Wednesday, March 09, 2011

The Crucial Role of Entrepreneurship To Economic Prosperity

The US Economic Report of the President acknowledges the crucial role played by entrepreneurship in wealth generation...

America’s small businesses are an essential building block to economic growth and prosperity, in part because entrepreneurs create a disproportionate share of net new jobs in the U.S. economy.

The report includes the following data. (bold highlights mine)

One particularly important contribution of small firms to the Nation’s well-being is the jobs they create. According to the SBA’s Office of Advocacy, small firms accounted for 9.8 million of the 15 million net new private sector jobs created between 1993 and 2009—nearly two out of every three of the period’s net new jobs. In normal times, new small businesses account disproportionately for employment growth. Although many new firms fail, surviving Supporting America’s Small Businesses | 145 firms create enough jobs to offset those lost to firm exits, so that most jobs created by firm births persist. A recent Kauffman Foundation study, for example, shows that startup firms created 3.1 million gross jobs in the United States in 2000. By 2005, about half of the initial firms had failed, but the survivors still employed 2.4 million people (Kane 2010).

(source Tim Kane, Kauffman The Foundation of Entrepreurship)

I am reminded of the great Ludwig von Mises who wrote,

In the capitalist system of society's economic organization the entrepreneurs determine the course of production. In the performance of this function they are unconditionally and totally subject to the sovereignty of the buying public, the consumers. If they fail to produce in the cheapest and best possible way those commodities which the consumers are asking for most urgently, they suffer losses and are finally eliminated from their entrepreneurial position. Other men who know better how to serve the consumers replace them.

Entrepreneurs, aside from the capitalists, are the heroes of the modern capitalist (market) economy.

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