Entrepreneurs play a crucial role in satisfying people’s needs and wants. In a broad sense, they contribute substantially to society and the economy by creating jobs and incomes, increasing production, and promoting innovation.
Entrepreneurs come with business ideas, take risks to start businesses, unite factors of production and sell goods and services to us. Starting a business comes with risks. They may have to risk their savings to start a business. However, their business failed after operating.
Being an entrepreneur requires more than creativity and the courage to take risks. But it also requires confidence. Entrepreneurs are positive people who believe in their ideas and business. They also have strong determination and strive to operate the business even when things are not going well.
Back to the topic above, what are the entrepreneurs’ roles in society and the economy? The following is a summary:
- Meeting people’s needs and wants through their products
- Uniting resources and using them productively
- Creating jobs for people
- Growing the economy by encouraging production
- Increasing prosperity by creating income and fulfilling needs and wants
- Paying and expanding tax sources
- Contributing to foreign exchange reserves by selling products abroad
- Promoting innovation to stay competitive in the market
Meeting people’s needs and wants
Entrepreneurs strive to satisfy people’s needs and wants through their products. Their products make our lives more comfortable, easy, and productive. For example, computers make our work easier. Electric lights allow us to work at night. Transportation services will enable us to travel and vacation around the world.
Entrepreneurs hope consumers are satisfied and continue to buy their products. But, to satisfy consumers, they have to compete with each other. And if they can outperform their competitors, they can generate high revenues. Then, after deducting the costs incurred, they make a profit.
Utilizing resources to best use
Entrepreneurs pool resources – sometimes, we call them factors of production – and productively empower them to start a business. These resources include land or natural resources, labor, and capital.
Land. For example, entrepreneurs cultivate barren land for planting agricultural products, as factory locations or other commercial building locations. In other cases, they mine metal minerals, process them, and turn them into various goods, from household appliances to industrial goods such as machinery.
Labor. Entrepreneurs empower the workforce by utilizing their skills and knowledge, both for physical and non-physical work. And workers can use their skills and knowledge to make money. Conversely, without working, their skills and knowledge are wasted.
In addition, employers also provide opportunities for workers to improve their skills and knowledge, for example, through training and learning by doing. Thus, those who were previously unskilled became skilled after training. Finally, combined with learning by doing, workers become more productive and become experts in their fields. As a result, they can also tap into their greatest potential.
Capital. Entrepreneurs use money as capital to make more money through their businesses. For example, they use it to buy production machinery and equipment. From these machines, they make products to sell. Then, they try to sell as much volume as possible to cover the purchase costs – as well as other operating costs – and as a profit.
Long story short, entrepreneurs play a vital role in utilizing resources to their best use. With them, resources will be addressed. Resources cannot use themselves. Instead, they need entrepreneurs to make them productive.
Creating jobs for people
Entrepreneurs create jobs for society through their businesses. They recruit workers to run operations, from operating factories to doing administrative jobs. The more new businesses are established, the more jobs are created.
The effect on job creation is on a broader scale. This is because a new business will give rise to other related businesses, either directly or indirectly.
Direct effect. For example, the electric vehicle business requires other businesses along the value chain, from mining metal minerals for car frames to manufacturing batteries. Thus, other related businesses will also grow when the electric vehicle business develops.
Indirect effect. Other unrelated businesses will also appear. For example, retail, housing, and lodging businesses will develop in locations where electric vehicle factories are established.
Growing the economy
In economics, economic growth takes place when output in the economy increases. To measure it, we use real GDP as an indicator. The percentage change in real GDP reflects an increase in the output quantity because it removes the effect of inflation.
Entrepreneurs contribute to economic growth in two ways:
- Establishing a new business
- Expanding existing business
A new business adds output to the economy. The more new businesses, the more significant the economic output increases.
In addition, entrepreneurs encourage economic growth by boosting their businesses to expand. For example, they increase production by increasing the capacity utilization rate. Or, they do so by investing in capital goods such as machinery or setting up new factories.
