The Factors Of Production And Their Rewards
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How to enhance the of production factors to grow an economy? Factors of Production are an economic term to describe the inputs that are used in the production of goods or services in the attempt to make an economic profit. The factors of production include land, labor, capital and entrepreneurship. The capital is all of the tools and machinery used to produce a good or service. Land represents all natural resources, such as timber and gold, used in the production of a good. While labor is all of the work that laborers and workers perform at all levels of an organization, except for the entrepreneur. The entrepreneur is the individual who takes an idea and attempts to make an economic profit from it by combining all other factors of production. Economic growth is the increase in the market value of the goods and services produced by an economy over time. It typically refers to the growth of potential output; therefore, since the factors of production are the inputs used for production, these lasts need to be enhanced in order to speed up economic growth. Each economic factor of production has its rewards as follows: Land is rewarded by rent
Capital rewarded by Interest
Entrepreneurship rewarded by Profit
Labor rewarded by wages, salaries How to enhance the factors of production?
Land is not created by mankind but it is a gift of nature. So, it is called a natural factor of production, it is also called a primary factor of production. Usually land means the surface of earth but in economics it has a wider meaning.It is all the materials and forces which nature gives freely for man’s aid in land, water, in air and light and heat. Land is the original sources of all material wealth. Therefore, the economic prosperity of a country is closely linked with the richness of its natural resources. The quality and quantity of agricultural wealth of a country depends on nature of soil, climate, and rainfall. Thus all aspects of economic life (agriculture, trade and industry) are generally influenced by Land in economics. . The productivity of land depends upon following factors.
1. Natural factors: The factors like soil, climate, rainfall, topography influence the productivity. The sandy soil with low rainfall always yield less but it is not so in cause of black cotton soil. It always yields more. 2. Human factor: Man is always trying his best how maximum output can be obtained from land. So many deficiencies are always tacked good yields. This human effort is very important to increase the productivity. And the human choice of the use of a land is also very important because it determines the yield of the land. For example if two people own two plots of land that are side by side and that have the same size, one of them decides to build apartments and the other to create a small business centre with several shops, the yields of the two fields would differ, in terms of money generated monthly. 3. Situation factor: The location of the land many a times determines the productivity.
The fertile land in remote corner of the country perhaps may not be cultivated but the land having less fertility but located nearby marked can give a good yield. The location of land is also important in other sectors like business; for instance the use and value of a land in Rongai and the CBD in Nairobi differs greatly. The land in Rongai might be used to build apartments, while the one in the middle of the CBD will be used to build shops, create parking lots, etc and is therefore worth more than the one in Rongai. Demand is the only a determinant of Rent because supply of land is fixed. Supplyof land is vertically fixed. It cannot be increased or decreased as land is not portable. Supply and Demand curves for land
Rentis the payment of exploitation of land. It is the product of high demand and fixed supply of land. Pricedirects the use of land in its most productive perspective. Rent will be higher if it is generating high yield. According to Mason Gaffney, Productivity of land can be enhanced by utilizing it at its most. There are two types of land which are utilized in different ways: 1. Urban land
2. Agricultural land
Enhancing the use of urban land
Urban land use comprises two elements; the nature of land use which relates to which activities are taking place where, and the level of spatial accumulation, which indicates their intensity and concentration. Central areas have a high level of spatial accumulation and corresponding land uses, such as retail, while peripheral areas have lower levels of accumulation. Therefore, enhancing the use of urban land is all about increasing the level of spatial accumulation, especially in central areas, by encouraging the opening of new businesses. However, the central planning authority of land has to ensure that there is available land for proper transportation to and from the CBD and land for green spaces. Enhancing the use of Agricultural land
Agricultural operations that will enhance farm production and protect natural resources include all aspects of farming, especially that of animal population density, and manures. Animal excrement has been recognized as an important source of macro and micro nutrients for healthy crop growth, and organic matter which is critical to improving soil fertility. Used as fertilizer, manures can improve the availability to crops of essential nutrients like nitrogen, phosphorus, potassium, and micronutrients such as iron and zinc. Increasing organic matter is critical for healthy soils since it increases the nutrient holding capacity of soil, among additional benefits. Agricultural lands can be enhanced and protected as follows: Maintaining and improving private lands and their management Implementing better land management technologies
Protecting and improve water quality and quantity
Maintaining and improving wildlife and fish habitat
Exploring opportunities to diversify agricultural operations Developing and applying sustainable agricultural systems
According to the US department of labor, the term labor refers to the people of a country or other geographic entity actively employed or seeking employment. It can also be defined as the human energy and mental skills used to produce economic goods. The supply of labor depends on:
the size of the population
its geographical distribution
its level of education and training,
its composition by age and sex
There are several ways of enhancing labor production:
According to Adam Smith, this is increasing the total output of the economy by organizing the manufacture of an article so that each worker gives all his time and attention to performing a single operation. Advantages:
greatly increased output at lower costs
development of special skills and machinery
the increase of speed
the saving in time – because operation is continuous (e.g. less changes of tools, materials etc.) RATIONALIZING PRODUCTION
Frederick Winslow Taylor (1856-1915), the father of scientific management defined Rationalizations of production as the process of improving the means and methods of social production in order to improve production efficiency. Therationalizationofproductioniscarriedoutonthebasisofobjectivelyoperatinglawsconcerningthedevelopmentoftechnologyandtheproductiveforcesasawhole. Therationalizationofproductioninvolves inventions of better tools, reorganizing the assembly lines, observation of the individual worker to eliminate waste time andmanagement Assembly-Line Methods
An assembly line is a manufacturing process in which parts are added as the semi-finished assembly moves from work station to work station where the parts are added in sequence until the final assembly is produced. With the use of this method, a finished product can be assembled faster and with less labor than by having workers carry parts to a stationary piece for assembly. Assembly lines are designed for the sequential organization of workers, tools or machines, and parts. The motion of workers is minimized to the extent possible. All parts are handled either by conveyors or motorized vehicles such as forklifts, with no manual trucking and each worker typically performs one simple operation.
