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MANAGEMENT AND SOCIAL SCIENCES EXPLORER


This Month’s Exploration: FACTORS OF PRODUCTION

What Does Factors of Production Mean?

The phrase “factors of production” is an economic term. It refers to the inputs that are used in the production/manufacturing of goods or services in the attempt to make an economic profit or gain. These factors of production are LAND, LABOR, CAPITAL AND ENTREPRENEURSHIP. Without these four factors no good or service like chocolate, radio, mobile phone, bread, transportation, television broadcast, internet service can be made available for our use. Before a business man engages in any form of business, he first of all considers which of these factors he has available for him and which is not available. He must get the factors and assemble them in the right proportion so as to engage in his business and produce some goods and services.

Let us explain the factors a little bit more:

LAND
The term land as used in economics and production does not refer to just the physical land on which we stand and build our houses upon. No, it includes much more than that. Land refers to all the natural resources on the planet. It includes space on the ground, hills, seas, oceans, air, crude oil, gold in the ground, the farm lands, etc.

For instance all the expanse of land in Nigeria including all the rivers, lakes, forests, the petroleum deposits in the Niger Delta, the tin deposits in the Jos plateau, the coal deposits in Enugu, the limestone deposits in Obajana and Ewekoro, the zuma rock in Niger State Land and the arable farm lands in Nassarawa and Benue States, the rubber plantations in Edo State and the fishes in the rivers in Agungu, Lake chad and River Benue are all part of the LAND for Nigerians to exploit in production of goods and services.

Land as a factor of production is described as a passive factor. This means that it simply exists. For it to become useful we must act on it or do something to make it satisfy our needs and desires.

LABOUR
To make the gifts of nature (LAND) satisfy our needs and desires, we must do something with them. We must exert ourselves and work to turn them into useful goods and services. This human exertion in production is what is called LABOR. Labour includes all forms of work and or exertion that we do to convert natural resources into useful goods and services. It can be in the form of physical hard work, or mental work or a combination of both. For instance, the baker at the bakery does manual labor, the editor of a book does mental work and the teacher in the classroom does both manual and mental work. Thus, the work of the baker, the editor and the teacher are all forms of labor.

CAPITAL
What is capital as a factor of production? It is Man made physical goods used to produce other goods and services. It includes cash and money, vehicles, plants and equipment, factories, etc. The more capital and land a country has, then the more the potential for the production of more goods and services. For instance, America has lots of natural resources (LAND) and capital. These has helped the development of that country as the most advanced country in the world. Also in Nigeria, Lagos State has more capital than any other State in the country and this explains the faster development of the State as compared to other states.

ENTREPRENEURSHIP OR ENTERPRISE
Entrepreneurship or Enterprise is the organizer or coordinator of the other three factors of production. Left on themselves Land, Labor and Capital cannot come together to provide us with the required goods and services. They are all inanimate. Entrepreneurship is the only animate part of the process of production. It is the entrepreneur that combines, coordinates and organized the other factors in the required proportion and time and ensures that given goods and services are made available for human consumption. Without the entrepreneur there can no production no matter how much of the other resources are available. This explains why African countries are no developed because the level of entrepreneurship in these countries is low as compared to that in Europe and North America.


EXERCISES

A. Think about the environment you live. What evidence is there of the factors of production namely: land, labor, capital and enterprise?

B Now do the same for the place where your father or mother works.

C If you want to set up a business center, what factors of production do you need? Categorize your answer under the four factors of production.

C What qualities are needed in an effective entrepreneur?

D Think about your own human capital. What skills and qualities do you have?

E Is it possible to improve the factors of production e.g. make labor or capital better?

F What do you think is meant by capital intensive production or labor intensive production?

Let us look at a company that has utilized the above factors of production: DE UNITED FOODS, makers of Indomie Noodles.

De United Foods is involved in the production and marketing of indomie noodles:

• The company has a production site made up of physical land at Ota in Ogun State. This is its LAND

• It employs factory workers, drivers, engineers, office workers, sales men and managers. All these are its LABOR

• It has been able to raise money which it uses to purchase factory machines, construct the factory, buy vehicles, buy raw materials, buy office equipment like computers, printers, telephones, etc., and make payments for some expenses and still has some of the cash in the bank and in the office. All these equipments including all the available cash is DE United Foods CAPITAL

• All the factors mentioned above and most importantly, the idea to set up the company and produce indomie noodles was made by the promoters of the company, the shareholders and the directors. These are the ENTERPRENEURS in De United Foods Industries, makers of Indomie noodles.

If you extend the analysis and consider the case of Dangote cement factory at Obajana in Kogi State, the LAND of the company includes the physical land and the natural deposits of limestone that Dangote Cement explores to produce cement.
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