Chapter 4

ROLE OF ENTREPRENEURS AND GOVERNMENT

Learning Outcomes:

1. Discuss the role and contribution of entrepreneurs;

2. Elaborate the functions of government for entrepreneurial success.

The development of the nation economic activity is the making of small and
medium enterprises mostly located in the countryside. They contribute to the
economy of big corporations as they are also consumers of their production.
It is the entrepreneur who develops new products and makes innovation that
becomes d backbone of more economies.

While, in underdeveloped economies, government plays a major and active

role in economic development. Aside from setting up the economic
infrastructures, like roads, bridges, transportation, communication, and
electric facilities, the government is directly involved in business and
industry where the private business sector has no or inadequate investment.

However, when the economy has developed, the government has to phase
out its economic activities in favor of entrepreneurs. At this stage, it is the
private business sectors that become the engine of economic growth.
Because it is more efficient and proper.

Although, entrepreneurs are risk-takers, self-reliant and optimistic, there are

factors which encourage or discourage them to invest. Obviously, the
primary factor or determinant of investment is profit. This is brought about
by several factors like peace and order, income of the people, electricity,
transportation and communication facilities.

It is very clear, therefore, that there is a very strong and direct relationship
between the government and entrepreneurship. It is the government that
provides the basic incentives to entrepreneurship. In return,
entrepreneurship accelerates economic development through more
employment, production and consumption. Precisely, this is the goal of the
government for the people. Hence the great interest of the government in
the promotion of entrepreneurship.

This chapter presents the role of the government, determinants of

investments, and factors of entrepreneurship. Moreover, the various
programs of the government for micro and small enterprises are outlined.
Determinants of Investment

Profit is the first consideration in investment. It is profit that stimulates

businessmen to go into business. Only the government can possibly engage
in business without profit. However, profits depend on population, income,
peace and order, political stability, government policies, and other external
economies of scale like energy transportation and communication facilities.
The internal economies of scale, such as management, technology, working
conditions and financial incentives, also help in the attainment of profits for
the enterprise.

The entrepreneur has control or influence in the operations of the internal

economies of scale. For instance, he can improve management. He can
change his technology. He can raise the salaries of employees. But in the
case of external economies, the entrepreneur is greatly dependent on what
the government can perform. Only the government has the resources to
maintain peace and order. Entrepreneurs would not construct highways and
national communication network. This is the job of the government. Besides,
it is too expensive for entrepreneurs to undertake such projects.
In the case of income and population, these constitute markets for the
entrepreneurs or investors. More people increase the number of buyers, and
higher incomes likewise increase the number of buyers. Governments which
believe that peoples are important in economic development do not practice
population control. They argue that Japan and other rich countries have more
peoples than the poor countries like the Philippines and African countries.
They claim that the solution to poverty is not to control population growth,
but to create more production and employment

Contributions of the Entrepreneur in our Socio-Economic Development

1. The Entrepreneur Provides Employment

Employment generates income and those employed pay taxes to the
government which in turn gives benefits the social and educational
needs of the greater population. Those with income through
employment become less burdensome to the government. They pay
Medicare contributions and send their children to private schools. They
enjoy Social Security System benefits that make them self-sufficient on
their retirement age. The enjoy housing benefits from their Pag-ibig
funds and housing become affordable.

2. The Entrepreneur Pay Taxes.

Entrepreneur pays taxes in the form of real estate tax, sales tax,
import and export tax, and permits from the local and national
government. Taxes collected from the entrepreneur pump up the
development of better communities in terms of better road facilities,
better school buildings for the masses, and other social services. With
the taxes paid the government could maintain better peace and order
situation as police and military personnel could better protect the
people.

3. The Entrepreneur Provides New Lifestyle and Pleasures.

Product innovation and development is the making of entrepreneurs.

Mobile phone is the newest contribution of the entrepreneur to make a
new life style for more Filipinos. Communication between individuals
and business became so easy and handy as everyone enjoys new
innovation. New technology like computers and other household
conveniences are the results of entrepreneurial geniuses that turned
our life to new life style and pleasures. They provide life convenience
beyond the imagination of man. Entrepreneurs do not stop searching
for better products and services.

4. The Entrepreneur Improves the Capital Base of the Economy.

The entrepreneur mobilizes economic activity as the circulation of

money which pumps up the economic development of the community.
Capital investment generates profit. Profit, in return, is growth in
investment base that will propel more business activities.
Entrepreneurs do not keep their money in the piggy banks or make this
as idle deposit in banks. The greater money in circulation the greater is
the economic activity of the nation. More investment generates more
opportunities for the people.

5. The Entrepreneur Creates People Empowerment and Social Mobility.

Entrepreneurs accumulate financial resources that give them social
power in the community. They can afford to buy some personal
luxuries of life. They acquire new life style of travel and pleasure. They
make new houses and invest in real properties that make them
respected in the community. It empowers them to make decisions
related to the wise use of money.

