Development

[4] Studies
MODULE 2 NOTES:
PRODUCTION ( LAND &
CAPITAL)

MATER SPEI COLLEGE

 MODULE 2: PRODUCTION, CONSUMPTION AND INVESTMENT Enterprise Demonstrate an - Explain enterprise;
understanding of the - Discuss the characteristics of sole
TOPIC GENERAL SPECIFIC OBJECTIVES role of enterprise in the proprietors, private companies,
OBJECTIVES process of production. parastatals, joint venture,
Learners should be able Learners should be able to: partnerships and co-operatives;
to: - Discuss privatisation of parastatals,
Production Explain the concept and - Explain the concept of production; citizen empowerment, localisation,
the process of - Discuss the need for production women and property ownership
production including basic needs, needs, wants strategies for development;
(material and non-material), choice, - Evaluate the role and development
scarcity and opportunity costs; of the primary, secondary, tertiary
- Discuss production in hunting and and quaternary sectors of
gathering societies; production in developing countries
- Identify and define the factors of with specific reference to
production; Botswana.
- Discuss land ownership and Consumption Develop an - Explain consumption;
problems related to utilisation and and investment understanding and - Describe the relationship between
ownership; appreciate consumption consumption and production,
- Explain the various forms of capital and investment in supply and demand, consumption,
such as finance, machinery and Botswana savings and investment;
technology; - Discuss the benefits and risks of
- Discuss ways of raising capital; investment;
- Discuss labour and capital intensive - Discuss foreign reserves as a form
modes of production of investment;
- Discuss the determinant factors for - Evaluate the promotion of a culture
appropriate technology; of investment in Botswana’s
- Evaluate progress in the economy.
development of relevant technology
in Botswana including efforts by
Rural Industries Innovation Centre
and Botswana Technology Centre;
- Discuss specialisation and division
of labour;
- Describe different types of labour
including specialised, skilled, semi-
skilled and unskilled;
- Discuss conditions which either or
promote labour efficiency;
- Assess how far local conditions
facilitate or militate against labour
efficiency;
- Explain entrepreneurship;
- Describe the role played by an
entrepreneur in the process of
production;
- Discuss economic production
systems;
- Suggest and justify an alternative
production system for Botswana’s
economy.

Mater Spei College Development Studies Notes MODULE 2: PRODUCTION, CONSUMPTION & INVESTMENT 1
 PRODUCTION NEEDS

- Production is a process whereby natural resources are transformed or changed Needs are items that are essential for human beings to survive.
into more useful goods/commodities to satisfy human needs and wants.
Needs are items without which human beings will be unable to survive.
- Production is any economic activity that satisfies human needs and wants
They can be divided into material and non-material needs.
- Production is any process whereby natural resources and human effort are
used to provide goods and services to satisfy human needs and wants. MATERIAL NEEDS

Material needs are tangible, for example, they can be seen or touched.
- Production is the making of goods and provision of services in order to They are usually referred to as basic needs.
satisfy human needs and wants.
They are four basic or material needs:
Goods are physical products that can be seen or touched, for example, bread, sugar,
books and furniture. (a) Food which is essential for providing energy.
(b) Clothes which are important for providing warmth.
Services are non-tangible activities that meet people’s needs and wants (intangible (c) Shelter provides protection from harsh weather conditions, for example,
or invisible). For example: cold, sun and winds.
(d) Clean and safe water which is important for excretion of waste from the
 Trading which is buying and selling of goods. body or prevention of diseases.
 Teaching which is imparting of knowledge to children by teachers.
 Nursing which is medical care given to ill people at hospitals by health NON-MATERIAL NEEDS
workers.
 Insurance is the industry that protects society and businesses from Non-material needs are services that we require for survival, they are intangible
unforeseen risks. and invisible. For example, love, security, education, health care and human rights.
 Transportation is the carrying of people, goods and services.
WANTS
THE NEED FOR PRODUCTION
Wants are items that make human lives easier and more comfortable.
In order to develop we have to satisfy our basic needs and wants to start the process
of economic growth. Wants are inessential for human survival that man can do without them.
To satisfy our needs and wants, we produce and exchange goods.
Human societies only produce wants after meeting their basic needs.
Development emphasizes satisfaction of people’s needs and the production process
ensures that goods and services are made to satisfy basic needs first and wants later. Societies have to produce surplus for it to be able to have wants, for example, if
excess food is produced it can be exchanged for jewellery.
Development requires money for it to take place and this money is generated by
production activities such as mining, industry and agriculture. Examples of wants

Production creates wealth to fuel the development process. (i) Non-material wants, entertainment, banking and electricity.

