Is it time for the fifth factor of production?

 By XN Iraki

 

Economists have always told us that there are four factors of production, land, labour, capital and entrepreneurship. The first three are well known and written about. We all dream of owning land, a piece of mother Earth, with history punctuated by episodes of bloody struggles over land ownership.

Our country has not been left out. Lots of people have died over land often setting brother against brother. It is another issue why we fight and die over land when so few young people ever want to be farmers, even when land availability is not an issue.

Land reforms, which will define ownership, transfers and other issues about land is seen a solution to the land question.

Capital is much talked about with lots of focus on its scarcity, reflected by its cost, usually the interest rates. The cost of capital determines the pulse of an economy. Consumers borrow too creating extra demand. 

 

Unemployment rate

 

The rates are likely to rise now as Government confronts inflation. High interests means less money in circulation, since it’s attracted to banks, and less demand for consumption, which cools off inflation. Capital can be seen in a broader perspective to include means of production from machinery to buildings and very recently intellectual capital, the knowledge and skills that enhance production.

Labour is another emotional factor, with emphasis on its cost, in terms of wages, salaries, or other forms of compensation. A high unemployment rate is what makes labour a hot political and economic issue. Apart from interest rates, no other statistic scares politicians like unemployment rates.

Unlike land but like capital, labour is mobile, you can work anywhere. In reality that mobility is restricted by laws and culture.  Countries protect their labour markets with citizens given preferences in certain jobs. Culturally, we love the comforts of familiarity. Entrepreneurship is less written about by economists, some suggest because it is embedded in labour. Others argue it defies the neat models that describe the other economic factors. Harvard don Joseph Schumpeter popularised entrepreneurship in 1950s with later scholars expounding on its role in economic growth.

The behavioural nature of entrepreneurship makes it an interesting area for both scholarly and pedestrian discussions.

We are yet to fully understand the secrets of entrepreneurs and entrepreneurship. Entrepreneurs’ greatest contribution is combining the other factors in production, often in ways no one thought about before, the stuff of innovations.

 

Preferred qualification

 

All the factors are abundant in every country, yet some countries grow while others stagnate. Could there be a missing fifth factor that combines the four factors?  Is management is the missing factor, the fifth factor of production?

One of the major differences between developed and developing countries is the way they manage the four factors. In the last century, management has developed into a self-contained area of study with several universities hosting schools of management. The schools have over the years tried to train the next generation of managers with MBA becoming the preferred qualification.

In Kenya, management has been a big issue since Uhuru, when the former colonial rulers passed over the management of this country to us. The general consensus is that we did not do a good job and the evidence for our failures is there for all to see. The Vision 2030 and new Constitution are bold attempts to put management structures in place to jump-start our economy.

 

Minimal resources

 

The current reforms are all about managing our factors of production better. From performance contracting to appointment of new judges, we are looking for good managers that can take bold decisions and ensure the set objectives are met with minimal resources. They are supposed to ensure quality is ensured and think intergenerational.

The most successful families, firms and nations are all well managed. We pay managers lots of money because we think they will make a difference.

In the political arena, we get a chance to decide on whether to replace or keep managers every five years.  Management permeates every facet of our lives. The people who run this country are the managers from head teachers to CEOs of major and minor companies.

Few can deny that this country is endowed with lots of resources or factors of production. Land is there in plenty, capital can even be sourced outside, labour is plenty and so is entrepreneurship. The missing link is management.

Our fixation with the top could be our undoing. When all the big positions are filled up, we shall shift to the next phase, which is putting into practice managerial skills to run the institutions.

The truth is that good managers are scarce, perhaps another justification why we should declare management the fifth factor of production. Management will determine the success of both Vision 2030 and new Constitution and by extension our economy. 

—Iraki is a lecturer at the University of Nairobi Business School