6. The Entrepreneur Provides Healthy Competition.

Healthy competition provides people with choices of new products or

better services. Entrepreneur seeks better products and develops new
ones that will satisfy their target customers. Competition develops
pride for the entrepreneur that their product or service is superior from
the other. The entrepreneurial ego of human superiority in the
development of new product or service drives the entrepreneur to
more innovation and development hence the greater good cascade
down to the consumer who wants new products and services.

The David of economic development is in the Asian Region. The Goliath

of the western world is beginning to loss foothold in economic
supremacy. David has all the resources for development and is
awakened to the call of the time.
 The Role of the Government

In a democracy, the fundamental function of the government is to

serve the best interests of the people. Those who run the government
are called public Servants. Their salaries come from the people through
their tax payments. Hence, they should serve the people well.

During the 1700s in Europe, particularly England, the laissez faire system of
government was practiced. The non-interference of the government in
economic activities led to the growth of capitalism. The capitalists, however,
abused their powers and privileges. They exploited their workers in terms of
low wages and long hours of work, usually 17 hours a day. They also paid
very low prices for the raw materials produced by farmers. These miserable
situations happened during the height of the Industrial Revolution in
England. The evils of the laissez faire policy created great social reformers
like Karl Marx and Robert Owen. Their crusade against the capitalists
spawned the birth of labor unions and government programs for the workers.

The bitter English experience offers a good lesson to governments of nations.

The role of the government is to promote the welfare of all sectors
producers, consumers, employees, business men and the rest of society and
the economy. It is, of course, difficult to strike a happy balance of support
among all members of society. But a good government always considers
social justice as the basic yardstick in public administration. The welfare of
the poor and powerless must always get the first attention and assistance
from the government. As long as a sick and weak society exists, a healthy
economy and stable government cannot be achieved. Hungry people obey
no laws.

Support for Entrepreneurs

As explained earlier, entrepreneurs play a very important role in economic

development. They are the ones who create goods, services and jobs
Considering our poor economy, there is clearly a great need for more and
more entrepreneurs in our country. Prices of goods are high because their
supply is scarce. Jobs are few because economic activities are also few. In
Japan and other industrial countries, they experience labor shortages due to
so much activities in agriculture, trade and industry. They use machines and
import labor from poor countries with labor surpluses.

With proper and adequate assistance programs, our government can develop
a larger entrepreneurial economy. Priorities should be focused on micro and
small enterprises. Such mass and community-based projects utilize local
labor, material, management and technology. Hence the poor masses are
benefitted.

The key factor of development of the Ramos government is people

empowerment. Actually, in a truly democratic society this is the essence of
government. As Lincoln said, a government is for the people, of the people
and by the people. The best way to empower the people is to improve their
knowledge, skills and values. Then give them reasonable financial and
technical support to organize their enterprises. But these are not the last
inputs of the government. The government should likewise provide the
necessary programs in the forms of peace and order, transportation and
communication facilities, fiscal and monetary policies, electricity and other
favorable assistance in order that the people can productively use their
power for their own interests.

The legendary former president of Tanzania, Africa, Julius Nyerere, said:

development is the the peoples development themselves, their lives, their
environment... Freedom is essential to development, not just a product of it...
But it should not be freedom to exploit. People cannot develop if they have
no power, and development will occur if, and only if, the people can organize
their own power in their own interest.”

Government Assistance Program

1. Peace and order. Countries with news of forthcoming rebellion or

revolution cannot attract investments. The various coups of rebel
soldiers have driven away not a few big foreign investments. Also,
kidnappings of foreigners and rich Chinese have discouraged investors.
In fact, some big Chinese businessmen went abroad. The NPAs likewise
 contribute to the decline of investments in the rural areas.
Businessmen have to pay revolutionary taxes to the NPAs in exchange
for their safety and that of their enterprises.

2. Political stability. There is political stability when there is no frequent

change in

The government, especially through the use of force or violence. In our

country. Government policies are not stable. Every change in administration
is also a major change in government policies. This is not conducive to
entrepreneurship. The programs of the government change as soon as a new
President assumes his office. There is nothing wrong with change if it is for
the better. But Philippine politics is different. There are many political debts
to pay to big businessmen who contributed campaigns funds. As a result,
favoritism creeps in to the prejudice or disadvantage of small businessmen
who have no connections.

3. 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. When the value of the U.S. dollar falls, importers are happy, but
not the exporters. When prices keep on increasing, investors are
reluctant to do their business. It is hard to plan costs of production and
project profits when prices are not stable.

4. Taxes. These are needed to fund government projects and programs.

However, the payment of taxes should be based on the ability to pay
scheme. Tax incentives can encourage entrepreneurs. Many foreign
investors choose other countries due to their fair tax programs. The
“lagay system is a form of additional tax. It is used to expedite
transactions in government agencies. There is a “highway tax”
imposed by men in uniform for products coming from the provinces.
There is also the “NPA tax” in the rural areas.

5. Infrastructures. These constitute 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. In the Philippines, the beautiful
super highways have no real economic value if these are not linked to
the farms. Until now, many remote farms have no farm to-market
roads. Because of this shortcoming, the supply of products has become
scarce in urban centers. And yet in remote agricultural villages, there is
a surplus. This is not favorable to village producers because they
cannot market their products.

