Ways in Which the State or Public Sector Can Play an Entrepreneurial Role in the Economy - Literature review Example

Critically Discuss the Ways in which the State or Public Sector can play an Entrepreneurial Role in the Economy

Introduction

In the modern world, governments endeavour to promote entrepreneurship among its citizens. In fact, it has always been a desire for states to engage in promotion of entrepreneurship in their countries to boost the economies. According to Bhargava (2008), the push and drive towards entrepreneurship have been catalysed by various scholarly findings showing its benefits and successful entrepreneurship in other parts of the world. However, the level of entrepreneurship has remained slightly lower than expected in most countries regardless of attention been focused on its promotion. The perfect example is in the United States where approximately 15% of new businesses were created in the 1970s but the number reduced to approximately 8% in 2011 (Bhargava, 2008). The trend of fewer or reduced number of new businesses has affected even the high-powered technologies. In other words, the decline in startup businesses has widely declined in many countries.

The possible solutions to this problem are complex and need to involve other factors which may be out of the state or public sector’s control. One of the solutions that ought to be put in practice is free enterprise (Takeuchi, 2002). In as much as there are many studies that have been done in the area of entrepreneurship, the findings have not aligned with the practices that incessantly emerge in line with the enterprise. Most studies, as Sharp (2012) argues, have concentrated on what was done in the past but not on what ought to be done in this age and time. This research aims at critically analysing the role or means through which the government plays to encourage entrepreneurship in a state or country. The role played by the state and public sector in entrepreneurship is through creating environments that can encourage entrepreneurship and building businesses that encourage entrepreneurship through encouraging competition and giving loans and grants to small-scale business entrepreneurs.

State Policies

One of the major roles of the state in encouraging entrepreneurship is through policies that can foster a conducive environment for business as well as opportunities for the entrepreneurs to flourish. The state and public sector are necessitated to come up with policies that can enhance economic growth, through creating an atmosphere of competition, innovation, and entrepreneurship (Yong & Dong, 2011). Such policies should be coupled with strategies to reduce unemployment, especially amongst the youth through creating jobs and entrepreneurial opportunities. The desire to create jobs through entrepreneurship is an agenda that states ought to formulate and implement (Yong & Dong, 2011). The fact that entrepreneurship can create job opportunities can best be illustrated by research conducted in the United States in 1979 by Professor David Birch of MIT. The results of his research showed that most jobs in the United States were created by small businesses not by big enterprises (OECD, 2011). Such findings from methodical investigations is an indication that job opportunities can be created through entrepreneurship.

When creating an environment that fosters enterprise, the government should create a levelled playfield through certifications of businesses and regulations. As asserted by Wiseman (2013), access to certifications should be fair and impartial. The state can also create a suitable environment through ensuring easy access to capital through financing bodies as well as through government funds for entrepreneurship (Prelipceean et al., 2014). Through state policies, therefore, the government can foster an environment favourable for the enterprise by formulating and implementing policies that guarantee a level playing ground for competition among businesses, and also by coming up with policies that create startup capital for businesses.

The public sector is in the best position to promote entrepreneurship through creating favourable foreign trade and local trade policies, for instance, tariffs and import quotas. These taxes can be lowered or even eliminated as an effort to attract more individuals into engaging in entrepreneurship (Hathi Trust, 2009). If the trade restrictions could be flexible, entrepreneurship would be encouraged because business people would be able to increase their bottom-line by saving from the taxes.

Entrepreneurial Ecosystem

The other entrepreneurial role of the state is to create an entrepreneurial ecosystem. Enterpreneurial ecosystem was coined in the 1990s from the clustering of industries and the rise of the National Innovation System (Hathi Trust, 2009). In the years following 2000, the expression has been used to denote a condition that unites people to push for economic prosperity and creation of wealth. In the recent years, most states have been struggling with declining economic growth and unemployment (Audretsch & Link, 2016). Thus, through creating an entrepreneurial ecosystem, collaboration with an aim of creating wealth would be achievable.

The result of the entrepreneurial ecosystem model is to ensure that free enterprise is created through the use of local resources, thus, desisting from replicating efforts implemented in other areas (Hathi Trust, 2009). In other words, to achieve projected results in entrepreneurship, businesses ought to build on the skills and capabilities of their employees rather than attempting to launch high-technological industries which may not be viable (Choi, 2000). In this light, the states have a role to play in ensuring that local resources are utilised effectively. Availing local facilities, necessary in driving upcoming businesses, is also a role of the state and public sector. The main area of focus for the states should be to encourage sustainable, innovative, and growth-oriented start-ups. Since starting up a business could be easier than growing one, the state has a role to play in availing and engaging experts to advice the young entrepreneurs accordingly during the growth process of their businesses.

To create an entrepreneurial ecosystem, every state can use the tax-code as a tool to promote entrepreneurship and business growth (Choi, 2000). The changes in tax-code can be done with an aim to create opportunities for businesses and further create chances for the already established businesses to flourish. In this respect, therefore, states should work towards tax reduction to create an atmosphere that encourages businesses to flourish.