The higher the level of production the higher the level of development (ii) Material wants, jewellery, expensive/flashy clothes, mansion/big
house, cars and furniture.

Mater Spei College Development Studies Notes MODULE 2: PRODUCTION, CONSUMPTION & INVESTMENT 2
 SCARCITY, CHOICE AND OPPORTUNITY COST CHOICE

SCARCITY - Given the scarcity or insufficiency of resources, people are unable to have
all things they desire. People are, therefore, forced to choose what to
In order for production to occur resources have to be used. spend the available resources on. For example, people have to decide on
whether to spend on needs or wants if their income is limited.
Resources can be in any of the following forms.
- A country or the government also has to make similar choices on how to
 Human resources which is knowledge, expertise and skills provided by best use the limited resources. For example, whether to spend money on
people. industrial development or social development, for example, education and
health; use land for agriculture or wildlife conservation; education or
 Economic resources which is capital in the form of machines and finance military expenditure.
(money).
- All these choices, made by people and government, will affect the way in
which a country uses its resources and therefore they will determine what
 Natural resources which are items provided by nature that people can is produced.
utilize for their own good, for example, soil, water, vegetation and
minerals. OPPORTUNITY COSTS

- People’s needs and wants are unlimited (infinite). Therefore if resources  Whenever resources are committed to the production of one item, then the
were in abundance people would produce more goods and services to society must forego the outputs of other items that could have been
satisfy their needs and wants. produced but have been forfeited or sacrificed because of the choice made.

- Resources are, however, limited (finite) and insufficient to satisfy all  This means opportunity cost is the act of choosing one item over the
people’s needs and wants. other as a result of scarcity of resources. For example:

- The inadequacy of resources is what is called scarcity. This means that (i) If a student chooses to use his/her own free time to study for an
some people in a society will be able to meet their basic needs and wants examination, he/she sacrifices watching television and other forms of
and enjoy high standards of living while others will remain poor. entertainment. The entertainment is sacrificed in order to study and
obtain a good grade.
- Scarcity of resources differs from society to society since this is dependent (ii) If a country chooses to use more money on buying weapons then
on the level of development, for example: other services are neglected.

(a) Simple traditional societies: People mostly concerned with acquiring The importance of opportunity cost
basic needs hence low levels of scarcity, for example Basarwa become
satisfied once they have killed an animal for their food.  It helps people to make the right choices or decisions as it helps them to
focus on the real or true cost using resources.
(b) Modern societies: they have higher level of scarcity since they have many
and diverse needs and wants which are difficult to fully satisfy. For  For example, production may mean loss of a clean environment if it
example, after a person meets the basic needs there are so many luxuries causes pollution like at Selibe-Phikwe. So the loss of a clean environment
that one desires which are usually difficult to satisfy, for example, car, is part of the cost of production that may be ignored if the opportunity cost
furniture and holiday. of production is neglected.

Mater Spei College Development Studies Notes MODULE 2: PRODUCTION, CONSUMPTION & INVESTMENT 3
 PRODUCTION IN HUNTING AND GATHERING SOCIETIES Capital:

 Hunting and gathering societies are the earliest forms of human societies.  They owned little capital because they were unable to produce surplus.

 They depended on products of the local environment that is the wild  Possessions consisted of weapons, clothes and containers.
animals, vegetation and water.
 Shelter was temporary because of a nomadic lifestyle.

 They hunted wild animals, collected insects and gathered wild plants and Entrepreneurship:
fruits. For example, the Basarwa of the Kgalagadi desert.
 They used knowledge handed down from generation to generation, for
 Hunter –gatherers are nomadic or wanderers, that is, they move from place example, hunting skills; poison from plants and animals; animal behaviour
to place without any permanent homes. and tracking.

