CHAPTER 1

INTRODUCTION TO ENTREPRENEURSHIP

Chapter Objective:

At the end of this chapter, it is expected that students will be able to explain the concepts of
entrepreneurship and its role in economic growth and development and illustrate the various
government support and programs to local enterprises

A. ECONOMIC DEVELOPMENT

Growth vs. Development

Economic growth and development is a goal of all people and nations in the world.
Economic growth is the sustained increase per capita real output of goods and services.
The output of goods and services is measured in terms of the gross national product
(GNP). Economic Growth is usually expected to result from economic development.

Economic development is a process of bringing about changes in the economical and

social structure of the economy. Economic structural changes means the modernization of
techniques of production designed to bring about increase in the output of goods and
services.

Three Core Values of Development

1. Sustenance – the ability to meet basic needs;

2. Self-esteem – to be a person;
3. Freedom from servitude – to be able to choose.

Three objectives of Development

Consistent with the core values of development, the objectives of development are:

1. To increase the availability and widen the distribution of basic life sustaining goods
such as food, shelter, health and protection.
2. To raise levels of living, in addition to higher incomes, provision of more jobs, better
education and greater attention to cultural and humanistic values.
3. To expand the range of economic and social choices available to people and nations
by freeing them from servitude and dependence not only in relation to other people
and nation, but also to the forces of ignorance and misery.

Dimensions of Development
1. Economic Development – It is growth-oriented and development is measured
according to how much progress is made in gross and per capita national product,
national and per capita income and similar economic indicators.
2. Social Development – It considers people and their development and improvement in
the quality of life as a focus of development. Poverty eradication, social justice and
equity, and employment opportunities are the goals pursued by social development.
3. Political Development – The maturity and stability of political institutions and
systems.
4. Sustainable Development – It balances the requirement for economic progress and the
imperative conservation and safeguarding of the environme nt for the future
generation. Productivity remains a valid goal but one that is consistent with the
carrying capacities of nature.
5. Human Development – It is the process of enlarging people’s choices. The strategies
used to achieve human development focuses on providing opportunities and access
for education, health services and livelihood.
6. Sustainable Human Development – A development paradigm that emphasizes total
well-being of the people within the context of an ecologically friendly and future-
minded development activity. It is development that distributes the benefits of growth
more equitably, substantially satisfies human needs, and improves the quality of life.

Differentiating the Advanced vs. Third World Countries

Table 1. Characteristics of Advanced Versus Third World Countries

ADVANCED COUNTRIES THIRD WORLD COUNTRIES
- Sustained rise of output per head of - High birth rate
population
- Increased population due to increasing - Subsistence agricultural economy
agricultural production
- Sustained patterns of technological - High illiteracy
progress
- Sustained increase in net capital stock - Low per capita income
- Sustained rise in real wages - High rates of unemployment
- High rate of change in economic Negative attitudes, values and
structure and transformation in social an institutions; poor health; inefficient
other non-economic sectors public administration

Theories That Explains How Economies Grow

Generally speaking, individuals who introduced theories of economic development have

been limited in their efforts to study this phenomenon by their particular training,
education and experience as well as by the amount of information, observable data and
proof available to them at the time their studies were made. Despite these limitations,
however, their theories are no less valuable in our efforts to understand economic
development. This section provides a general discussion of the various theories or school
of thought that try to explain economic growth. These schools of thought are presented
here, regardless of whether or not they have been confirmed by experience or by other
observable data.

Theories of economic growth may be classified into three broad groups. One group
consists of theories viewing economic growth as a natural and inevitable process. The
second group of theories explains economic development as a rational process brought
about when men respond to opportunities in the environment so as to promote their own
self-interest or material welfare. The last group of theories views economic development
as a result of seemingly economically irrational yet psychologically and sociologically
satisfying activities of enterprising men. For discussion purposes, these will be labeled as
general, economic, and socio-psychological theories.

1. General explanations of economic development – Some writers explain economic

growth as inevitable process brought about by interacting forces in nature.

a. Law of Nature – economic development proceeds according to a master plan.

In 1932, Spengler explained economic development by likening a culture or

society to a living organism that grows, lives and dies. Thus to him, economic
development is a natural thing that happens to an existing culture: it is a part
of life and is something to be expected.

Herbert Spencer thought in much the same way. He viewed society as an

organism constantly in the process of evolution. As it evolved, it increased in
complexity since new institutions developed, and the roles and functions of
social institutions became increasingly specialized. The result is economic
development.

b. Invisible Hand

In the 18th century, Adam Smith advanced the principle of an “Invisible

Hand” as underlying economic development. According to him, while
individual seek to work for their own personal goal, they unknowingly
promote what is best for all. It is as if these individuals were led to such
actions by an “Invisible Hand” to the interest of the community or society as
a whole.