Economic growth will create more jobs and income. This is because entrepreneurs recruit new workers to work in their new businesses or operate new machines and factories. Thus, the more people work, the more income is created.
Increased income ultimately encourages people to spend more. They buy not only basic needs but also other needs. Finally, it increases demand and stimulates entrepreneurs to increase their production.
Increasing prosperity
Entrepreneurs contribute to prosperity and increase living standards. It works in several ways. First, an increase in living standards occurs when people can satisfy their needs and wants. In this case, the entrepreneur’s role is to fulfill it through their product. They provide various products to meet various needs, from basic, secondary, and tertiary needs.
Second, entrepreneurs help people overcome various life problems. Again, that’s done through their product. Their products make us more comfortable and easier. For example, transportation services make it easier for us to travel to distant places. Otherwise, without their services, we might have to walk.
Third, entrepreneurs contribute to prosperity through the income they create. People work for them to earn money, which, in turn, is used to make ends meet. The large-scale employment opportunities they create ultimately contribute to increasing per capita income.
Fourth, entrepreneurs indirectly contribute to overcoming the poverty trap. They create jobs and income for people, which, in turn, helps them send their children to school.
Fifth, entrepreneurs help people improve access to vital services. They operate a business to provide vital services such as education, training, and health, in addition to those provided by the government. Improved access also works through the increased per capita income they create. Higher incomes allow people to better access these vital services.
Expanding tax collections
Taxes are vital for funding social programs and public investment. For example, the government provides health, education, infrastructure, and other public services for welfare. Improving access to these services requires the government to increase revenue collected from taxes.
In this case, the government can collect more taxes thanks to entrepreneurs. As individuals, entrepreneurs pay taxes on their income earnings. They also bear taxes on their property or wealth. What they consume is also taxed.
In addition, entrepreneurs contribute to taxes indirectly through the businesses they manage. Their company is taxed. Likewise, some items purchased by their company are also taxed.
Another indirect contribution also comes from the income entrepreneurs create for their employees. For example, employees pay taxes on the income they earn. Likewise, when they use their income to purchase products, they contribute indirectly to tax collections, such as sales and value-added taxes.
Contributing to foreign exchange reserves
Entrepreneurs contribute to foreign exchange reserves. When they sell products abroad, they get foreign currency, such as US dollars, as payment. They then deposit the dollars they receive into the local bank and exchange them for the local currency to pay for inputs. Long story short, their sale increased the available US dollars in the country, generally referred to as foreign exchange reserves.
Foreign exchange reserves contribute to the exchange rate and the domestic economy’s stability. When it has sizeable foreign exchange reserves, the central bank can exchange them for local currency to ensure the government or company can meet its foreign obligations, such as paying imports and debt.
Promoting innovation
Entrepreneurs contribute to introducing and promoting innovation and technological progress. Entrepreneurs come up with innovative ideas to start a business and beat the competition. They develop new products and technologies to improve or replace existing ones.
While innovation can come from anyone, entrepreneurs play a role in disseminating it by commercializing innovative ideas. For example, an innovator might develop a new product or method. However, if he lacks entrepreneurship, he is unwilling to leverage it into a viable business concept.
On the other hand, entrepreneurs dare to take risks to start new businesses. They may also be innovators and turn their idea into a business. But, if they are not innovators, they can embrace or buy an idea by an innovator and commercialize it into a profitable business.
Further reading
- Entrepreneur: Meaning, Characteristics, Roles, Challenges
- Where Do Entrepreneurs’ Business Ideas Come From?
- Challenges faced by entrepreneurs in new small businesses
- 8 Qualities of a Successful Entrepreneur
- 10 Characteristics of Entrepreneurs You Need to Emulate
- Difference Between Intrapreneurs and Entrepreneurs. What are they?
- Intrapreneur: Meaning, Characteristics, Differences with Entrepreneur
- Social Entrepreneur: Definition, Importance, Characteristics
- How Do Entrepreneurs Play a Role in Society and the Economy?