Many people think of entrepreneurship as the act of starting a company. In a sense, this is accurate. However, in large measure, entrepreneurship must take into account several other factors. One of these factors is economics. Economists have long studied the benefits and disadvantages of entrepreneurship.
The basic premise on which economics applies to entrepreneurship is the principle of the cumulative effect. Economics relates the value of an economic activity to its time-cost. In essence, this means that the longer it takes to produce an economically advantageous result, the more valuable it is. Entrepreneurs tend to look at the economy from a time perspective, seeing it as an organism in which the price system constantlyicks. They therefore look at the long-term benefits of every economic activity they engage in. As a result, they come up with the maxim “the higher the investment, the greater the gain.”
Although the profit/loss principle may sound appealing to capitalists, it is not an ideal for most entrepreneurs. For starters, the profit/loss rule does not apply to most basic industries. Basic industries, unlike commercialized industries, do not function according to the clockwork of a fixed clock. Entrepreneurs therefore prefer a system in which they can engage in economic activity for maximum profitability without having to worry about the effects of a sudden government control of the economy.
Another important feature of entrepreneurship is its structure. In the absence of a defined set of rules, entrepreneurs often experience a great deal of entrepreneurial chaos. This chaos is caused by the absence of a structure in which entrepreneurs determine how they will undertake an economic activity. Without such a structure, entrepreneurs are left to their own devices to organize their businesses. For example, the internet entrepreneur could easily create an online store using little more than a computer and some software.
A certain percentage of the world’s population lives in a state of pure capitalism. A pure capitalism entrepreneur is able to use the natural competitive process that occurs in the free market to achieve a higher level of success than he would achieve if he were to engage in what economists call “social enterprise.” Privately owned enterprises are run by the individual entrepreneur. The concept of private enterprise is closely associated with freedom and with the laissez-faire attitude toward government regulation of business. Private ownership is a very attractive proposition to most entrepreneurs.
Communism, on the other hand, is the opposite of capitalism. It is an economic system in which the products and services provided by the state are sold in the form of commodities, which are purchased by workers through the operation of a central plan. The existence and the operation of a centrally planned economy have been argued by social scientists for over one hundred years now. The arguments against a capitalist system range from objections to the availability of goods and services to objections to the distribution of wealth. Many people who do not share these traditional socialist views consider the existence of a viable alternative – a state-run capitalism.
Private property and ownership of the means of production are the foundations of the protectionist economy. Protectionism is the process of protecting specific resources or industries from foreign competition. In a socialist economy, the government protects the rights of the producers of basic industries to ensure the availability of these goods and services. Private ownership of land and industry is prohibited in socialism.
Private property rights are violated in a capitalist economy through the control and manipulation of the distribution of money through the government. Through the operation of the state, the interests of big business and the needs of the masses are usually different. The entrepreneur is often left to fend for his business and his family without any meaningful way of earning a living. The presence of a free market system empowers the entrepreneur and allows him to seek true value and freedom for his products. A basic understanding of socialism and capitalism can help entrepreneurs to understand the nature of their business and where they fit within the economic system.