Production Activities:  Low level of production because of simple technology and dependence on
basic needs.
 Gathering was done mostly by women and children. Gather water bearing
plants like the tsama melon and makatane, nuts fruits, edible roots and THE CHANGES IN THE LIFESTYLE OF HUNTING AND GATHERING
tubers and morama beans. SOCIETIES IN BOTSWANA –i.e The Basarwa

 Hunting was done mostly by men. Hunting big and small game, for The Basarwa are now abandoning the nomadic and hunting and gathering way of
example, eland, kudu, hares, and duiker and so on. They used simple life for a more settled life because of a number of factors;
weapons like bows and poisoned arrows, clubs. They also used traps, for
example, pit traps and snares. Mostly hunted as individuals or in groups or  Provision of water by government, for example, boreholes.
communal hunting.
 Encroachment of pastoral farming into wildlife areas.
 Animal products: meat for food; skins for clothing; bones to make tools,
for example, knives; bladders used to make containers.  Overgrazing that has depleted edible plants.

Labour:  Construction of cordon fences that has disrupted migratory routes of wild
animals.
 Labour is provided by clan members in the group.
 Division of labour was done according to gender, for example, men  Increased population that has reduced the land available for a nomadic
hunted while women gathered. life.
 The work was mostly devoted to production to basic needs. No luxuries or  Government resettlement programmes like Remote Areas Dwellers
surplus. (R.A.D)

Land:  Increasing levels of education amongst the Basarwa.

 The land is communally owned by the group.  Anti-poaching laws that prevent Basarwa from hunting.
 They had specific hunting territories.

 All resources belonged to the group.

Mater Spei College Development Studies Notes MODULE 2: PRODUCTION, CONSUMPTION & INVESTMENT 4
 FACTORS OF PRODUCTION
THE WAYS BY WHICH ONE OF THE FACTORS OF PRODUCTION CAN
- There are four factors of production namely, Land, Labour, Capital and AFFECT THE PRODUCTION PROCESS
Entrepreneurship. Land:

- If land is unfertile crop production will be low or poor pasture for livestock
- If there is shortage of water there will be poor harvest or poor pasture for
livestock
- There has to be land to start a production process

Capital:
- Capital / money is needed to pay workers
- Capital is needed to buy machinery & tools
- We need capital goods to start a production process

Labour:
- There is need for workers to provide labour in the production process
- The labour has to be trained & motivated to be efficient / productive

- The labour needs to be managed and/or coordinated for optimum production

LAND OWNERSHIP

 Land or natural resources are owned or controlled in some way.

Fig.1  Ownership and control of land resources is paramount in production

because it determines who produces and become wealthy.
- Each of the factors has to be present if production is to take place.
 Land owners are usually rich while the landless are poor.

FACTORS OF PRODUCTION (DEFINED) TYPES OF LAND OWNERSHIP

- Land: refers to the whole of the earth’s surface together with all natural
resources found on it

- Labour: refers to the human effort, both physical and mental, that is directed
towards the production of goods and provision of services or work done by
people to produce goods and services

- Capital: refers to the things people use to produce goods and provide services
, for example, tools, machinery, factories and money saved up and used to buy
such things

- Enterprise: The organization or management of land, labour and capital in the

production process with the intention of making profit. Fig.2

Mater Spei College Development Studies Notes MODULE 2: PRODUCTION, CONSUMPTION & INVESTMENT 5
(a)Public/State ownership is when the land belongs to the government.  Land is a commodity that can be bought or sold, for example, land has
value attached to it.
 Private ownership and selling or buying of land is prohibited.  Land is productively used, for example, commercial farming, and mining.
 It can be leased out to individuals or companies for specific period of time.  Common in Capitalist economies.
 In communist countries like China, the land used to be all owned by the Advantages Disadvantages
state, and individuals had the right to use it. - Land can be used as a security to - Only the rich can own land.
 In other countries, parts of the land are owned by the government in obtain loans. - Landlessness and poverty among the
countries like Botswana and South Africa, for example, National Parks - Can be sold to raise capital. poor.
and Game Reserves, mining concessions. - Land carefully looked after by the - May lead to land speculation, for
owner. example, people buying up large tracts
(b)Communal ownership is when land belongs to the whole community, usually - Anybody can buy land as long as of land in order to sell it for a profit in
the tribe or ethnic group. he or she has the money. future.
 Everyone in society has access to land.
 The chief has the power to share out the land to individuals. In Botswana
it is the responsibility of the Land Board. (e) Leasehold land ownership is when land owners rent out their land out to
tenants for a fee.
 Grazing lands are communally used.
- Tenants use the land for commercial production.
Advantages Disadvantages
- The landowners are referred to as absentee landlords.
- Everyone in society has - Land degradation may occur
Advantages
access to land as no one takes responsibility
- Land used productively because the tenant has to pay rentals.
- The land is free for looking after it, for
Disadvantages
- Land is allocated fairly example, deforestation, soil
- Rent has to be paid whether there has been production or not.
because no one is allowed to erosion.
- The tenant is unable to use it to raise capital.
grab land. - Having title deeds is
- The tenant can misuse land.
prohibited.
- The user is unable to use it as
The people who rent land are often poor and do not have enough cash to pay rent. So
collateral to obtain loans.
instead of paying with money they pay the landowner with a share of their crops.
- Women are denied ownership
We call this sharecropping.
of land in some traditional
societies.
THE LANDLESSNESS
(c) Collective land ownership is when land is owned and worked by the
 People are said to be landless when they are unable to have access to the
community as a unit.
land at all.
 Landless people are unable to produce or fend for themselves leading to
 They combine their capital and labour and share the profits equally.
poverty.
 Found mostly in Socialist or Communist countries, for example, Russia
and Ujamaa villages in Tanzania in the 1970’s.  Landless is caused by

