by Henk Kleynhans on 09/09/10 at 12:14 pm
A reader posted this question: “What is the importance of entrepreneurship in the South African economy?”
Firstly, let me start with my own definition: An entrepreneur is someone who creates new wealth through the creation of new value. The simplest way to understand this is to think of someone making, say, fudge (my favourite). Fudge is more valuable than sugar and milk by itself.
The entrepreneur, let’s call her Maggie, simply combined the power of her mind and her body (“labour”) with some raw materials (“resources”) and added a dash of inspiration (and perspiration) to create something new with value.
People will buy the fudge, and through a somewhat more complex system, new money will eventually enter circulation to reflect the value that has been created by the tasty fudge.
Although this sounds very basic, it is crucial to realise that this new value never existed before! We are talking brand, spanking new value that has just been added to the economy.
It is, of course, possible to create value without baking fudge (or manufacturing any other goods). For example, Joey runs a transport company that delivers the fudge to fudge eaters around town. Fudge is more valuable when it is delivered to my office and I am willing to pay extra for the convenience.
Again, this is additional value that has been created out of thin air! Well, not quite… let’s not forget Joey’s ability to drive (power of his mind and body) plus petrol (resources)
As Maggie & Joey’s companies grow, they’ll need to employ people to help them. These people will also add value, but they are not traditionally considered entrepreneurs, because Maggie & Joey saw new opportunities to create or add value to the world. Of course, it’s possible that their employees will come up with ideas for new markets or new Fudge flavours or ways of saving costs. When they do, we say that they are “entrepreneurial”, something which all companies need from their employees.
In most economic systems, new money is created to match the new value, or wealth, that is created by entrepreneurs. (Though often there’s a bit of a mismatch, we won’t go into that now…)
So without the creation of new value, there will not be any new money!
Of course, a government can print more money than the corresponding value, as has happened in Zimbabwe. And as in Zimbabwe, what’s left of the free market will respond by considering the money worthless.
One can also get money into a country by selling raw materials and this can sustain some countries for many years. But, unless the money entering the country is invested in entrepreneurial businesses that create new wealth, the country will eventually run out its raw materials, without any remaining wealth.
So to answer the question on importance: Entrepreneurship is the single most important activity in our economy. It is the only activity that enables enterprising South Africans to apply their mind to create new value, new wealth, new money and new jobs. Without it, we are simply sucking dry the value that was created by entrepreneurs of past.
It is therefore crucial that our leaders, governments and lawmakers ask the following question whenever making any decision: Is this decision going to inhibit or encourage entrepreneurship?
Henk is a computer scientist and Internet junkie turned social entrepreneur. He is the CEO & founder of Skyrove, which enables anyone to set up a WiFi Hotspot and earn an income by sharing their internet access. Henk is also the chairperson of the Wireless Access Providers Association (WAPA) and the M&G has named him as one of "200 Young South Africans You Must Take To Lunch" View more articles by Henk Kleynhans.