Entrepreneurship is central to a growing economy

A business acquaintance once said to me, "You may not be able to prove that there's a link between entrepreneurship and economic growth with your fancy models, but you wouldn't get much growth without them."

This quote strikes at the heart of one of the fundamental questions of economics: How are resources allocated to ensure that enough goods and services are produced to satisfy everyone?

For the orthodox economist, the answer is simple. In a competitive market, the entrepreneur does this job, by allocating resources based on keeping costs low. He looks at how much other firms are charging, and producing, and how much is being bought at what price. He then allocates resources with perfect efficiency to produce the right output, at the right price. In other words, he is the agent of the market's "invisible hand".

It was Austro-Hungarian émigré Joseph Schumpeter, an influential social and economic theorist, who argued that the process of allocating resources requires a great deal of skill—and that the exploitation of this skill allows the entrepreneur to understand where opportunities might lie for new markets. The result is a permanent state of flux. As the entrepreneur searches for new ideas and new ways of doing things—"creative destruction"—he disturbs existing norms.

For modern economists, the entrepreneur is an agent of change. The entrepreneur is the driver of economic growth and economic development. In no sense can the role of the entrepreneur be understated. As William Baumol, professor of economics at Princeton University, argues, "Even if entrepreneurs are not in complete control of our economic destiny, they influence its direction as few, if any, others are able to do."