According to Smith, “Every individual endeavors to employ his capital so

that its produce may be of greatest value. He generally neither intends to
promote the public interest, nor knows how much he is promoting it. He
intends only his own security, only his own gain. And he is in this led by an
Invisible hand to promote an end which was no part of his intention. By
pursuing his own interest, he frequently promotes that of society more
effectively than when he really intends to promote it.”
c. Cultural Diffusion

Anthropologists introduced the idea that over the ages and across the years,
societies have been involved indifferent social or cultural experiments in
various economic, political, religious or social aspects of life. Every now and
then, societies are fortunate enough to stumble on a “breakthrough”, that is, a
“lucky” combination of interests, leaders, people, events, methods or
processes that leads to economic or some other development in society. In
other words, as one culture that has begun to use a new technique interacts
with another that has not been exposed to the technique, the former is able to
influence that latter to discard old ways and adopt new ones.

d. Racial Heritage

The belief that one race is superior to another on the basis of color, build, and
other genetic heritage has been around for a long time. Some individuals,
including Hitler in his lifetime, contend that racial characteristics make some
people more energetic, thus, allowing their countries to be far more
developed than others. The belief in “Aryan superiority” espoused by the
Germans has been used, in fact, as justification for conquest during World
War II. This is also9 the philosophy behind the enslavement of the blacks by
the whites; the subjugation of the Indies by the Spaniards and Portuguese;
and the genocide of North American Indians by the Americans.

e. Climatic conditions determine the energy levels of a people and, in turn, its
rate of development.

In 1915, Ellsworth Huntington, an American geographer, wrote that most of

the great civilization flourished in the tropics or the far north. His observation
and studies led him to conclude that extremes of temperature as well as high
fluctuations of climatic conditions would have detrimental effect on the
energy levels of people in the countries experiencing such climatic extremes.
At the same time, Huntington maintained that the most stimulating climate
for man involves an average temperature range between winter and summer
of 40o to 60o F with moderate rainfalls and frequent mild storms.

f. Challenge of the natural environment is responsible for the rise of

civilization.

A modified theory advanced by A.J. Toynbee in his book, A Study of History

(1947), traces economic and cultural changes to a combination of natural
(geographic) phenomena and socio-psychological pressure of stimuli such as
new soils to exploit; living in a frontier position like the British pioneers
found themselves to be in America; and prejudice of society towards a
minority group. According to Toynbee, the “challenge of the environment” is
 responsible for the rise of civilizations. He stresses however that the
challenge must neither be too weak nor too strong; it must be just right in
order to produce results.

2. Economic explanations for development – While there have been attempts to explain
economic growth from people of varying disciplines, it has been, by and large, the
principal concern of economists. Basically, economists explain economic
development on the basis of man’s rational tendency to respond positively to
economic opportunities in the environment in order to promote his self interest. As a
result, he increases productivity and wealth not only for himself but also for society
as a whole.

a. Technology improvements and division of labor lead to development.

Adam Smith, for example, believed that the invention of better machines and
equipment brought about increased productivity which, together with
specialization or division of labor, made economic growth possible. Division
of labor, in Smith’s view, leads to: an increase in dexterity or skills among
workers; reduce time necessary to produce commodities; and the invention of
better machines and equipment.

By making production more efficient, such innovations increased profits

which were largely invested in the business. Increased capitalization, in turn,
resulted in further technical improvements which increased productivity and
again increased profits. And the cycle repeated itself over and over again. The
happy result of such favorable chain of events is wealth and still more wealth,
in short, economic development.

b. Population changes affect development

According to David Ricardo, the economy will continue to grow for as long
as people work on the land on profitable basis so that profit for the
entrepreneurs and wages for labor would result in accumulated savings which
in turn, can be used for capital formation.

John Maynard Keynes (1936) however, disagreed with Ricardo’s conclusion

on the effect of population increase on economic growth. Keynes maintained
that capitalists or entrepreneurs are most likely to invest their resources when
there is demand for the commodity. Therefore, with increasing demand by an
increasing population, capitalists would most likely invest more.

c. Entrepreneurship
 Economists recognized that for production to take place, someone had to
mobilize all resources (land, labor and capital) of the enterprise. They called
this individual entrepreneur, and his activity, entrepreneurship.

