Joseph Nizich is an entrepreneur who sheds light on the catalytic role entrepreneurship plays in propelling economic growth. In the following article, Joseph Nizich delves into the dynamic interplay between innovative business ventures and the expansion of economies.
Entrepreneurship and economic growth go hand-in-hand. The former introduces innovative products, services, and technologies, increasing competition, providing new job opportunities, and raising productivity in firms. As a result, the economy surges, skyrocketing to flourishing heights.
Even though growth created by entrepreneurship is sometimes over emphasized, its undeniable contributions make it a particular area of interest for policymakers and economists across the globe.
Joseph Nizich on Driving Growth Through Innovation
While not always the case, entrepreneurs typically create new technologies, open fresh markets, and develop new products or processes. From Larry Ellison’s Oracle to Bill Gates’ Microsoft to Stelios Haji-Ioannou’s easyJet, there are countless examples of remarkable innovations brought to the forefront by exceptional entrepreneurs.
And experts state that with such innovations comes economic growth.
Joseph Nizich says that new firms invest more resources in discovering new opportunities.
Boosting Economies Through Increased Competition
Entrepreneurs establish new businesses, intensifying the competition for existing corporations while giving consumers lower prices and increased product variety.
Joseph Nizich explains that analysts use a measure of market mobility to identify the effects of new companies on already-there firms. When the rankings of established businesses change by employee number, economists note market share transfer and higher mobility.
Alexander S. Kritikos, the research director at the German Institute for Economic Research, remarks that such effects are particularly strong when looking at entrepreneurial movements five years before the start-up. Thus, a considerable lag exists in the effect of new businesses on aforementioned mobility.
Accelerating Productivity for Enhanced Economic Growth
Ideally, competition between new and existing businesses causes a “survival of the fittest” situation.
Joseph Nizich notes that despite the likelihood of employment levels declining, entrepreneurial activity encourages (almost forces) productivity. This impact occurs in the medium term, as employment is dominated by the displacing established enterprises.
The question is: why does this occur? According to economists, there are two reasons.
Firstly, fresh firms boost market competition, thus diminishing the market power of incumbent businesses, forcing them to either shut down or increase efficiency.
Secondly, Joseph Nizich explains that only those with a competitive advantage or those more efficient than the already-existing firms will actually break into the market. As a result, less efficient firms (regardless of their time spent on the scene) will drop off.
From a short-term perspective, turbulence and the overall productivity effect can be a negative due to the strategic adjustments necessitated by new entrants. However, there is a positive correlation with the same variables when looking at the situation from a medium- to long-term point of view.
Entrepreneurs with high innovation levels and growth ambitions compound the positives. Although, the effect is noticeably weaker for entrepreneurs with lower growth expectations.
Joseph Nizich says, ultimately, the pattern shows economists that entrepreneurs generally boost productive and efficient use of scarce resources within the economy, with the impact fortified by particularly innovative entrepreneurs.
Encouraging Structural Change for a Growing Economy
New market conditions often wreak havoc on existing firms as they struggle to adjust. They fail to enact the changes needed to cope with permanent changes, getting locked in old habits and falling into creative destruction.
Joseph Nizich says that entrepreneurs and the exit of tired businesses, however, frees firms from this otherwise-stagnant position. Not to mention that innovative individuals/teams often create completely new industries and markets, becoming the stern that steers the ship toward the future of growth.
Experts Speak on Inherent Complications of Entrepreneurship
There’s no question as to whether entrepreneurship truly boosts the economy — through productivity accelerations, structural changes, increased competition and improved innovation, entrepreneurial activity drives society forward. But there are expert-noted innate complications.
Scholarly texts note that entrepreneurship is influenced by many factors, including the specific industry, regional population, and entrepreneurial density in the area. In some cases, it can even increase overall inequality.
Joseph Nizich explains that the US, for example, has massively benefited from entrepreneurship, large competitive markets, highly established financial systems, and an increased level of long-term government support. However, the same can’t be said for developing countries, where generic entrepreneurship shouldn’t be the go-to activity for stimulating economic growth.
That said, the right circumstances see entrepreneurial activity, the technology it innovates, and the businesses it establishes bring wonderfully positive economic results.
