Traditional quantitative / physical factors
With the hard / physical or at least the quantitative resources /
inputs, we have the three "classical" factors (*) that were recognized by
the economists in the 18th and 19th century to produce goods and services
and contribute to their economic value (**):
This is equity, (and also long term lending), invested in production or
Without investment, no economic development!
Its three main
sources are not only
1) individual savings and 2) profit reinvesting, but also the
of a goodwill thanks to a position of strength in the market.
Because of the risk in any business and project, a sane proportion
has to be found between "true" capital (equity) and debt. (see
A differentiation can be made between
* Physical equipments,
* "Soft" productive investments / assets (as detailed
* Financial capital (that might not always finance
Here appears a small misconception about capital, the idea that it is just
Asset markets show that capital is also created or destroyed everyday,
as based on economic performances and even, via market quotes, on
human perception of its value.
Marxism saw the manpower time devoted to work as the only
source of value, a quite reductive approach.
It even saw work and value as equivalent.
This is denying that value is in the eye of the buyers / users
of the product or service's user and can widely differ from the
production inputs, that are just factors (we can say "costs") to try
to reach the purpose of bringing such value to the user.
Also, as shown below, knowledge and other soft elements are changing
the nature of work as a factor of production.
Physiocrats saw them (and among them actually focused only on
land) as the only source of production, a reductive approach
Nowadays neo-Malthusians consider natural factors as a limit to
production, but this can address only goods and some services that
are material-intensive or energy-intensive and that tend to become
less and less dominant in our "post industrial economy" or "society
Of course the demand of natural resources tend to rise anyway as
long as emerging economies did not catch up. But this is essentially
a transition phase.
(*) Even if the capital took a rather long time to be recognized as a factor by
(**) Well, as already mentioned, the value of a production is not just an
addition (or better said a needed synergy) of factors.
It is actually what people consider the product or service to be
worth, according to the relative satisfactions it gives them among
other goods and services.
=> Some productions are worth less than the physical inputs, some
others are worth much more.
See the "Value, utility, price: what differences? " and Economic utility articles
Thus physical factors are not the whole story,
Other factors (soft factors) contribute to make a production
that "gives value" by providing the required satisfactions.
What are those less visible, often underground strengths, that the chapter
below tries to elucidate.
Qualitative / cultural factorsLet us be soft !
We can add at least five soft / cultural factors, even if they are less visible
than more "material" assets
Nowadays, in a changing and complex word (a dynamical system),
enlarged by globalization, their importance grows compared to other factors.
Those soft components are more recently recognized (thanks to Schumpeter,
Drucker, Solow...) although often wrongly confused with "quantitative" work
(basic work hours).
Without them the physical factors could be wasted (producing goods
and services that would be worth less than the inputs).
Those soft economic advantages includes
* forms of personal capital that can foster the economic capabilities of an
* and forms of social capital explaining the strength of a group a business,
an institution or a whole society.
Here are some decisive ones :
the accumulated knowledge as well as the aptitude to create and learn
new knowledge, and even sometimes to "delearn" obsolete / flawed /
- Exclusive operational talents:
capabilities do things better, with a better judgment or more
/ efficiently (not to confuse with the quantity of work).
- Initiative / innovation capital / entrepreneurship,
a specific talent in taking initiatives / risks, in creating, innovating (*)
and adapting to changes.
Innovation (which is not only invention but also implementation)
is more and more considered as the #1 key to economic development :
see the related section below.
Also J.B. Say insisted on the role of the "entrepreneur" in gathering
and combining the various factors of production so as to create value.
- Reputation / trust /reliability / image.
Without trust there would be not much teamwork, very few exchanges
and scarce other economic activities.
Also people tend to buy an "image" more than the product or service
- Production (and exchange) systems and structures
(legal, institutional, organizational, educative).
That is what makes some economic systems, some countries, regions
and/or cities, and some periods, proner than others to economic
An immigrant from an underdevelopped country can make more
money in a developped country that all along the time has built a
more productive level of organisation and equipment.
Also, the internal organization and practices of a group is
normally designed to enhance individual efficiency and adaptation
to the world
- But also a compatible common pro-progress culture
This is a behavioral economics site.
This allows to say that all cultures that respect human values are
themselves respectable, but that those that are in favor of individual
creation and efforts have a better chance to reach the economic
(*) A special note
about innovation as an economic capital
In a fast moving word, with a highly uncertain future in most areas,
innovative and adaptive capabilities are crucial for survival.
They are key economic assets even if they are not directly visible.
This is true not only for every organization but also for the planet.
"Sustainable development" should more be based on innovation than
on dogmatic restrictions
What is innovation is often misunderstood:
* Innovation is not only research and development, however
needed they are.
* Innovation also goes much further than invention:
the implementation is often the most important (and arduous)
* It is not only about new products and services but about the whole
The innovative spirit should permeate all activities / processes /
factors of production.
* It is not only improving things but is a quest for drastic changes
that create new riches sometimes by destructing old ones. To be
afraid to cannibalize" old productions just because we invested a lot
in them is giving a boon to new competitors.
* It is a matter of risk taking.
It can either bring fantastic results or end in a complete loss.
Its financing needs more equity capital than credit which supposes
rather predictable refund prospects.
This the job of venture capitalists and equity investors.
|Innovations are triangles that associate three factors of
production : initiative, (creative) talent and equity capital
* The general consequences of innovation can not be fully known
in advance, experience will come later (return of experience).
In that sense the precautionary principle is pure fantasy and a
symptom of status quo bias
Also, Innovation is crucial not only on the economic / business field.
The world is facing many challenges, and innovations have to permeate all
areas to answer them.
A drastic upheaval of global institutions is one of those key aspects.
A few remarks and side aspects
Managers might see some relations between
In the same line of thoughts, the mix between those various factors
will depend of course on the type of business or economic unit.
Last but not least, it will depend on the business model it chose.
They might have a negative impact on economic performance
(and on other social fields).
This is specifically explored in the behavioral economics article.
(To be translated)
- Will robotics and digital advances eliminate work ?
Sans doute pas, en effet :
* They need de large spending in talents and capital, dont
rentabilité est aléatoire si elles sont mal ciblées.
Toutes les tâches ne sont pas
* Une économie robotisée est beaucoup plus flexible
massivement de nouveaux produits et services, pour de
Elle n'apporte pas seulement un allègement de la charge de
mais aussi accroit l'activité, ce qui parallèlement est favorable à
D'ailleurs, parmi ces activités nouvelles se situent aussi les
robotiques ou numériques des consommateurs
Back to collection: economic articles migrated from Knol
visits (sample / échantillon)
Pageviews for this article before migration from Knol: 1.6 k