3. Socio-psychological explanation of development – Sociologist and psychologist

differ from economists in their approach to explaining economic growth. In viewing
men as rational beings, economists theorize that societies engage in entrepreneurial
activities because they would gain from doing so. People would have jobs,
communities would have services they need, and so on. Studies and observations,
however, show that in many instances, people engage in enterprise even if it seems
“irrational”, that is, even if it seems that they will not gain materially or that the
venture is without bright prospects.

a. Sociological factors in economic development – Sociologists explain

economic growth in terms of social or cultural values, norms and other
structures that differentiate modern from traditional economies.
b. Psychological factors in economic development – psychologists view
economic growth as a product of individual human behavior, that is, of a
person’s decisions, thoughts and actions.

B. ENTREPRENEURSHIP AND ECONOMIC DEVELOPMENT

With the preceding discussion on various theories of economic growth, students are now in a
better position to analyze for themselves how relevant the various economic and non-economic
factors are to the economic growth process. Again, remember that while these views,
observation, claims, assertions, or beliefs are only theories, they all provide valuable insights
necessary to an understanding of the phenomenon of economic development.

While most of the factors are, indeed, necessary for development to take place, only one factor
will be given emphasis in this subject, and that is Entrepreneurship. It is because the entrepreneur
is the one that puts together all other factors to create productive enterprises that in turn lead to
development.

Benefits from Entrepreneurship

The following benefits that result from entrepreneurship explain why development takes
place when a society becomes entrepreneurial:

1. Entrepreneurship creates employment

When entrepreneurs put up a business, they oftentimes need to hire or employ at least one
or two people in order to get things done. Some businesses, in fact, employ hundreds of
workers. When entrepreneurial activities slow down, the country’s unemployment rate
goes up. Every society wants all qualified members of its work force to be gainfully
employed. When individuals are employed, they are able to feed their families, support
their children through school, provide them with decent homes, acquire medical services
whenever needed, and contribute to government revenues through payment of income
taxes.

2. Entrepreneurship improves the quality of life

Entrepreneurs continuously innovate and develop new products and services based on
what they perceive as the needs of society. They also look for ways in which these goods
and services could be more efficiently produced. Such innovative efforts lead to better
machines and more efficient production systems.

Entrepreneurial undertakings contribute significantly to the continuous improvement of

living standards. The development of new products and delivery of services make life
easier and comfortable for society in general.

3. Entrepreneurship contributes to more equitable distribution of income and therefore

eases social unrest

Entrepreneurs continuously search, identify and/or develop raw materials needed for the
production of goods and services. They are, therefore, the ones who often see the
economic potential of raw materials and other resources in the rural areas. By putting up
an enterprise in the locality, entrepreneurs are actually dispersing the benefits of
development to other parts of the country. When many segments of society are
economically deprived, social tensions may arise.

Income that is evenly distributed means less poor people. The eradication of poverty will
help solve social problems like crime, juvenile delinquency and malnutrition.

4. Entrepreneurship utilizes and mobilizes resources to make the country productive

Our country will develop faster economically if none of its resources were idle or unused.

5. Entrepreneurship brings social benefits through the government

With the revenues the government collects from taxes, duties and licenses paid by the
entrepreneurs, the government allocates the disbursement of these revenues to different
services and projects for communities. These services and projects come in the form of
infrastructure facilities such as roads and bridges; educational and medical facilities and
services; and maintenance of peace and order amongst others.

 We have seen that entrepreneurship directly affects the social and economic
development of people. The more society engages in entrepreneurial
undertakings, the more it is likely to develop economically and socially.
C. PHILIPPINE ENVIRONMENT FOR ENTREPRENEURSHIP

Entrepreneurship contributes much in the attainment of economic development, hence the need
for government support for entrepreneurs. In as much as the Philippine government would like to
provide the best assistance it could offer to entrepreneurs and “would-be” entrepreneurs, it has to
classify enterprises so that it could provide the specific services entrepreneurs require. In
addition, classifying enterprises makes it easy to prepare reports of a statistical nature. It also
makes it easier to conduct researches to know the situation in a particular size of industry.

Classification of Enterprises

Table 2. Classification of Enterprises by Asset Size and Number of Employees in the

Philippines
Category Asset Size* No. of Employees**
Micro P 150,000.00 & below 1–4
Cottage Above 150K to 1.5M 5–9
Small Above 1.5M to 15M 10 – 99
Medium Above 15M to 60 M 100 – 199
Large Above 60 M 200 and over
*This is the classification used by the Small and Medium Enterprise Development
(SMED) Council, a multi-sectoral government body.
** Classification used by the UP Institute for Small-Scale Industries

Classification by Assets – Enterprises may be classified according to asset size. Assets

are properties owned and used by a business firm so that it can provide or produce
products and services. However, it is not always easy to determine the total assets of a
business. A lot of businessmen are secretive as to how much assets do they have for tax
and security reasons.