(d)Private Ownership (Freehold) is when land is owned and controlled by (i) People being too poor to buy their own land.
individuals or companies. (ii) Inadequate or limited land for existing population.
(iii) Unfair distribution of land.
 The land has title deeds or certificate of ownership. (iv) Rapid population growth.

Mater Spei College Development Studies Notes MODULE 2: PRODUCTION, CONSUMPTION & INVESTMENT 6
 CAPITAL 5. Shares are putting money in the business to get a certain percentage of
Capital is a man-made resource. profit made. (Buying or selling of shares)

Capital is the money, machinery technology and buildings that is used to produce 6. Selling personal assets
goods.
7. Investing in insurance policies
Capital is in two forms
(i) Money capital 8. Loans and overdrafts
(ii) Capital goods, for example, machinery or technology
9. Leasing / rentals

Money Capital 10. Hire purchase

 Money capital is also known as finance. 11. Commercial activities (formal and informal)
 Money capital is the money that is used to increase production, that is, it
is used in ways that will help to earn more money. The importance of capital in production
 Money capital can be used in the following ways:
- Money is used in infrastructural development
(a) Buying capital goods that will increase production hence earn more
money. - Money buy equipment

(b) Investment: saving it in a bank so that one can earn interest. - Money is used to buy raw materials
Capital Goods
- Money is used to pay workers
Capital goods are tools, equipment or machinery that are used to make other goods,
for example, factory machines, roads, building and vehicles. - Money used to pay utilities such as water and electricity bills

It is also known as fixed capital because they remain unchanged during production. - Equipment is used to transform or change raw materials into semi-finished
and finished goods
The Ways of Raising Capital for production
- Buildings house the machines/products
Capital for investment can be raised in the following ways:
- Cars are used for transportation
1. Saving is abstaining from consumption and putting the money in the bank
to earn interest.

2. Borrowing from the banks and financial institutions.

3. International loans from other countries, the World Bank and

International Monetary Fund.

4. Investment is putting money into a business with the hope of earning

profit.

Mater Spei College Development Studies Notes MODULE 2: PRODUCTION, CONSUMPTION & INVESTMENT 7
 CHECK YOUR PROGRESS 2. Study Fig. 2 which shows different types of land ownership.

Section A
1. Define production.
2. Describe any three factors of production
3. What are capital goods?
4. Describe three ways of raising capital.
5. Describe the importance of capital in production.
6. Define private land ownership.
7. Give three advantage of private land ownership

Section B

Fig.2

(a)(i) Describe each type of land ownership shown in Fig. 2.

(ii)Suggest problems that people might face when they own land communally.

(b)(i) Describe the use of any three factors of production in a hunting and gathering
society.

(ii)Suggest reasons why hunting and gathering is practised by very few societies.

(a)(i) Describe each type of land ownership shown in Fig. 1.

(ii) Land ownership in Botswana is largely communal. Suggest problems that

communities in Botswana might face in trying to improve production in agriculture.

(b)(i) State the problems of using a capital intensive method of production for a
developing country.

(ii) Explain how developing countries can raise capital for production.

Mater Spei College Development Studies Notes MODULE 2: PRODUCTION, CONSUMPTION & INVESTMENT 8