Thursday, July 20, 2006

Division of Labour is Ubiquitous

Adam Smith wrote that "the greatest improvement in the productive powers of labour seem to have been the effects of the division of labour." Through the eighteenth, nineteenth and twentieth centuries, productivity in the economy increased rapidly as companies grew larger and workers' jobs became more specialised, but in recent years the trend has been going the opposite way. Often encouraged by opportunities afforded by the internet, the number of small business start-ups has been growing rapidly. More than half a million are now set up each year, with over four million in the UK, employing around 58 per cent of the private sector workforce. When you help start a company there is little or no division of labour; often you have to do almost everything yourself. Last year I left a large City financial services company to help start a new business providing information to the markets.”

From: “Expect the unexpected and learn to be flexible” by Tom Freke in New Statesman

There is a mishmash of ideas contained in this article. It is not that Tom Freke’s main points about his experiences are completely wrong; it is just that by linking them to Adam Smith (high reader-recognition factor) and running quite separate trends together (plausible ‘hook-factor), Tom misses the point (unproven assertions factor) made by Smith and, perhaps, misleads his readers, who might think they speak with authority if, or when, they repeat a similar theme (bluff your way through business discussions temptation).

The full quotation from Wealth of Nations reads: "The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgement with which it is any where directed, or applied, seem to have been the effects of the division of labour" (WN I.i.1: p 13).

That “productivity in the economy increased rapidly” is true but whether this was solely associated with the fact that some “companies grew larger” and because of this, “workers' jobs became more specialised” is debateable. The famous ‘pin factory’ (from Diderot’s encyclopaedia 1755) employed less than 20 people, and Smith visited another one that employed only 10 people. Certainly, while Smith lived (1723-90), large factories (ironworks and potteries, etc.,) were rare; most were small and employed a few people. Most so-called ‘manufacturers’ were journeymen, tradesmen, weavers and such like, often employed in their own homes or taken to places where their skills were applied. And this pattern did not change much even at the height of the industrial revolution in mid-19th century.

Yes, there were large plants, which grew larger or founded large from their start, but the notion that large plants replaced small one is quite wrong. Many predicted the end of the small business and have done so successively over the decades. Monopolies and oligopolies notwithstanding, the small firm has survived and, in fact, is usually the largest source of employment. So, to assert that “in recent years the trend has been going the opposite way” is quite problematical. That more smaller firms have been started associated with technologies in information and such like is beyond question but this has been a continual and uninterrupted feature of market economies. Tom’s own experience exemplifies this trend. I happened before in engineering, particularly in mass production from bought-in components sourced in smaller firms. Of course, managements sometimes bring it all in-house, but they as quickly (or their successors) out-source it as quickly.

The division of labour, as envisaged by Smith was not just a micro-division of tasks (the pin-factory again) for he went on to describe later in the same chapter all the inter-sectoral divisions of labour involved in the manufacture of a common labourer’s ‘coarse woollen coat’. And this is, perhaps, in the advanced market society as important a source of productivity gains as micro-divisions of tasks. Commentators often miss this section because they do not get past the pin factory example.

The lesson Tom rehearses for small start-ups will strike a chord with all who have been there and done it. In fact, that is how the division of labour began in what Smith called ‘Rude’ society and has continued ever since. But even here, in a modern market economy, the single owner/manager/employee accesses the division of labour outside his firm. When Tom writes a letter it goes by post; or an e-mail it goes over the Internet; when he speaks to a customer he uses a phone, which is outsourced, of course, and when he banks cheques he uses an outsourced service. And so on.

The division of labour is ubiquitous, serving Tom and Microsoft, and the firms he supplies with bits of information, gleaned from outside sources. Smith was not out-of-date in what he wrote and lectured (1751-76) about the division of labour and nothing much has happened since to make his observations redundant.


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