Factors of Production

Wall Street, Manhattan is the location of the ...

Image via Wikipedia

I am constantly amazed at how often people seem to believe that there are huge differences between for-profit companies, non-profit organizations, and units of government. Sure, there are differences, but there are huge similarities which deserve greater consideration than they often receive.

One thing all have in common is production. Everything, every product and every service, must be produced. And we know that production has requirements, sometimes called the factors of production.

First there is the idea behind production and the incentive to pursue ideas. Everything starts with an idea, but some ideas are abandoned if there is insufficient reason to follow through. Incentives are required and incentives can take many forms. But the incentives to pursue an idea must exist or else nothing happens and nothing is produced.

Production requires the application of skills. People who possess the required skills must have a reason to apply them. If the right skills aren’t brought to bear, nothing worthwhile is produced. Incentives are required and incentives can take many forms. But the incentives to apply the needed skills must exist or else nothing happens and nothing is produced.

Production requires investment. Someone has to supply funding, sometimes for buying equipment, sometime for services, sometimes for rent. Capital needs are legion. Without sufficient investment, nothing worthwhile is produced. Incentives to invest are required and incentives can take many forms. But the incentives to invest must exist or else nothing happens and nothing is produced.

Finally, the skills and capital must be coordinated in the presence of an ever changing environment. It all must be managed, including the management of how resources are allocated between capital, skills, and management itself. With inadequate management, nothing worthwhile is produced. Incentives to manage well are required and incentives can take many forms. But the incentives to manage must exist or else nothing happens and nothing is produced.

Production requires ideas, skills, capital, and management – and it makes no difference whether the undertaking is for profit or not for profit. And, it’s uncommon for the ideal mix of skills, capital, and management to be available at once. Sometimes the factors of production are second rate or worse, sometimes barely adequate. When you think about it, it’s amazing that we produce anything at all!

And sometimes we don’t.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: