self-worth and self-respect,
and being of service to the community.

Enterprises and communities need each other to survive. Enterprises in the community often
help each other too. For example, the products of one enterprise can be the raw material
needed by another enterprise. Thus, money circulates. The combined efforts and cooperation
of everyone in the community create more opportunities for citizens to work and earn.

National well-being brings about development because people are assured of having the
necessary goods on time, within reach, as needed, even as money circulates and
entrepreneurs make profit.

Enterprises are a big factor in any country’s development and national well-being. People get
to have jobs, pay taxes, improve the circulation of money, and have goods to buy and share.

The following are indicators proving that a country has reached national well-being and true
development:

1. Owners live within the community where their enterprise is located.

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2. Enterprises serve the needs of the residents for products and services and make a living
from doing this.

3. The community has an adequate supply of raw materials that the enterprise would need.

4. The community offers the enterprise a steady source of labor and in turn is provided gainful
employment by the business.

5. The community willingly patronizes the enterprises and its products and services.

6. Local government executives are supportive of the business enterprises.

7. Local government executives are considerate and friendly to business owners.

8. Local government executives assure the businesses peace and order at all times.

9. There is an abundance of water and power supply.

True development takes care of the whole person, enabling the person to find the richest
possible expression of self. The lives of the entrepreneur and those of the people around the
entrepreneur are improved by proper development. Entrepreneurship makes development
possible.

Activity
Identify enterprises in the locality that display the factors discussed in Discussion Point 5. For
each enterprise, predict whether their selected enterprises will survive in today’s
entrepreneurial world.

Name of Enterprise Product or Service Reasons for survival Reasons for non-
survival

Discussion Point 5

Factors that Affect Entrepreneurship in the

Philippines
The Department of Trade and Industry’s Bureau of Micro, Small, and Medium Enterprise
Development describes the following factors that affect entrepreneurship in the Philippines:

1. Top global executives believe that the growing number of consumers in emerging markets
will be the most important factor for global business during the next five years.

2. With the AFTA and tariffs near zero, the Filipino entrepreneurs’s market has grown from 92
million Filipinos to half a billion Southeast Asians. A huge market opens many
opportunities.

3. Filipino enterprises will be exposed to intensive competition from lower-cost imports and
locally based foreign firms.

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4. With trade liberalization, there is no such thing as a domestic market alone. Either an
enterprise has to rise up and compete or dies.

5. Competitiveness depends on two major factors

1. the business environment in the country (which is beyond the entrepreneur’s control)

2. the controllable conditions within the enterprise

6. Entrepreneurs must do something to improve the conditions under their control.

7. Entrepreneurs must be more focused in building their niche markets.

8. Entrepreneurs must be more adaptive than their competitors.

9. Entrepreneurs must be able to use appropriate technology. All of these lead to productivity,
which helps the Filipino enterprise to compete in the global market.

The Philippine mSME Sector

Category Asset Size

Micro 3M and below

Small 3M to 15M

Medium 15M to 100M

Large 100M and above

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