The Relationship Between Entrepreneurship, Innovation, Economic Development and Sustainability

Topics: Economic growth, Innovation, Sustainability Pages: 5 (1849 words) Published: December 9, 2012
The Relationship between Entrepreneurship, Innovation, Economic Development and Sustainability

Global economies of today are complex systems. These systems consist of multiple factors that, like gears in a clock, interact with each other in order to perform effectively. Through the course of this essay, I will be examining the ways in which entrepreneurship, innovation and economic development are related. The role of sustainability in this relationship will also be discussed. I believe that entrepreneurship and innovation fuel economic development and promote sustainability. In order to completely understand the relation, it is important to define what is meant by each of the terms before identifying any links between them.

Joseph Schumpeter defined entrepreneurship as “whatever the type, everyone is entrepreneur only when he actually carries out a new combination and loses that character as soon as he has built up his business, when he settles to running it as other people run their business.”(Schumpeter, 1934, p. 78) I agree with most of this definition as this basically means that a person is only an entrepreneur when something new is created. After this point, they are not considered entrepreneurs as whatever they have created is no longer new. Schumpeter also said that innovation is the creation of a new product, new method of production, new markets or new ways of directing resources. It is also important to distinguish between incremental and radical innovation. Incremental innovation refers to a small change whereas radical change means a revolutionary change, For example, the invention of the first mobile phone was a radical innovation. The release of Apple’s latest iPhone is an incremental innovation. Firstly, I will examine the correlation between just entrepreneurship and innovation.

In my opinion, it is impossible to be an entrepreneur without being innovative. Schumpeter’s definition supports this belief. The person needs to create something incrementally or radically new in order to be an entrepreneur. A good example of this would be Steve Jobs, one of the founders of Apple. His innovation towards portable music was radical in the sense that his product was compact. However, since then, he has made more products such as phones and computers. Schumpeter also argued that innovation allows firms to generate abnormal profits which are required as they encourage research and development. However, I believe that this research and development often leads to incremental change rather than radical change. This can be seen by looking at Apple as well. Apple constantly makes incremental changes to its lines of phones and computers however nothing radically new is created. However, incremental change is essential for economic development.

Economic development is defined as the rise in the general standards of living and quality of life. It is measured by the Human Developmental Index (HDI). The HDI is a “way of measuring development by combining indicators of life expectancy, educational attainment and income” (UNDP, 2011). Economic development can only be achieved if there is economic growth. Economic growth is the rise in a nation’s real gross domestic product (GDP). Considering that "Development requires the removal of major sources of unfreedom: poverty as well as tyranny, poor economic opportunities as well as systematic social deprivation, neglect of public facilities as well as intolerance or overactivity of oppressive states." (Amartya Sen, 1999, p. 3), I firmly believe that economic growth can lead to economic development.

Entrepreneurship and innovation fuels economic growth as it makes demand rise. An entrepreneur innovates and creates something to meet a pre-existing yet unfulfilled demand. As a result, people buy that product, allowing the entrepreneur to earn profits. These profits can be invested back into the business. The process then starts again and causes the economy to grow. A...

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