Classification by employment – If it is not easy to classify enterprises as to assets, we can

do so by employment. Unlike assets, employees are easier to count.

The Philippine Government’s Support for the development and growth of

Entrepreneurship

1. Government Assistance Program

a. Peace and Order – Countries with news of forthcoming rebellion or revolution

cannot attract investment. Kidnappings and payment for revolutionary taxes
discourages investors. The government tries its best to maintain peace and
order in the country.

b. Political Stability – There is political stability when there is no frequent

change in the government, especially through the use of force or violence.
That is why every administration in the government will do all the things that
they could do to stabilize the government.
 c. Price stability – Prices are stable if there are no abrupt changes or fluctuations
in the prices of goods and services and in the exchange rates.
d. Taxes – These are needed to fund government projects and programs.
However, the payment of taxes should be based on the ability to pay scheme.

e. Infrastructure – These constitutes the foundation of economic development.

Roads, bridges transportation, communication and electricity are vital to
business. Without them, trade, commerce and industry remain primitive and
limited.

f. Education and training – It has been said that real development is people
development. Money, machine, land, and material are only productive if
people know how to use them properly. Knowledge and skills are not enough.
If productive resources benefit only a few, it is not wisely utilized. What is
more needed is relevant social values, aside from knowledge and skills. The
best way to develop the mind, body and spirit is through education and
training.

g. Public Administration – Entrepreneurs prefer efficient public administration.

Simplified business registration, and efficient and courteous government
employees.

h. Production Technology – Aside from skills training, the government should

provide simple production technology which is accessible to the masses at a
nominal price or even free.

i. Marketing Assistance – Encouraging the poor to become entrepreneurs

without corresponding marketing assistance is an exercise in futility. It is
foolish to encourage people to produce goods if there are no markets.
Marketing assistance come in the form of promotions, identification of buyers,
and ways of reaching the buyers.

j. Financial Assistance – Funds are important to poor entrepreneurs. In fact,

many people would like to go to small or micro business if they have the
capital. To encourage the growth of an entrepreneurial economy, adequate and
cheap credit facilities are made available to the masses.

2. Enactment of Laws and Basic Small and Medium Enterprises (SME) Policies
beneficial to Entrepreneurs

a. RA 6977 – Magna Carta for Small Enterprises – this was passed by the
Philippine Congress in 1991 in order to nurture the “growing Filipino
Entrepreneurial spirit” by providing a climate that minimizes regulations
while at the same time assuring stable operating rules. Specifically, it
 provided for the creation of a Small and Medium Enterprise Development
Council and a Small Business Guarantee and Finance Corporation.

Highlights of RA 6977:
1.Creation of Small and Medium Enterprises Development Council
2.Creation of the Small Business Guarantee and Finance Corporation
3. Mandatory allocation of credit resources to SME’s
4. Rationalization of existing SME program and agencies

b. RA 6810 – Magna Carta for Countryside and Barangay Business Enterprises –

this is also know as the Kalakalan 20

c. RA 7882 – An Act Providing Assistance to Women – this particular

legislation recognizes the special role of women in development and support
women entrepreneurs who are engaged in manufacturing, processing, service
and trading business.

d. RA 3883 – Business Name Registration – this protects an enterprise

guaranteeing exclusive use of its registered name and the goodwill and
patronage it represents. Nobody can copy your business name once it is
registered with the Department of Trade and industry. Business names are
protected because DTI is now computerized in processing and storing data so
that no duplication occur and they can provide information faster.

e. Retail Trade Act of 1954, Executive Order 226 – Omnibus Investment Code,
Executive Orders 264 and 288 – Tariff Reform Measures – this are among
others the laws that were enacted to help entrepreneurs in the country.

