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The Fourth Factor of Production — Giving Data its Due

Data05-05-2021

Since Adam Smith, we have understood three core factors of production:

· Land
· Labour
· Capital

There are others that have competed to be the 4th. Channeling Peter Druker, some have argued for “management” — those that direct resources. Channeling Joseph Schumpeter, others have argued for “entrepreneurs” — those who combine resources in new and innovative ways. Others still have put forth further candidates for consideration. But on the whole, Adam Smith has been remarkably durable for more than two centuries. When asked for the factors of production, most of us will invariably and reflexively respond with land, labour, and capital.

But if Adam Smith were to return today and look at some of the most valuable and dynamic corporations of our era — the Digital Giants of Google, Facebook, Netflix, Twitter, Spotify, Amazon, and others — he would scratch his head a bit. In fact, he would scratch his head a lot. Yes, he would see some land. Yes, he would see some labour. But nowhere near enough to justify the heady heights — and incredible influence and power — of the Digital Giants. Yes, he would also see some capital. But remarkably, that capital would largely be a by-product of “production”, and not, on the whole, a driver of production.

Seeing the most valuable and powerful entities on earth during his era, Smith would have surely seen people. Lots and lots of labour. And he would have seen land. And he would have seen capital in the form of constructed ships and tools, and extracted and then refined natural resources. And again, Smith would have seen lots and lots and lots more labour. He would have seen stuff — tangible things that he could touch.

But the contemporary Adam Smith would see negligible amounts of people and land in today’s largest companies. Certainly nothing that would in any way convey their value, status, or their power. And these companies, perhaps most surprisingly of all, “consume” relatively little capital.

What is going on?

Brains? Computers? Digital? Algorithms? Cloud computing?

Yes, yes, yes, yes, yes. And lots more.

But fundamentally, what is going on is the fourth factor of production.

Data.

Data as Differentiator

Data has now become the most valuable commodity on earth. Data streams are more valuable than natural resources. More valuable than manufacturing facilities. More valuable than land. More valuable than labour. Data — the new oil? Oil should be so lucky.

Why?

Data is now the differentiator. Data is now the key value-add. As computers, software, micro-processing power, storage, cloud computing, and algorithms all become — or all trend towards — commodity status, it is the quantity and quality of data that will differentiate the successful from the mediocre. To avoid becoming a commodity — and you never want to be a commodity, because that means that you can only add value by cutting your prices — you need better and more data than the entity beside you.

Spotify is a data company that deals in music. Netflix is a data company that deals in video. Google is a data company that deals in …. many things. Same with Amazon. Same with Facebook.

Computing, computation, communication, software, digital distribution — all are, or are rapidly becoming — commodities. Algorithms still have differentiating value, but as advances in artificial intelligence continue, these too will also invariably trend to commodity status. What will really add value increasingly in production over time, again, is the quality and quantity of data.

Data and Public Administration

What does all this have to do with public administration? A great deal

First, public administration needs to become data-infused. Today’s public administration still operates, relatively speaking, with an absence of data. States use blunt policy instruments because their respective public administrations do not have the granularity of data — in real time — that is available to the Digital Giants of the world.

When you lack real-time actionable data, you estimate. You approximate. You guess. That worked for a world when real time actionable data either did not exist, or was enormously expensive to actualize. But that is not today’s world. Today’s world is an ocean of data. The globe and its inhabitants have become a massive data-spewing machine. And every day the data machine gets bigger.

Everything you do in the digital world gives off data. And as you migrate more and more of your life onto the digital realm, you are giving off more and more data. As your watch announces the rate of your beating heart. As you listen to a another song on Spotify. As you watch another movie on Netflix. As you order another package from Amazon. As you quench another curiosity on Google. Your digital self is an endless stream of data. And your digital self is yet still barely a toddler compared to the data your digital adolescent and your digital adult will be spewing out in the years ahead.

Public administration does not currently use data like the Digital Giants. It is not generally valued as a differentiator. Public administration knows it is important, but on the whole, we do not utilize it for public policy and public good applications anywhere near the degree to which data is utilized for commercial gain. Over time, that divide will harm us all. Over time, that will make public administration a dinosaur. We need to better understand the power and application of data. Fast.

Second, public administration has long been dealing with the factors of production. Land, labour, and capital are the very stuff of the state, and thus they go to the very heart of public administration. As data becomes the fourth factor of production, is the public administration apparatus of the modern state ready to deal with data? Does the public administrator in food inspection or border protection or program delivery have a mastery of data in their realm that the Digital Giants have in their realm?

To date, public administration has largely fumbled, and public administration is playing from behind. The gulf is deeper than we care to admit. How the political state uses its capacity is a question for public debate. But when the administrative state lacks capacity … that is a crisis of public administration. And if we have an incapable public administration in data, we will have chosen our political fate by default. We will have chosen to estimate in public services, where others work with real time actionable data.

Conclusion

The factors of production are changing. If data is not the fourth factor of production already, it does not seem long before that day becomes clear to us.

Is the administrative state ready? Do we understand the power of data? Do we understand how to use it to serve public policy goals? Do we understand how to regulate it for the public good? Do we have the systems in place to capture data? Do we have the systems in place to safeguard the data we capture? Do we have the systems in place to safeguard its use by non-state actors?

These are today’s questions of public administration. The faster we get there, the better public administrators will be able to serve their political decision-makers and their state populations.

Time is not our friend on these questions.


Courses

· Discover Series: Discover Data

· The Role of Data in Digital Government (DDN301)

· Making Data-driven Decisions (DDN307)

Taki Sarantakis

Taki Sarantakis

Taki Sarantakis is President of the Canada School of Public Service / Taki Sarantakis est président de l'École de la fonction publique du Canada

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