Hacking ‘factors of productions’ — an offbeat economic analogy

Maria Eugenia Heyaca| Investment Officer/Co-founder

In recent decades, the labour share — i.e. the share of national income made up by wages, salaries and benefits — has declined in nearly all OECD countries.[1] This is driven by a number of factors including the fact that much higher returns on capital, noted ‘r’, than economic growth, ‘g’, mean that income has been slowly shifting away from labour towards capital.

This idea is not revolutionary and in fact has been endlessly debated in some circles over the past decade, especially in the aftermath of French economist Thomas Piketty’s book Capital in the Twenty-First Century. His research meticulously documented how capital has been more rewarded than labour and the implications of this dynamic for wealth inequality.

r > g

There are multiple, and at times competing, explanations for the difference between r and g and the widening wealth gap. They include the way labour productivity is measured, the role of technology in displacing workers and the redistributive power of taxes. [‘Which is right?’ is not a question we will attempt to answer today.]

But one thing is true, as capital market performance only benefit a few (the proverbial money begets money?) and money is not distributed homogeneously, this can contribute to the accentuation of the wealth gap in many economies.

Consequently, this trend could be improved by democratising access to financial markets. On its own, better access to capital market returns will of course not be sufficient to solve the inequality problem faced in our nations, but it may be a powerful tool in making our economies more inclusive.

Technology can and is already helping us achieve this goal. From Nutmeg to Betterment, online platforms are making saving and investing easier, robo-advisors are providing tailored advice at a fraction of the cost of wealth managers, and tokenisation is opening the doors to asset classes that used to be accessible only to the wealthier such as art and real estate.

At Pynk we want to be part of this effort and we have our own way of doing it.

The factors of production in standard economic functions include physical capital, labour and technological progress (also known as Total Factor Productivity). They are the inputs used in the production of goods and services (for those unfamiliar with these concepts and interested in learning more, I suggest looking at the Cobb-Douglas function).

If labour and expertise[2] are factors of production in economic systems, why should capital be the only factor rewarded in investment schemes? Can we find a way to use and reward equitably other forms of contribution to produce better outcomes for everyone?

The Pynk fund uses the wisdom of crowds combined with artificial intelligence to guide investment decisions. Whether you are an expert trader, a tech enthusiast with time on your hands or a traditional investor looking for a way to invest in impactful projects, anyone can participate in Pynk either by investing capital into the fund or time on our prediction platform.

“Pynk predictors”, the crowd that helps direct our investment process, are rewarded for their contributions, consistency and accuracy, eventually earning a stake in the profits of the fund. Through this set up, we can start ensuring everyone has a chance to benefit from technological and social innovation.

It goes without saying that democratising investments faces many challenges. Capital markets can be risky and exposing more households to stock market swings could have undesired consequences. It is why for Pynk, working hand in hand with regulators to ensure consumers are protected is key to successfully opening markets. And so is increasing the level of financial literacy.

That said, we are excited about the prospect of using new technology to efficiently harness what each of us has to offer — be it money, time or expertise — and reward these three factors equitably.

[1] (OECD calculations find that the average adjusted labour share in G20 countries went down by about 0.3 percentage points per year between 1980 and the late 2000s)

[2] [2] Yes, I am here very loosely equating expertise to total factor productivity.

Disclaimer: Please bear in mind that this information does not constitute any form of advice or recommendation by Pynk One Ltd. and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision. When investing, your capital is at risk and you may recover less than the initial investment.