Discuss the Relationship Between Entrepreneurship, Innovation and Economic Development. What Roles, If Any, Do Creativity and Problem Solving Play in This Relationship?

Topic: Discuss the relationship between entrepreneurship, innovation and economic development. What roles, if any, do creativity and problem solving play in this relationship?

Economic growth refers to sustained increase in per capital real GDP, which results from higher production of output in the economy. Economic development is a broader concept of well being of an economy. It is said to occur not only when there is economic growth but also when the people in the economy are better off due to increase in life expectancies, gains in literacy, reduction in income inequalities and in poverty etc. According to Joseph Schumpeter (1934), economic development is a process caused by new combinations of means of production, or better known as innovations, that is carried out by individuals known as entrepreneurs. China and the East Asian Tigers have grown on basis of innovations and high entrepreneurial activity. We have also seen how Steve Jobs and Bill Gates transformed the world through their innovation of Apple and Microsoft respectively. Therefore, entrepreneurs and innovations play vital roles in the development of a country.

We often refer an entrepreneur as a factor of production or someone who has opened a new venture or owns a successful company. But such views portray a narrow and restricted role of an entrepreneur. In reality, entrepreneurs are essential for economic growth. Schumpeter believed that "everyone is an entrepreneur only when he actually carries out the new combinations and loses that character as soon as he has built up his business."(The Theory of Development, 1934). His belief holds true to a large extent and modifies the way we commonly think of an entrepreneur. He describes entrepreneurship to be process or activity that is carried out by a person. Thus the quality of this entrepreneurial spirit is possessed for only a certain period of time and doesn't last forever.

It's the ability of an entrepreneur to identify what the market is devoid of, reacting creatively to the opportunity with new ideas and acting upon these ideas through a process of innovation to produce new goods, creating demand for it and giving it market value. Such a process leads to correction of market failures and deficiencies (Leibenstein, 1995, Schumpeter 1942). It causes changes in the market by creating disequilibrium of market forces. These changes act as sources of opportunities for the entrepreneur, which can be exploited to generate profits for himself.

"Entrepreneurship consists of the competitive behaviours that drive the market forces"(Kirzner, 1973). They are seen as agents that establish firms, which execute economic process and innovate to create a competitive and vibrant environment for industries. These activities encourage economic growth (Schumpeter, 1911). Schumpeter's theory predicts that an increase in the number of entrepreneurs in the economy will accelerate the rate of economic growth.

Solow's model shows that high level of savings is necessary for an economy to experience growth. Entrepreneurs transform idle public savings into productive investment. This leads to creation of wealth, which is essential for economic development. Entrepreneurial activity creates opportunities to create new goods through mobilization of capital and labour. This leads to a manifold increase in country's Gross Domestic Product. GDP acts as the main indicator of economic development. It also simultaneously raises employment levels in the economy as entrepreneurial activities create jobs. This is in turn will raise national income levels in the economy.

A successful entrepreneur needs to possess management, leadership and team building skills. He should be able to take personal and financial risks. But apart from such capabilities, an entrepreneur must be driven by innovation.

Innovation refers to creation of something new. Kanter (1983) defines innovation as ' the generation, acceptance and implementation of new ideas, processes, products and services...(which) involve creative use as well as original invention'. It breaks free from bureaucratic limitations and modifies how things are done. Innovations are often confused with inventions. Inventions are a form of innovation as it is the production of something which was previously inexistent. On the other hand, it isn't necessary for all innovations to be inventions. Innovations can take in form of practises, products or ideas that may have already existed for long but have found a fresh application in the market through creativity and problem solving.

Innovations contribute to changes in market structures and operations in society. They attempt to bring out some improvement, technologically and socially. Internet has changed the way economies operate. It contributed largely to growth of firms, communications and also helped in globalisation. Thomas Edison's invention of the light bulb has been on of the greatest innovations. Adam Smith's theory of division of labour changed the way firms operate. Dr. Edward Jenner's successful creation of vaccinations has increased life expectancies. Such innovations have modified our standards of living.

Outsourcing was an innovation that was initially started by the companies in United States. In the 90s, the business industry faced financial difficulties. As a result, companies adopted cost effective measures to sustain their businesses and began outsourcing to countries like India and Philippines. Discovering that they could save more by outsourcing to other countries than employing new staff within the country, US companies were able to significantly reduce their production costs and raise revenues. It simultaneously increased employment levels in less developed countries like India and allowed such countries to experience higher growth rates. As technologies advanced, online outsourcing evolved which rose job opportunities in the Information Technology sector.

Entrepreneurship and innovation complement each other and occur simultaneously. Innovation is not only an initial requirement to start up a new business but a process that is employed continuously to ensure the survival of the company in this dynamic economy. An entrepreneur needs to introduce changes and improvement in existing