Factors of Production

Historically, individuals, firms, and countries become rich if they possess more of the following four factors of production than their competitors:

• Natural resources—things that are useful in their useful in their natural state, such as land, forests, minerals, and water
• Human resources—anyone (from company presidents to grocery clerks) who works to produce goods and services
• Capital—resources (such as money, computers, machines, tools, and buildings) that a business needs to produce goods and services
• Entrepreneurs—people like Ted Waitt who are willing to take risks to create and operate businesses

In the past, putting some combination of these four factors together with reasonable management was the route to success. In fact, historians trace much of U.S. economic success to a combination of the country’s cheap, plentiful, well-located raw materials and farmland; its supportive environment for entrepreneurship; and its compulsory public education system. Together these factors have given the United States an economic edge.

Today, new technologies and modern transportation allow companies like electronic-connector manufacturer Molex to draw their supplies from one part of the world, locate their production facilities in another, and sell their products in a third. As a result, the natural resources factor, for all practical purposes, has dropped out of the competitive equation: Having natural resources is not the way to become rich, and not having them is not a barrier to becoming rich. For example, even though the Japanese have the world’s best steel industry, they have neither iron ore nor coal.


Reference

• Michael H. Mescon, Courtland L. Bovée, John V. Thill, Business Today, 9th edition, Prentice Hall, 1999