LABOR MANAGEMENT – MOTIVATION
Motivation is extremely important. Non-motivated employees can have several negative effects on one’s business. These include friction on the job, substandard output in quality, a high turnover of employees, absenteeism, tardiness, and many of the disciplinary problems that one wishes to avoid. It is a fact that motivated employees are the most productive and will produce to their maximum abilities. To bring about a positive change in behavior, management needs to be aware of and deal with the different motives employees have for performing their jobs. This is the most critical ingredient to a successful motivation formula. One way of motivating employees is the use of the stick and carrot principle, whereby the employer promises the labor to provide them with their motives I order to make them happy, therefore they would work harder. Many more principles are used I order to motivate labor and achieve high productivity
According to the Business Dictionary (volume 3), Entrepreneurship is the capacity and willingness to develop, organize and manage a business venture along with any of its risks in order to make a profit. The most obvious example of entrepreneurship is the starting of new businesses. In economics, entrepreneurship combined with land, labor, natural resources and capital can produce profit. Entrepreneurial spirit is an essential part of a nation’s ability to succeed in an ever changing and increasingly competitive global marketplace. In order to nurture entrepreneurial spirit from an early age, there will be a need to Impart Knowledge about business, particularly at secondary and university levels, to encourage Entrepreneurial initiatives by youngsters and to develop training programs for small enterprises. There are several means by which a government can encourage the youngsters to take up entrepreneurship and can facilitate the entrepreneurial task for them.
Some of them are: •Cheaper and faster startup: Company startups are usually the hardest tasks for entrepreneurs, if made cheaper and faster, particularly through the use of online registration, more people will venture transforming their business ideas into reality and therefore increasingly more businesses will open daily. •Better legislation and regulation: In most legislation, especially for developing countries, regulations do not favor the small businesses that have just opened up. However, if the regulations are changed in accordance to the entrepreneurial spirit, there will be a reduction in the negative impact of national bankruptcy laws and new regulations on small enterprises. Small enterprises will be able to use administrative documents much easier and they will not have to apply certain regulatory obligations. •Availability of skills: Enterpreneurship has to be incorprorated in secondary schools’ courses and it should be emphasized on by universities. Training institutions can also be of help by delivering skills adapted to the needs of small enterprises and providing training and consultancy (Šunje, 2006).
•Improving online access:Public administrations should provide a type of online guidance for small business along with hot lines, in order to deliver any type of information one requires to know how to start up a small business and to answer any type of questions that entrepreneurs might need an answer for. •Getting more out of the single market: Countries should join Unions like the East African Community, the European Union, etc. in order for enterprisesto derive the maximum benefit from it.Some of the benefits can be the reduction of the rate of taxation, travelling with just an ID, etc. At the same time, national andCommunity competition rules will have to be vigorously applied for the newly opened enterprises to work harshly against the tough competition. (Šunje, 2006) •Taxation and financial matters: Tax systems will need to make life easier for small enterprises as a boost for them to be able to compete with their already settled competitors.Access to finance (risk capital, loans, financial institutions, structural funds, etc.) will also need to be improved (Šunje, 2006)
According to the Chronic of Small Businesses, capital has two economic definitions as a factor of production. Capital can represent the monetary resources companies use to purchase natural resources, land and other capital goods. Monetary resources flow through a nation and economy as individuals buy and sell resources to individuals and businesses. Capital also represents the major physical assets individuals and companies use when producing goods or services. These assets include buildings, production facilities, equipment, vehicles and other similar items. Individuals may create their own capital production resources, purchase them from another individual or business or lease them for a specific amount of time from individuals or other businesses. Financial planning is the key aspect of a successful business. Raising capital for a business is an important part of the financial planning structure. Once one has started a business he/she needs to calculate the amount of expenditure you will incur and the amount of capital you have to raise to cover that expenditure. All businesses require an initial investment to meet their requirements.
Well-developed capital markets generate many economic benefits, including higher productivity growth, greater employment opportunities, and improved macroeconomic stability.Although entrepreneurs have the task to find sources of raising their capital, government should facilitate that task in order to encourage entrepreneurship which led to economic growth. Some of the ways of facilitating the raising of capital, in order to enhance capital as a factor of production are: Training new entrepreneurs in the essentials of conceiving, planning, initiating and launching a manufacturing or service enterprise successfully. Providing financial advisers to the entrepreneurs, to guide them about the best way of generating capital. Outsourcing professionals like chartered accountants and setting them a target of training and helping a certain number of entrepreneurs to gain access to assistance. Assisting entrepreneurs in preparing their business plans and firming up arrangements with financial institutions to get term loans for manufacturing or service enterprises with a project cost Educating youths on means to raise capital
Availing rapidly accessible loans for youths with a low interest rate. Providing facilities to the public to the purchase and sale of funds, stocks and shares of any kind and for the investment of money.