[Smart Economics] The Secret of Wealthy Nations: Entrepreneurship

Writer
Sung-no Choi

Why Half of the World’s Long-Established Companies Are in Japan

When we look at companies that rose to become the world’s best, we find entrepreneurs who constantly reinvented themselves. A representative example is General Electric (GE) in the United States. GE was founded when Edison, a genius of the pioneering spirit, invented the light bulb. GE is a living legend in the business world, showing that a company can remain at the top only if it adapts quickly to rapid market changes. Korea, too, has companies that did not remain satisfied with the business right in front of them, but challenged new fields and rose to become the world’s best. These are the Samsung, Hyundai Motor, SK, and LG groups.

Can you imagine how many entrepreneurs had to take risks and strive for our companies to rise to the top of the world? In the days when people in Korea were still watching black-and-white television, Korean companies were already exporting color televisions. Now they have confidently overtaken Japanese companies and reached the top in markets such as TVs and mobile phones.

It is said that Japan alone has more than 3,000 long-established companies that are over 200 years old. That is an astonishing figure, accounting for more than half of all such companies worldwide. In an era of global economic crisis like today, the number of Japan’s long-established companies sounds truly remarkable. In the world of business, survival itself means success. Over such a long span of more than 200 years, countless entrepreneurs must have appeared like stars, only to disappear without a sound. Amid that fierce competition, only those entrepreneurs who successfully carried out self-innovation while keeping pace with a constantly changing world could survive and lead strong, enduring firms—that is, long-established companies. Therefore, the number of Japan’s long-established companies can be seen as indicating an even greater number of innovative entrepreneurs.

In fact, the countries that have developed their economies well are the ones that are wealthy and possess strong national power. Wealth is the result of economic growth, and only with wealth can strength also be expanded. The ingredients of economic development are truly diverse: political stability, abundant natural resources, outstanding human resources, efficient institutions, and the leadership of rulers. And it is entrepreneurs and businesses armed with innovative entrepreneurship that combine these elements to achieve economic development.

Today’s leading wealthy nations share one thing in common: in an environment favorable to business, the various elements of economic development were closely combined and generated synergy. Poor countries, by contrast, see those elements cancel one another out or create discord. Even a country blessed with exceptional natural resources cannot achieve economic development without entrepreneurship and corporate competitiveness.

Growth Requires Competition

In poor countries—that is, developing countries—it is difficult for entrepreneurship to emerge. Even if outstanding entrepreneurs appear, there is often no economic environment or institutional infrastructure in which they can exercise entrepreneurship. As a result, people in developing countries often run businesses primarily to maintain the status quo. People in advanced countries, by contrast, exercised entrepreneurship in free market competition, developed technology, devised modern business organizations, and achieved the dramatic productivity gains we see today. As a result, they became the wealthy nations we now count among the richest.

The decisive difference between developing and advanced countries can be found in entrepreneurship. That is because entrepreneurship is the ability to generate profits by going beyond given limits. Entrepreneurs in advanced countries displayed exceptional entrepreneurship and survived through continuous competition. They made bold decisions for challenge and innovation, taking on various risks through strategic alliances, management rationalization, and mergers and acquisitions. By refusing to stay where they were and daring to pioneer new fields, they were able to survive competition with rivals. At the foundation of all this was market competition based on productivity.

To achieve economic growth and become a wealthy nation, the environment and institutions that make market competition possible must take priority over other things, such as production facilities or infrastructure. Only constant competition brings about technological innovation and economic growth, and further enhances public welfare. The reason entrepreneurs in advanced countries were able to display so much entrepreneurship was also that they actively participated in fair and free market competition. As a result, only entrepreneurs with outstanding entrepreneurship could be naturally selected through competition.

Conversely, in the absence of competition, neither firms nor individuals can raise productivity. Nor can managers with exceptional entrepreneurship be cultivated. Some argue that not only advanced countries but also developing countries possess both a rich quantity and quality of entrepreneurship. As evidence, they point to the large number of self-employed people in developing countries and the fact that they continue doing business steadily even under poor conditions. They say that, unlike in advanced countries, these countries simply lack advanced technology and modern business organizations, and therefore cannot fully demonstrate their entrepreneurship.

Is that really so? No. Entrepreneurship is not the ability to maintain a self-employed business, but the ability to transcend limits and achieve innovation. Advanced technology and modern business organizations are achievements that entrepreneurs can attain through entrepreneurship in the process of overcoming limits. No advanced country in the world was prosperous from the beginning. Advanced countries, too, acquired today’s wealth and national power through the process of innovation and creative destruction grounded in entrepreneurship.

△ Please remember

Sung-no Choi, President of the Center for Free Enterprise (CFE)

Original title: [스마트 경제 읽기] 부유한 나라의 비밀: 기업가정신

Author: Sung-no Choi

Date: 2021-04-05

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=4&idx=23602

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