THE BUSINESS ENTERPRISE

DRIVERS TOWARDS ENTERPRISING:

Government Policy
Chapter 1 lesson 1
OBJECTIVE
By the end of this lesson, you should be able to

1. explain Government Policy as a driver towards

enterprising.
2. identify the policies that influence
entrepreneurship.
INTRODUCTION
A driver in this context is a
factor which promotes
enterprising. These include
the government policy,
demographics changes, or
economic changes. There are
many drivers towards
enterprising as shown below:

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GOVERNMENT POLICY
• A policy refers to a broad
set of principles or rules
that guide the government
in the management of
public affairs. It guides the • The role of government
way things are to be done
and why it has to be done
that way.
• Kooniz et al (1980) defines
policies as guides to
thinking in decision
making.
• A policy is a guiding
principle used to set
direction in an
organization.
• Government policy refers
to the type and degree of
government intervention
in a market.
• The government plays a key • The government must
role to facilitate
entrepreneurial activities in
any country.
leaders is to create
conditions that allow more
entrepreneurs to start
businesses by implementing • The government should
business friendly
government regulations and
policies which nurture the
environment so that
businesses can grow.
• A business and political
environment where
government policies change
frequently, discourage
entrepreneurship business.
• The government should
ensure that the economic
environment is conducive
to entrepreneurial
activities. Entrepreneurs
need to operate in a • This involves coming up
predictable regulatory
environment.
formulate good fiscal and
monetary policies which
are essential to provide a
basis for a stable
macroeconomic
environment.
• Countries with minimal
government intervention
in the economy provide
the best environment for
entrepreneurship.
pursue policies that create
an enabling and
supportive entrepreneurial
environment.
with fair, clear, stable and
predictable policies, laws
and regulations at
different levels of
government, which must
be uniformly
implemented, putting up
programmes on
entrepreneurship
education, the
establishment of a
supporting infrastructure
and supporting basic
technology development.
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Policies That Influence Entrepreneurship
The government must put in place policies which make it easier for people to set up and manage their
businesses which should be accompanied by effective economic and legal frameworks. The policies
must make it easier to register a business, reduce red tape, lower tax rate and license fees.
Regulations and Tax policies are some of the policies that have a direct impact on entrepreneurship.
Regulation
• Business regulations are a form of government intervention in markets. The government regulates a
number of business practices such as the requirement for business to be licensed, labour laws, or
environmental laws. If a business fails to comply with government regulations, it can result in fines, or
can be ordered to stop operating and in some cases it can be taken to court. Some regulations are pro-
business while others are pro - workers. A pro -business government has limited regulations on
business entities for their smooth and successful operations.
• The government must reduce the regulatory burden for start-ups to promote their viability and growth.
These regulations should not require the regular renewal of licenses. It is very important that the
government ensures consistency of interpretation of regulations. It must ensure that there are no
conflicting legislation as they create uncertainty which discourages entrepreneurship. The cost of
business registration and licensing, number of licenses, and procedures affect the rate at which
businesses are set up in an economy. 5
Tax policy
• Governments get money from businesses in order to finance its
expenditure. It comes up with tax laws which force businesses to
contribute to the government. A tax on any business activity increases
the cost of the activity and in turn discourages that activity. They may
also consider direct subsidies, tax incentives in order to encourage
entrepreneurship. There are a number of taxes which business are
required to pay to the government.
• Income taxes reduce the incentive to start or expand a business, and
capital gains taxes reduce the incentive to invest in immovable property,
and value added tax (VAT) reduces demand for goods and services.
• A country can encourage entrepreneurship by lowering the overall tax
burden through a reduction in tax rates or by exemptions for a certain
period. A business can then start paying tax after the grace period. A tax
exemption for new business enterprises also allows entrepreneurs to
invest in their ideas. The government must continually reform tax policies
so that they promote small business growth.
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ACCESS TO CAPITAL AND PROPERTY RIGHTS AND LEGAL PROTECTION
Access to Capital
• A major challenge most entrepreneurs
face is the access to capital. A business
entrepreneur cannot operate or expand
their ventures without access to capital
markets. The government must ensure
the availability of credit institutions to
enable the start-ups to have access to
finance. The government can set up
conditions that make it easier for
financial institutions to operate
smoothly in the country. The
government can offer loans or grants to
start-ups at a cheaper rate to facilitate
their operations. Some legislation that
supports the use of movable assets as
collateral can also be put in place.
Property Rights and Legal Protection
• The prosperity of any economy depends on its success in
protecting intellectual and other property rights thereby
giving enterprisers a sense of security. No entrepreneur can
succeed in a society that lacks respect for private property
rights and an independent legal system that protects these
rights. Intellectual property laws can provide you with
exclusive business rights to your ideas. These come in forms
such as copyrights, trademarks, and patents. Property
rights are defined as the right to control, use and obtain the
benefits from a good or service. There is no incentive to
invest, expand or create if there are no property rights. ®
The policies that guarantee property rights and improve the
enforceability of contracts promotes entrepreneurship.
When businesses operate, they need to be sure that
contractual agreements will be respected and fulfilled. They
need assurance that when the other party breaches a
contract, there are legal measures in place to enforce the
contract or provide adequate compensation for losses
incurred. 7
Entrepreneurial Education and Infrastructure
Entrepreneurial Education
• The government can influence the rate of
entrepreneurship through the education
system. It can create policies that encourage the
inclusion of entrepreneurship in the learning
curricula within different levels of the formal
education system from primary, secondary up to
tertiary levels. The government of Zimbabwe
has started by introducing the learning of
Business Enterprise Skills in its secondary
schools. Furthermore, financial literacy and
enterprising skills are crosscutting themes in the
updated curriculum. The curriculum should
focus on competences which enable learners to
identify and exploit business opportunities, in
setting up and running a business.
Infrastructure
• The government is responsible for the overall
infrastructure in a country. To set up a
business, one needs sufficient infrastructure
which is in good condition. A good transport
network of roads, rail and air linking each other
enables businesses to have easy access to raw
materials, and the physical markets. A well-
developed infrastructure reduces efforts, costs,
and improves the viability of the business
which result in higher profit margins. The
government must develop and maintain good
infrastructure in a country which includes
access to education, decent road
transportation links and utilities.
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Immigration Laws, Trade Policies and Networking

Immigration Laws
• A government can reform immigration policies to make it easy for
foreign entrepreneurs to come and invest in the business sector.
Trade policies
• Foreign trade policies such as tariffs and import duties can be reduced or
suspended to encourage foreign trade.

Networking
• Entrepreneurs like to learn from others in the same business environment, but they often
find it hard to make the connections. The government must encourage networking among
the enterprisers in an economy through workshops, seminars, and conferences.
Exercise

1. What are the 4 drivers towards enterprising? (4)

2. Explain Government policy as a driver towards enterprising. (4)
3. State and explain the government policies that influence entrepreneurship. (10)
4. How can the Government assist entrepreneurs? (6)

Total: 24 marks

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