Redrawing the economy one model at a time
Rethinking the Factors of Production
This piece is part of our Visualising Change series, written in July 2022 and reflects our thinking at this time. Read the series so far and access other pieces as they become available.
In this contribution to the series we look at the traditional economic Factors of Production, and do some thinking around how they could potentially be redrawn so as to support and promote more intentional trajectories towards regenerative and distributive futures.
‘If we want to write a new economic story, we must draw new pictures that leave the old ones lying in the pages of last century’s textbooks’ (Raworth, 2017, p.21).
So much of what is discussed, debated and examined in commentary about how we could transition to regenerative and distributive futures seeks to tweak at the edges whilst leaving the fundamentals in place.
Shifting policies, dialing down our consumption patterns, recycling waste — are all good and responsible actions — but will they be enough if we don’t rethink some of the underpinning constructs that characterise dominant global economic models? In particular, valuing activity that supports and promotes regenerative practices and a distributive approach to fostering wellbeing needs to be at the heart of our economic systems. We think a broader enquiry is needed — one that enables us to begin to ‘redraw’ our economies, and particularly the models on which our economies have been built.
What is needed are new models of how ‘value’ is established, that challenge the values that informed current economic orthodoxies — values that saw nature as a resource to be exploited, humans as a force that could generate wealth for others, and property as a means to shift wealth out of people and communities without any real productivity contribution from the owners (aka rent-seeking).
But before we get to new models, we need to surface the impact of the assumptions and values upon which current models are built. Otherwise, we risk merely rearranging elements without addressing the shifting mental models that are needed for better models. As Kate Raworth argues:
It’s such a deceptively simple model of the economy that it quietly inserts itself into the back of the head of every economics students — so quietly that you don’t even realize it is here. But it is there, and that’s a problem because it’s a deeply flawed view of the economy we actually live with.”
With this in mind, we’re going to share our unpacking of one such economic model — Factors of Production.
This model is often presented to economics students as the ‘building blocks of modern economies’ — the resource foundations of how goods and services are produced and ultimately how wealth is generated.
How these factors are structured — independently, and how they are organised to work together to make up ‘the modern economic system’ — is a direct result of a set of values that prioritises how value can be generated and flow to particular parts of the system.
These core values lie at the heart of Western political and economic thought — in fact, the origins of this model go all the way back to the political thinking of Aristotle, who linked ‘value’ to the exchanges people make to achieve their ‘wants’. This core assumption has gone on to shape Western political and economic thinking, to the extent that the ‘capitalist economy’ is now deemed to be the ‘real’ economy because it is the “. . . system that produces goods and services for the purpose of satisfying people’s needs and wants” (Pirgmaier, 2021, p.9).
In Western traditions, which have dominated global ‘economic development’ for centuries, nature and land (one of the Factors of Production) are positioned as being for the benefit of mankind (sic) alone. In the sixteenth century William Petty declared that labour and land lie at the heart of wealth production, with wealth representing the ultimate human achievement and the foundation of positive futures. Petty went so far as to say that labour and land were the ‘parents of wealth’: “Hands (labour) being the father as lands are the mother or Womb of Wealth” (Petty, Treatise on Taxes and Distribution, p.53).
Today we recognise that wealth and want is only one way of thinking about value, and that focusing on wealth creation has contributed to many unintended consequences which the world is now grappling with.
So to evolve on from this centuries-old and narrowly conceived assumption, and to engage in meaningfully reframing the Factors of Production, we need to start by recognising the influence of these historical positionings, and how they have shaped the systems we live with today. Some of these influences are shown in Figure 2.
While there have been attempts to add ‘new’ factors of production in recent time, such as data (see for example Xu, 2021), explorations of what it might mean to actually redraw the Factors with a focus on regenerative and distributive futures remain limited.
Beginning to rethink and redraw
We have some beginning thoughts around this, and are keen to engage in broader dialogue and thinking with others.
In particular, we are thinking about whether ‘redrawing’ is enough, or if we actually need to rethink more deeply the purpose of production, which has, since at least the seventeenth century, been purposefully designed to generate ‘wealth’ for ‘the few’. Perhaps it is also not only about the Factors themselves, but the ways in which they are interconnected which creates reinforcing loops around value flows.
As Piketty & Rendell (2022) argue the ownership of land and capital reinforces wealth creation opportunities and pathways, in such a way that it designs-in structural inequalities that are difficult to challenge without intentional redistribution policies and regulations.
But the reality is that we’re never starting with a ‘clean slate’ and the ‘lights need to stay on’ through any transition process.
So we’re trying to think about these questions through a premise of ‘radical pragmatism’ and a lens of transitions — the Three Horizons work of the Intentional Futures Forum creates a useful framework for this work (for more on this, see our previous blog and Intentional Futures Forum.) We’re looking for where bridges between the current orthodox model (ie. where we are now) and where we want to get to, can be made visible, strengthened and intentionally fostered.
Rather than looking for wholly new models, we seek to challenge the status quo and open up new ways of understanding production and value creation. This bridging process is critical if we are to enact meaningful change that supports trajectories towards more regenerative and distributive futures, and particularly in the time frames needed.
