Entrepreneurship as an Economic Tool

Entrepreneurship is the act of applying creative thinking to small business, discovering new ways to improve the operations of an existing or new business idea. Entrepreneurs look at what is needed, what is missing, what is changing, what can be done better, and what consumers will want to buy in the coming years.

In the US, there are 600,000 to 800,000 new companies created annually, which is a birthrate of 14 to 16 start-ups for every 100 existing businesses.

In the US, there are 600,000 to 800,000 new companies created annually, which is a birthrate of 14 to 16 start-ups for every 100 existing businesses. It is possible that another two million businesses are started each year as self-employment ventures or as businesses with no employees. As many as 8.4 out of every 100 Americans — 16 million people — are currently attempting to start businesses of their own. Women are very involved in entrepreneurship activities, accounting for more than a third of all start-ups.

And small businesses create the majority of new jobs: 1.6 million, or 64 percent, of the 2.5 million jobs created in the US in 1996, for example. Since 1980, Fortune 500 companies have lost five million jobs, while the US as a whole has added 34 million jobs. According to the Small Business Administration (SBA), small businesses also typically provide most initial on-the-job training. They are also more likely to employ both younger and older workers, former welfare recipients, and women, many of whom may prefer or are able only to work part-time.

Rural and Urban
A report by SBA, entitled Rural and Urban Areas by Firm Size: 1990-1995, investigates the differences between rural and urban areas in terms of the number and size of companies. Small businesses dominate rural areas; however, the growth of urban small and large firms outpaces that of rural firms. To illustrate, only 19.1 percent of all business locations and 15.3 percent of employees were in rural areas in 1995. Yet small firms represented 90.6 percent of rural business locations and 60 percent of rural private employment in 1995. Small firms' importance relative to urban areas is demonstrated by these statistics. Western states reported the highest growth in business locations and employment.

Women and Minorities
Small business and entrepreneurship is also the means by which millions enter the social and economic mainstream of American society. Small business is the essence of the American dream for many people, creating opportunities for a better life and being one’s own boss.

Since the 1970s, women’s share of small business increased from five percent to 38 percent.

Women, for example, accounted for less than 26 percent of the American workforce just 50 years ago. Laws such as the Civil Rights Act, Equal Credit Opportunity Act and the Affirmative Action Act removed some of the barriers women encountered in attempting to start their own businesses. Since the 1970s, women’s share of small business increased from five percent to 38 percent. According to SBA, significant growth has occurred in all areas of women business ownership.

Minority-owned businesses have also increased between 1987 and 1992, from 8.8 percent to 12.5 percent of all firms.

An Economic Development Tool
Many small metropolitan and rural communities are in need of well-paying jobs and a boost to their economies. Helping entrepreneurs create the businesses that will provide these jobs is a high priority for these communities.

Entrepreneurship is an important mechanism for adapting to economic change.

Entrepreneurship is an important mechanism for adapting to economic change. It has the potential to sustain local economies and improve the quality of life in small metropolitan and rural communities. There are many more traditional approaches to economic development — like public infrastructure investment, business services and incentives for attracting outside businesses — but many believe that creating homegrown economies, full of local businesses, is a sure way to create a stable local economy. And what better place than the United States; the US has the highest rate of entrepreneurial activity in the world.

A study by the Aspen Institute and Tennessee Valley Authority Rural Studies about developing entrepreneurial economies in Appalachia identified needs and tools to develop this type of economy. On the support side, there are tools and resources that new entrepreneurs need. These can include: 1) availability of capital in the hands of investors and financiers, who are devoted to entrepreneurship; 2) transparency and efficiency in government programs so that entrepreneurs can understand what is available to them; and 3) banks and financial institutions that recognize that they are dependent on a healthy, growing community.

On the demand side are steps to boost the number of entrepreneurs. These include an environment that encourages spin-offs from established companies, educational programs that teach and encourage entrepreneurship at all ages, and a culture that supports entrepreneurship.

The Rural Policy Research Institute commissioned the Gallup organization to collect data through national random samples of 377 urban and 376 rural adults, and provide statistical analyses on attitudes to different rural finance reform strategies. A majority of the respondents approved of all the listed strategies. The highest agreement was received for business start-up grants for young entrepreneurs who participate in apprenticeship and community service programs, capital gains reduction for retirees who transfer farms and small businesses to young entrepreneurs, economic development loan guarantees and rural banking reforms to increase financial access for rural economic development projects.

By Melissa Levy, Digest Managing Editor
For more information, see the entrepreneurship resources on page 10.

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