Giving Incentives

Giving incentives relates to rewarding. Rewarding, as Choi (2000) notes, involves giving gifts or acknowledgement after good performance. Conversely, rewarding could be reversed in poorly performing companies to encourage better performance. The rewards could be given on the basis of good performance; good performance involve output, success, ethics, codes, and government policies (Prelipceean et al., 2014). If the rewards are awarded based on such criteria, more individuals would be attracted towards starting up businesses. These incentives would attract people due to enticement that come with it. Moreover, not only will the incentives encourage more entrepreneurs to come up and start businesses, they will also ensure that ethical standards are upheld in business operations. The rewards will discourage unethical operations to gain success.

The concept of issuing incentives could also prompt the identification of underperforming enterprises, thus, forming the basis for formulation and implementation of improvement strategies. Moreover, in cases where businesses are found to be operating unethically, they could form the basis for issuing punishments and, hence, deter unethical behaviours. The necessity for this is because entrepreneurship, as Mazzucato (2014) argues, cannot flourish in an uncontrolled environment full of unfair deals an unlevelled platform. Through incentives, therefore, the state and the public sector can attract more entrepreneurs, encourage proper conduct in business operations, and further ensure that business laws, ethics, and codes of conduct are adhered to. The state can also give tax incentives that lower corporate income taxes to encourage business activities. Tax incentives can be given based on the types of businesses. Such incentives encourage entrepreneurship by attracting people into businesses.

Promoting Competitive Markets

The public sector and the state are also responsible for the creation of a competitive market and free trade (Prelipceean et al., 2014). When there is a competitive market, innovations diffuse, in return helping to spur productive entrepreneurship. The first way through which a state can encourage competitive markets and free trade is through supporting open capital markets, targeting and directing resources to promising ideas. To achieve this, the state should ensure entrepreneurs access working capital finance. If the open markets do not work for the benefit of the investors and consumers, then it would be of no effect. The state should be committed to building supporting systems where businesses can innovate and take chances without the fear of untenable risks.

Also, the state has the role of encouraging growth and entrepreneurship based on innovation. In this case, the state has the role of availing education systems that are drivers of innovation, especially in science. The public sector can encourage this through the establishment of policies that approach entrepreneurship from a research, educational content, and policy perspectives. Thus, states ought to establish research centres where people’s innovative ideas can be experimented. The state should also foster and encourage innovation in the public sector and within the community.

Continuous Cash Flow

Constant cash flow is a necessity for an entrepreneur and investor. The free movement of capital enables efficient flow of business operations (Mazzucato, 2014). The successful operations of businesses are dependent on the free movement of money. This means that free movement and availability of money supports establishments and startups of several businesses. Therefore, the states' role is to ensure the flow of such cash. To make sure that the money is available for investors, the state creates banking systems and financial systems. These systems not only encourage cash flow but also ensure safe-keeping of the cash as and access to loans needed for business expansions. A state that wants to promote entrepreneurship will institute an efficient financial system. Through loans and grants programs, the government can support entrepreneurs financially. Other ways of giving the grant and loans would be through programs such as small business administration programs.

Teaching Entrepreneurship

Some aspects of business, such as willing entreprenuers, are necessary for a business to succeed. To achieve this, Prasad and Negandhi (2013) points out that entrepreneurs must learn the requisite skills required to operate a business. There are also other ways through which the state can assist small businesses. These include the creation of business incubators which facilitate start-up businesses by giving them an opportunity to grow. In most cases, business incubators are linked to learning institutions such as universities. For this reason, there are experts mandated to facilitate these programs and, hence, teach a range of subjects, from sales and marketing to the legal systems that surround the business environment (Sarimah & Abd, 2008). These programs not only encourage entrepreneurship but also help entrepreneurs learn and acquire skills to grow their businesses. Moreover, they gain knowledge regarding the legal requirements of particular businesses. The state has a role to play in this context. For instance, governments can offer financial incentives to universities to create business incubators within campuses.

Celebrating and Fostering Small Businesses

After training potential entrepreneurs, it would be imperative to promote small-scale businesses to attract and encouraged more individuals to venture into businesses (Osborne & Brown, 2013). Promotion of businesses can be done by holding business fares, exhibitions, and programs that create room for recognition. These events may help businesses to attract sponsors and shareholders, progressing and garnering support for the businesses. As Wiseman (2013) argues, a state that endeavours for its citizens to prosper must promote the concept of entrepreneurship. One of the ways to achieve this is by collaborating with both community and business leaders.

Protection of Property

Protection of property begins with the state and it is a key role of the state in encouraging entrepreneurship. Security is a very key factor for entrepreneurs. In places where there is no security, business people risk losing their investments through theft and unrests (Bijaoui, 2015). It is, therefore, important for a state to create a safe environment for businesses to flourish. Security is also necessary because it attract investors. Potential investors would not endow and offer their support to businesses in unsecure regions. In other words, areas with little or no security are never attractive to investors. It is, therefore, a pivotal role for the states to offer security so that investors' properties are protected (Johnbee & Jyothi, 2012).