6. 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 Bible says the fruits of the earth should
be enjoyed by everyone. The best way to develop the mind, body and
spirit is through education and training. The school system should
infuse into the minds of students the importance of social responsibility
to our productive resources, to our environment, to our communities
and to our fellow men.

7. Public administration. Entrepreneurs prefer efficient public

administration. In dealing with the various government agencies, red
tape and “expediting fee” are encountered. To put up just a simple
business, there are numerous requirements. Securing such
requirements from various government agencies, takes time, not to
mention the many fees to pay. Such cumbersome procedures are
naturally very frustrating, especially for those prospective
entrepreneurs who are unschooled. The government should simplify
business requirements and place these in just one office or building.
This will save time, effort and money. In addition, government clerks
should also be efficient and courteous.

8. 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. At present, the Technology and
Livelihood Resource Center (TLRC) has been conducting livelihood and
technology courses for business opportunities to aspiring and
practicing entrepreneurs. Examples of such courses are: how to make
fiberglass products, how to operate a pawn shop, how to grow bonsai,
how to process meat and fish, how to manufacture candles, and many
others. Other non-governmental organizations (NGOs) are also actively
engaged in similar livelihood projects for the benefit of low-income
groups.

9. 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 may be in the form of
promotions, identification of buyers, and ways of reaching the buyers.
The Department of Trade and Industry appears to be active in export
promotions and foreign business development. It is hoped that DTI is
helping small entrepreneurs.

10. 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 should be made
available to the masses. There are many pro-poor credit programs
which appear in newspapers. Unfortunately, many of them seem to be
“paper programs.” Like the KKK program of the Marcos regime, it
benefitted only top government officials, instead of the poor. Even the
low-cost housing program of the government is beyond the reach of
ordinary employees. It requires about P7,000 monthly income to
qualify for a unit in such housing projects.

Government Programs for Entrepreneurs

As stated earlier, both governmental and non-governmental

organizations, as well as foreign agencies, offer financial and technical
assistance to micro and small entrepreneurs, particularly for those in
the rural communities. This portion of the chapter presents several
reprints issued by the Bureau of Small and Medium Business
Development of the Department of Trade and Industry.

These materials are not only useful to students, but also to others who
are interested in setting up their micro or small business. They provide
detailed services in the forms of loans and skills training. The following
reprints are “Magna Carta for Small Enterprises,” “Kalakalan 20.”
“Micro-Enterprise Development Program.” “Self-Employment Loan
Assistance Program,” and “Training Programs for Small and Medium
Enterprises.” All these informative materials of the DTI are envisioned
to promote entrepreneurship in order to create more jobs and incomes,
thus alleviating poverty which is one of the major thrusts of the
present administration.

Primer: Magna Carta for Small Enterprises

1. What is R.A. 6977, otherwise known as the Magna Carta for Small
Enterprises?

R.A. 6977, signed on 1991 January 24, is an act to promote, develop

and assist small and medium scale enterprises (SMEs) through the
creation of a Small and Medium Enterprise Development (SMED)
Council, the establishment of a Small Business Guarantee and Finance
Corporation (SBGFC), the mandatory allocation of credit resources to
small enterprises and the rationalization of government assistance
programs and agencies concemed with the development of SMES.

2. Who will benefit from the Magna Carta for Small Enterprises?

Small and medium enterprises will benefit from the Magna Carta for
Small Enterprises.

3. What is a small and medium enterprise?

A small and medium enterprise is defined as any business activity or

enterprise engaged in industry, agribusiness and/or services, whether
single proprietorship, cooperative, partnership or corporation whose
total assets, inclusive of those arising from loans but exclusive of the
land on which the particular business entity’s office, plant and
equipment are situated, must have value falling under the following
categories:

Micro: less than P 50,000

Cottage: P 50,001 – P 500,000

Small: 500,001 – 5,000,000

Medium: P5,000,001-P20,000,000

4. What is the small and Medium Enterprise Development Council?

The Council shall be the primary agency responsible for the promotion,
growth and development of SMES in the country by way of facilitating
and closely coordinating national efforts to promote the viability and
growth of SMES, including assisting relevant agencies in the tapping of
local and foreign funds for SME development, as well as promoting the
use of existing guarantee programs.

5. Who are the members of the SMED Council?

The Council is headed by the Secretary of Trade and Industry as
Chairman. The members are the following:

b) Secretary of Agriculture

a) Director General of the National Economic and Development

Authority

b) Secretary of Labor and Employment

c) Secretary of Environmental and Natural Resources

d) Secretary of Science and Technology

e) Chairman of Small Business Guarantee and Finance Corporation

f) Chairman of the small and medium enterprises promotion body

which the President shall undertake to establish under this Act.

g) Three (3) representatives from the private sector, all Filipino

citizens, to represent Luzon, Visayas and Mindanao to be appointed
by the President, one of whom shall come from the banking
industry.