Экономические науки / 14. Экономическая теория

Fomina O.A.

Samara State University of Economics, Russia

Different Approaches to Distinguish Factors of Production: Some Contemporary Views

It is a matter of fact that three factors of production are described in classical economic theory; they are land, labour and capital. But some modern economists find these factors antiquated. They proclaim other primary factors: time, information and capital. B. Gentile [1], for example, insists on the diminished importance of land and labour in the contemporary economy (except in such labor-intensive industries as energy production or mining). From his point of view, they are replaced by time and information. As for capital, it has always been and still remains of primary importance regardless of the type of economy.

The pace of technological advance is a major competitive factor in the modern world. B. Gentile considers that success of any company is much determined by the transformation speed of an idea into a final good, that is time as a factor of production.

But from my point of view time cannot be considered as a factor of production as according to a definition a factor of production is an input to the production process. In itself time is not put into any production, it is not used during the production process, it does not have intrinsic economic value, it cannot be sold as its price is not fixed.

I can define the ‘price of time’ as a certain amount of money that could be earned if the results of the production process would be obtained immediately. That is why it is difficult to determine time’s value, because its price largely depends on the sphere of production: whether it is high-tech then the price of time is high, or extractive industry then the price is relatively low.

Some modern economists (e.g. B. Gentile, W. Kendall and R. Scott) also presume that information should be added to the factors of production. In Gentile’s opinion considering information as a factor of production nowadays is possible. He draws attention to the importance of the 4 “V’s” of data: volume, velocity, variety and veracity.

W. Kendall and R. Scott [2] are sure that information should be included in the list of factors of production. It is important that they also mention special characteristics of information such as expansibility, compressibility, substitutability, transportability, diffusibility, sharing. These have already been outlined by Cleveland [3].

Now let us move on to the next factor of production that is entrepreneurship. During the XX century it has become really essential and now its influence on the other inputs remains to be very strong.

Of all the theories of entrepreneurship that exist I would like to concentrate on Schumpeter’s theory. He introduces a Man of Actions (Mann der Tat) – someone who does not accept reality as it is. He is also sure that an entrepreneur is that very Man of Action in the area of economy and he does something qualitatively new by means of new combinations of the existing resources. In Schumpeter’s opinion an entrepreneur does not equal to an inventor as he only brings in “new ways of using existing factors of production”. That is “he who makes new combinations is an entrepreneur” [4]. It is very important and at the same time easy for an entrepreneur to introduce new combinations

It is also noted by Schumpeter that the number of possible combinations of factors of production is infinite. This means that it is impossible for an entrepreneur to make a rational choice so it is mostly intuitive. And the right intuitive choice separates a good entrepreneur from a bad one.

R. Swedberg [5] notes that Schumpeter separates functions of an entrepreneur and a capitalist. For example, the capitalist assumes the economic risks as he risks his money and capital. But this is not quiet relevant today, as a great number of venture firms have appeared all over the world and most of them are run by entrepreneurs. So these entrepreneurs become more involved in money operations and are, in fact, capitalists. But at the same time they remain to be entrepreneurs as they analyze the existing market situation, search for the prospective borrowers, consider them and whether invest their money or not. Thus they are both capitalists (as the owners of capital and money in particular) and entrepreneurs (as they risk and make decisions).

Randall G. Holcombre [6] indicates that according to the neoclassics research and development can be conducted only if factors of production are combined. But the initial investments in R&D are not enough. If the research is successful it is important to apply it, to innovate the production process or even to start a new product line. And these all are the tasks of an entrepreneur.

Dr. Kendall and Dr. Scott distinguish between managers and entrepreneurs. They are sure that for competitive production managers should “use information strategically and have the flexibility to respond to opportunities”. They also stress on the importance of a combination of “right information with the right opportunities at the right time”.

From my point of view it is useless to divide managers and entrepreneurs, as according to Jean-Baptiste Say entrepreneurs seek out inefficiently used factors of production (land, labour and capital) and move them into more productive areas. He also pointed out that entrepreneurs must recognize opportunities and manage them effectively. Thus, entrepreneur is a manager himself.

As for Kirzner [7] he is also concerned that an entrepreneur is someone who is eager to see opportunities and make good use of them. The peculiarity of the entrepreneur is that he notices something that all the other can’t notice. It is also important that some people have more potential to notice the opportunities than others. The first and foremost is education and professional training. If you are good at any specific sphere you are more likely to advance in it, but not in any other.

Becker [8] has distinguished between general and specific knowledge or training. Obviously the general knowledge is the education a person gets at school and universities. As for the specific knowledge it is all the information a worker gets through his experience in a particular firm. Very often the specific information can’t be applied outside the firm as it is mostly connected with knowledge of the firm’s structure, peculiarities of the paper work or the knowledge of a specific computer programme. Thus workers with high specific skills are less likely to be redundant or leave their jobs.

Randall G. Holcombre is quiet sure that entrepreneurship and knowledge are unrelated and also that entrepreneurship does not require any expenses, so it is costless as it does not use up resources. However entrepreneurs are affected by their past activities. It is interesting that by taking an advantage of opportunities a good entrepreneur creates new entrepreneurial opportunities, thus it is an infinite process.

Roughly speaking the experience obtained is as important as education in moulding a perfect entrepreneur. And still I agree with Kirzner that the chance to notice opportunities is indispensable.

I can assume a schematic sketch of entrepreneurship as an input:

Here you can see 4 product spaces that I can define as following:

1 – Ex+Ed – with perfect education and sufficient experience you can be a good specialist, but still unable to make decisions

2 – Ed+CNO – an educated specialist can notice opportunities but his decisions can be false without experience

3 – CNO+Ex – this formula is practically certain in respect of business matters but not innovations or introducing new ideas

4 – Ex+Ed+CNO – is the entrepreneur himself. He is educated enough to be engaged in some business, he has experience in a particular sphere and he is eager to notice any changes and make use of them.

In conclusion I can say that modern economy provides economists with opportunities to define new factors of production and add to the classical economic theory. But each new input should be proven as a factor of production.

Literature:

1. Gentile, Brian The New Factors of Production and the Rise of Data-Driven Applications, http://www.forbes.com/. Brian Gentile is a CEO of Jaspersoft, a provider of business intelligence software

2. Kendall, Walter R. and Scott, C. Richard Information As a Factor of Production, Journal of Information Technology Management, Volume I, Number 2, 1990, pp. 39-42. Dr. Kendall, University of Northern Colorado, MBA in Marketing and Transportation, doctorate in the field of Marketing. Dr. Scott, Radford University, MBA and DBA degrees in Management, Marketing and Economics

3. Cleveland, Harlan Information as a Resource, The Futurist, Vol. 16, December 1982, pp. 34-39

4. Schumpeter, Joseph A. [1911] 2003 The Theory of Economic Development,pp. 61-116 in Jürgen Backhaus (ed.), Joseph Alois Schumpeter. Boston: Kluwer.

5. Swedberg, Richard Rebuilding Schumpeter’s Theory of Entrepreneurship, Conference on Marshall, Schumpeter and Social Science, Japan, 2007. R. Swedberg, Cornell University, Department of Sociology

6. Holcombre, Randall G. Entrepreneurship and Economic Growth, The Quarterly Journal of Austrian Economics 1, no.2 (Summer 1998), pp. 45-62. Randall G. Holcombre, professor of economics at Florida State University

7. Kirzner, Israel M. 1979 Perception, Opportunity, and Profit: Studies in the Theory of Entrepreneurship. Chicago: University of Chicago Press

8. Becker, Gary S. The Economic Way of Looking at Life, Nobel Lecture, December 9, 1992