It would be important to note that a country that aspires to encourage the growth and expansion of small businesses needs to craft laws that protect innovation and entrepreneurs. Innovation is the backbone of the small businesses success. If innovations are not secured, then the entrepreneur would not be in a position to engage in the risks necessary to come up with required solutions (Johnbee & Jyothi, 2012). Policies that protect trademarks and copyrights are necessary to ensure that small businesses are successful. The bottom-line, in this respect, is that the state or public sector can play an entrepreneurial role in the economy through the implementation of policies that support entrepreneurs to face lesser risks and make more profits.

Creating Connectivity Among Entrepreneurs

Coming up with events that bring entrepreneurs together is also very vital in creating a platform for the support of entrepreneurs. In such events and functions, there should emphasis on the facilitation of business networks. By encouraging and facilitating networks between entrepreneurs and innovators, the entrepreneurs' support organisations will encourage business initiatives (Fenwick, 2013). These events create an exciting entrepreneurial ecosystem. States and public sectors can work with local entrepreneurs to arrange and organise programs, for instance, a start-up weekend that unites small business and entrepreneurs who own small businesses to form teams or present business ideas to a team of serial entrepreneurs and experts to source for capital (Lynn, 2010). Businesses can work together with other interested contractors to unite entrepreneurs and enhance learning and establishment of relationships. Such events should give opportunities to entrepreneurs to talk about their limitations and get responses and advice from others.

Challenges relating to management in the modern world can never be underrated. Much focus is directed towards the business aspect and less on the management. Another area that the state ought to spotlight its attention in its efforts to boost entrepreneurship, as posited by Kennedy (2005), is the area of management. It is common knowledge that a business cannot function effectively and achieve its projected objectives if the management challenges are not addressed. This takes us back to the policy issues. Analogous to the policies formulated to address the business aspect, some policies also ought to be formulated and implemented with focus to management. Rules and guidelines governing the conduct, functions, and responsibilities of the management must be explicitly stated. The state, in this context, can play a role of instituting bodies that unsure conformity to such guidelines.

Marketing and product promotions comprise a fundamental element of business. For business to kick-start and perform as projected, they ought to have a clearly stated and laid-out marketing strategy. The state has a role to play in discouraging false advertising and ensuring products availed for use by the consumers conform to the state's safety guidelines and regulations (Lowe & Marriott, 2006). Some businesses may take advantage of poor government's policies on marketing and advertisement. As such, they would have an unfair competitive advantage over other business. To level the ground, the state must ensure attributable policies attain fairness for all business. Concisely, more individuals would be prompted to start-up new businesses where the business environment is fair to all.

The role of the state and public sector in entrepreneurship cannot be explicated without mentioning the element of corruption in business. I t is arguable that corruption constitute one of the factors that discourage new start-ups in business. To prevent corruption, both the state and the public have an equal role to play. In extrapolation, the state cannot win the war against corruption without collaboration with the public sector. On the one hand, as Lowe and Marriott 2006() argues, it is the role of the state to provide information and training on the dangers of corruption to the public. On the other hand, Kennedy (2005) argues that the reporting role lies on the public. In other words, the public is better situated to report any state official demanding for a bribe from a business owner or an individual aspiring to open-up a new business.

To boost entrepreneurship, the state ought to play a supervisory role. According to Wiseman (2013), a state stands to lose its trustworthiness, integrity, and standing as a governing body by engaging and intervening directly in the running of businesses. There is a risk of the government contributing to price instabilities if it engages itself directly to business operations. By engaging directly in business means that the state would be competing with the private sector. In such a scenario, the private sector would lack access to information that could only be availed by the state, for instance, price fluctuations. It is, therefore, the role of the state to remain neutral to ensure all business operatives have an equal access to relevant information. Conclusion

The role of the public sector and the state in encouraging entrepreneurship is very crucial in entrepreneurial growth in a country. Entrepreneurship is necessary in the world's economy today as there is need for solutions to economic problems. Entrepreneurs have the role of putting in their money in business and maturing the businesses to grow and encourage development. It is the role of the business people to come up with creative and innovative ideas to generate income, create jobs, and make wealth. The entrepreneurs also have the duty of ensuring the success of businesses. However, the key mandate remains with the public sector and the state. They must come up with and implement policies on taxes, business operations, and finances to encourage entrepreneurship. Also, they must come up with entrepreneurial ecosystems that aim at coordinating the business entrepreneurs and connect them to enhance exchange of business ideas. Further, the state should give incentives to businesses as a model to promote entrepreneurship, come up with events that help to recognise small -scale businesses, and encourage other entrepreneurs to participate. The state also has the role of ensuring conterminous cash-flow with a view to facilitate business operations. These finance systems are important since they avail loans to businesses. The state also has the role of creating laws and policies necessary to make business operations flexible; rigid business laws do not encourage business startups. Both the state and the public sector must work together to eliminate or eradicate corruption that hinders new startups.