Why are businesses so important to a country's economy?

Quick answer:

One major reason why businesses are important to a country's economy is because they contribute tax money to the government, which provides funding for a variety of the government services provided by federal, state, and local governments.

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On a most basic level, business provides a means of income for a population. People need money to not only survive, but to enjoy their lives. In exchange for their labor, businesses give money to people which they can then use to purchase everything from food to vacations. This helps a population survive and thrive.

Businesses also foster innovation and competition. By having multiple similar businesses in a market, healthy competition can create better goods and services. Consider a small town which has two quaint coffee shops. If one shop creates a new holiday brew, the other shop will likely follow with a similar new treat to avoid losing holiday customers. The two shops are also unlikely to significantly outprice each other so that customers in search of a cup of coffee will not be deterred by price. Both of these are healthy impacts of business.

Businesses also contribute to the identity of communities and nations. Visiting Steamboat, Colorado has a distinctly different vibe than visiting Orlando, Florida. The services businesses offer to local communities shape the networking of people within those communities and even influences the types of people who travel to particular areas. On a larger scale, this is true at a national level. People travel to United Arab Emirates, at least in part, because that nation has constructed a different business base than Australia has. A nation's tourism economy relies on the businesses within that nation to attract travelers—and to then generate more revenue within local communities and the larger nation.

Thus, businesses also impact the tax base. This isn't the most glamorous aspect of business, but it certainly impacts economies. The presence of businesses can significantly affect things like educational opportunities within a given community. If a local community has no (or very few) businesses, it is also devoid of financial resources which are needed to provide services for its populace. The revenue generated from taxing businesses helps to repair roads, maintain schools, and improve public services. A community with more resources is then often more valued and valuable to people who want to live there, which secures real estate prices for residents. Having reliable business communities throughout a nation thus ultimately protects the real estate investments of property owners and increases a nation's sense of self-sufficiency.

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The obvious answer is businesses create products and services that people purchase, which creates jobs. Jobs are the source of income for workers who, in turn, spend their wages on products and services, creating more jobs and income for others. But, that is not the entire story of why business is vital to the national economy!

Businesses generate billions of dollars in taxes, corporate and individual, paid to support the government's services. In 2019, according to the Internal Revenue Service, individuals paid $1.718 trillion in personal income taxes. The IRS collected $1.243 trillion from payroll taxes, which includes Social Security and Medicare taxes. Corporations paid another $230 billion in corporate taxes. These taxes are paid to the federal government. They don't include additional revenues state and local governments collect from employees and business. Without business, federal, state, and local governments would be severely limited in their revenue.

Businesses also contribute to their local community's charity and not-for-profit organizations to continue to serve the needs of people. In 2019, individuals donated $292 billion, and estimates are that corporations gave $428 billion to charities in 2019. A visit to any college campus demonstrates business giving's economic power, from scholarships to research and building of modern facilities. Charitable giving helps the economy by serving people in need without relying on the government to collect more taxes from individuals.

Businesses operate globally. This means they contribute to the nation's economy by connecting with other companies in the global economy. Global economies lead to establishing relationships with foreign countries. The relationships companies establish internationally foster cooperation and understanding, which helps to underwrite world peace. A stable world economy depends on cooperation and global trade relations.

Finally, a less tangible but equally important aspect of the contribution of business is to people's psychological welfare. Companies provide jobs, taxes, and contributing to the economy by generating income and wealth. Businesses are often community hubs where people socialize and meet. Think of your local coffee shop or favorite restaurant. These are places you go to commune with friends and to socialize. Every economist recognizes the value of positive social interaction in the economy.

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Business is extremely important to a country’s economy because businesses provide both goods and services and jobs.  Businesses do these things much more efficiently than individuals could on their own.

Businesses are the means by which we get most of the goods and services that we, as consumers, want and need.  You will presumably be reading this answer on a computer that was produced by a business.  You are buying internet access from a business.  Almost everything that you use in your everyday life was produced by a business and sold by yet another business.  Without these businesses, it would be very hard for us to get the things we need.  Imagine, for example, how hard it would be for one person to build and sell their own computers from scratch.  This is a major reason why businesses are important for a country’s economy.

Businesses are also the means by which many people get their jobs.  Businesses create job opportunities because they need people to produce and sell their goods and services to consumers.  Without businesses, each individual would have to create his or her own way of making a living.  This would be very difficult.  Thus, businesses are important because they provide goods, services, and jobs.  Without these things, nations’ economies would be much smaller and weaker than they are.

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