Our first ‘redraw’ is to embed the Factors into Kate Raworth’s ‘Doughnut’ — so that it is immediately and undeniably clear that the impacts of our relationship to each and to how they interconnect needs to stay within the boundaries of the social foundations and the ecological ceiling for life on earth.
In exploring this, we found it useful to ‘stretch’ the Enterprise Factor beyond how it is framed in traditional approaches. Rather than seeing it as a singular factor, framing it as a Factor that potentially connects and enables different interactions to emerge between the other Factors seems useful. As shown in Figure 3, this redraw can highlight where focus could be directed in order to amplify and accelerate value creation towards regenerative and distributive expressions of production.
In this view, we have drawn out the Enterprise Factor as the connecting thread — rather than a singular expression of this factor, we have highlighted that what we need is different types of ‘enterprising’ and innovating. In order to work towards regenerative production, it will not be enough to just add more ‘entrepreneurs’ — we need to design and build different types of enterprise — that recognise intrinsic values, intangible qualities and the intergenerational importance of land and labour, and then utilise capital to produce value that prioritises regenerative responses to complex issues.
This will require a shift in focus away from supporting entrepreneurs seeking to maximise private profits and towards recognising and rewarding public value creation.
Value creation where public good, social, environmental and cultural outcomes, civic innovation and intergenerational wellbeing are intentionally designed for and maximised, rather than (hopefully!) produced as by-products.
Coming back to bridging approaches, to move towards this we need to fundamentally rethink how value creation is recognised and acted on within existing systems and processes.
In Figure 4 we provide a visual representation of our second viewpoint.
Rather than redrawing as such, this is more focused on making visible, pockets of innovation already happening and how these might demonstrate pathways towards broader reframes of the Factors of Production.
Again drawing on the Three Horizons model, we are looking for where we can improve understandings of where and how we might bridge orthodox perspectives of production with those needed to move towards more intentional regenerative and distributive futures.
Here, we started with the premise — what if the reframed goal of the economic system was to maximise wellbeing — wellbeing of people, places and the planet; rather than starting with the orthodox goal of maximising individual wealth creation?
We’ve included some of the ‘pockets of innovation’ that are helping to push us into the second horizon as a starting point. To push this line of thinking further, these need to be unpacked in more detail, including improving understanding of the connections between them. As noted above, there are many reinforcing loops created through the relationships between orthodox framings and configurations of the Factors of Production.
So while concepts like a ‘wellbeing economy’ are gaining increasing attention, perhaps the real questions we should be asking are not only about what constitutes a ‘measure’ of wellbeing, (see for example, the frameworks starting to emerge through the Wellbeing Budget in Aotearoa New Zealand) but how might we design our systems so that they truly establish and grow value chains that restructure production processes away from wealth-for-the-few towards wellbeing-for-the-many (including the planet).
Conclusion
“It’s everybody’s job and responsibility to take part in this conversation about changing the economic system.” (Piketty, 2020)
Whilst the proponents of capitalism-driven ‘economic progress’ will always point to general improvements in equality, living standards, health factors and the like, the breadth and rate of change we’re experiencing in the twenty-first century calls for a much more intentional approach to improving planetary wellbeing.
Looking through a ‘redrawn’ lens, we’re thinking about how the Factors of Production could be purposefully designed and configured to establish and support productive models that increase regenerative and distributive possibilities.
As Piketty notes, it’s everybody’s job to shift the economic system — and the decisions we all take, big and small, personal and organisational, all contribute to perpetuating or shifting trajectories. Broadening participation in this conversation will be critical to moving towards the preferred futures of Three Horizons work.
This piece is a joint effort by a number of our team, particularly Professor Ingrid Burkett and Associate Professor Joanne McNeill.
References and further reading
Gibson-Graham JK, Cameron J, and Healy S (eds). (2013). Take Back the Economy: An Ethical Guide for Transforming Our Communities. Minneapolis: University of Minnesota Press.
Mazzucato, M. (2018). The Value of Everything: Making and Taking in the Global Economy. London: Allen Lane
Petty, W. (1662). A Treatise of Taxes & Contributions, McMaster University Archive for the History of Economic Thought
Piketty, T. (2020). How Societies Sustain, Justify, and Eventually Dismantle Inequality. Available at: https://ces.fas.harvard.edu/news/2020/03/how-political-ideas-keep-economic-inequality-going
Piketty, T. and Rendell, S. (2022). A Brief History of Equality. Boston: Harvard University Press
Pirgmaier, E. (2021). The value of value theory for ecological economics. Ecological Economics, Vol. 179, pp.1–10
Rath, T., Harter, J. K., & Harter, J. (2010). Wellbeing: The five essential elements. New York: Simon and Schuster.
Raworth, K. (2017). Doughnut economics: Seven ways to think like a 21st-century economist. Vermont, USA: Chelsea Green Publishing.
Sharpe, B. (2020). Three Horizons: The Patterning of Hope (2nd Ed). Bridport, UK: Triarchy Press
Xu, X. (2021). Research Prospect: Data Factor of Production. Journal of Internet and Digital Economics, Vol 1(1), pp.64–71
