In the absence of further fiscal and monetary stimulus, how would an appreciation of the issues surrounding innovation and entrepreneurship help the government achieve its aim of boosting the growth rate of the UK economy? Economic growth is a main point in nowadays' economic stakes. Indeed, surveys prove that in the long run, economic growth has a major effect on living standards. Most of the European countries currently experience a phase of very slow growth, in addition, policy makers' interest for economic growth is explained by the high unemployment rates which seem to set in. Since 1973 and the first oil crisis, the United Kingdom has experienced a period of stagflation (a combination of inflation and slow growth).
Moreover, as a consequence of the economic crisis, the last three years have been characterized by a period of recession finished officially on January 26th (startups.co.uk, 2010). In view of the current significance of a faster economic growth in the United Kingdom, we can wonder what policies the government can introduce to boost growth rates. Innovation and entrepreneurship are in today's literature regarded as key engines of economic growth and can represent an answer to the current issues faced by the United Kingdom.
A significant number of theories linking innovation and entrepreneurship to economic growth are based on Robert Solow growth model (1956), in particular on the production function. Solow's production function shows how much output the economy can produce from available inputs of the two main factors of production: capital and labor. Solow acknowledges that economic growth was influenced by technical change, which is in his model an unexplained residual. One of the main conclusions of his theory is that most of the variation in economic growth is due to this residual, rather than inputs of capital and labor.
[...] Creation of a favorable environment in regards to entrepreneurship Randall G. Holcombe (1998) sees the entrepreneurship process as a virtuous circle, as a chain of event. According to him, entrepreneurship leads to economic growth, and economic growth leads to a favorable environment to entrepreneurship. From this point of view, policies, more than focusing on investment in innovation by itself, must lead to the creation of a favorable environment, where entrepreneurial opportunities can be easily exploited, where entrepreneurship is rewarded. We can relate this to a recent announcement from David Cameron, indeed, the government plans to review the laws on intellectual property, in order to promote entrepreneurship in the United Kingdom (The Telegraph, 2010). [...]
[...] We can then wonder how a government can create such an entrepreneurial spirit via education. The OECD (2004) took the example of Spain, in this country, the development of qualities required to create a company is part of every ages teaching programs. Moreover, several regions provide optional modules directly related to entrepreneurship, and permanent trainings are offered in SMEs and to independent workers. In the United States, although there is a significant tradition of entrepreneurship, it took a long time for entrepreneurship to gain recognition from the academic community. [...]
[...] Joseph Schumpeter is a major author regarding to innovation and entrepreneurship, his vision of economic growth is also based on disequilibrium. Indeed, according to him, the key driver of the capitalist economy is the notion of creative destruction (1911). In Schumpeter's point of view (1942), innovative entry by entrepreneurs is the force that sustains long term economic growth, even as it destroyed previous activities, derived from previous technological, organizational, regulatory, and economic concepts. This idea of creative destruction explains for him economic cycles. [...]
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