3. Initiation of various programs such as:

a. Market Encounter Program – which seeks to strengthen the local supply base
both for domestic and export market by offering an assistance package
spanning the full business cycle – from raw materials identification, skills
training, product development and adaptation, enterprise management,
training, to financing and marketing assistance. At the end of the MEP,
entrepreneurs participate in trade fairs (provincial, regional, national)
depending on their capability. Given the opportunity to exhibit their products,
small and medium entrepreneurs develop linkages with buyers and suppliers.

b. The National Subcontractors/Contractors Exchange Program – in this

program, micro, and small enterprises with adequate production facilities but
with no or limited markets for their product are linked to bigger firms (called
contractors) who need sources of semi-processed parts and components for
their finished products.
 c. CITEM Program of Trade Fairs and Missions – The Center for International
Trade, Expositions and Missions manages trade fairs, missions, special events
in the Philippines and overseas.

d. Market Matching and Trade Opportunity Reports – this means facilitating the
meeting between a buyer of products or parts and the supplier or manufacturer
of such products or parts resulting in business transactions between them. A
supplementary service that aids market matching is the publication of trade
opportunity list and reports.

4. International Linkages for SME Development

a. World Bank – supports SME development by funding projects using

government financing institutions as conduits. Examples are the Countryside
Loan Fund, Retail and Co-financing Facilities which are channeled through
Land Bank of the Philippines to finance private sector investments in rural
areas which upgrade the operational capabilities of rural cooperatives and
financial institutions like thrift and rural banks.
b. Asian Development Bank
c. Canadian International Development Agency
d. Philippine – German Export Development Project
e. US Agency for International Development
f. World Trade Organization
g. Asia Pacific Economic Cooperation
h. ASEAN Free Trade Area
i. Brunei – Indonesia – Malaysia – Philippines East ASEAN Growth Area

REQUIREMENTS:

1. Chapter report – Write a summary of the chapter based on how you understood the lesson,
you may write your learnings in paragraph and bullet form, and you may also use the Filipino
language. Your output in this activity must have a minimum of 2 pages.
2. Assignment – Interview
a. State the name of your Municipality and Province
b. Ask someone from your household or neighborhood to enumerate and describe the
economic developments that happened in your municipality or province when more
businesses started to be established. Do they believe that these businesses contributed to
the improvement of the economic life of people in your community? Why?
BAGABAG, NUEVA VIZCAYA
Our province has basically a agricultural economy with commerce, trade, and industry
contributing to its growth and development. Among other major economic activities are
farming and cattle and swine raising. Primary crops are “palay” and corn. Minor crops are
rootcrops, vegetables and fruits. Mostly of the businesses in our province are selling raw
products that are basically from our own agricultural supplies. Some also used these
products to produce various products that being sell in the marketplace. Businesses in our
community giving patronage to our own produced products.
Yes, they believed that businesses contributed to the improvement of the economic life of
people in our community because not just they patronage our products but they gives more
opportunities to other people such as provide jobs or buy local products to farmers in our
province as well. With these businesses helps not just the economy to grow but also the
community.
3. Quiz– Answer the following questions briefly and comprehensively.
a. Among the different theories that explains how economies grow, which do you think
would be applicable to your community? Explain your answer.
Population changes affect development
According to David Ricardo, the economy will continue to grow for as long as
people work on the land on profitable basis so that profit for the entrepreneurs and wages
for labor would result in accumulated savings which in turn, can be used for capital
formation.
I think this theory is the applicable in our community, as for i believe in what
David Ricardo said that if all of the people inside the community work together that will
benefits and give advantages to the both party then it is a “win win” situation. Through
these it will lead us to economic growth then community unites and have a harmonious
life.
b. Given the 5 benefits of entrepreneurship discussed in this chapter, choose one (1) and
explain which you think benefited you the most.
1. Entrepreneurship creates employment
2. Entrepreneurship improves the quality of life
3. Entrepreneurship contributes to more equitable distribution of income and therefore
eases social unrest
4. Entrepreneurship utilizes and mobilizes resources to make the country productive
5. Entrepreneurship brings social benefits through the government
I think that entrepreneurship creates more employment the most beneficial for me as
for it provides me opportunities to have a better job that will lead me to my future goal. And
it is surely beneficial as for entrepreneurship is connected to my course. I know that many
people in our community needs job to provide the needs of their family and those businesses
have been there to creates employment for those who needed it.
 c. Do you think the Philippines is a conducive place to start and operate a business? Justify
your answer.
As a Filipino citizen, yes it is a better choice for me to start and operate a business here to my
origin. Because one of its advantages is that our co-Filipinos is our first consumers or fan
that will patronage your business or products as for even it is not local. Aside from the
warmth and hospitality that greets foreigners at every turn, the Philippines possess the
following advantages: quality manpower and resources; a strategic business location; a
liberalized and business-friendly economy; a steadily developing infrastructure for global
growth; a hospitable lifestyle; and unlimited business opportunities.