Thursday, June 13, 2013

Adam Smith and the Division of Labour in Law Firms

Toby Brown posts on “3 Greeks and a Law Blog", described as “A law blog addressing the foci of 3 intrepid law geeks, specializing in 
their respective fields of knowledge management, internet marketing 
and library sciences, melding together to form the Dynamic Trio.” HERE 
One of Adam Smith's great contributions to economics was his commentary on the ‘division of labor’ - explained in his pin factory example. …
He evaluated an artisan craftsman who makes pins with great care and quality, one at a time. The craftsman performs every function, from straightening the metal to attaching the pin head. Adam Smith then describes a factory where each function is performed by a specialist who only straightens the metal or only applies the pin heads.
... His thesis was that the division of labor leads to much higher productivity. “The result of labor division in Smith’s example resulted in productivity increasing by 24,000 percent (sic), i.e. that the same number of workers made 240 times as many pins as they had been producing before the introduction of labor division.” His argument was compelling to the point that Henry Ford modeled his car factories based on these principles.
Most lawyers are generalists/ craftsman as it relates to their functions. … In their minds specialization, and the standardization that follows, equals lower quality. In contrast, in Adam Smith’s world, specialization and standardization equal efficiency and quality.
For as smart as lawyers can be, they continue to miss some basic business lessons. In this instance, Adam Smith was proven right decades ago … repeatedly.
Add “division of labor” to the list of changes needed at law firms.”
Some basic facts:  Adam Smith was not, nor did he claim to be, the first person to note the division of labour.  He explicitly noted that the “division of labour has been very often taken notice of”.   The numerical example of the division of labour on the trade of the pin-maker” came from the French “Encyclopedie” 1755, then with its derivatives in wide circulation in Europe, though his specific source not identified by Smith.  He did mention: “I have seen a small manufactury of this kind where ten men only were employed, and where some of them consequently performed two or three distinct operations” (WN I.i.3: 14). 9. See also: Peaucelle, J. L.. 2006. ‘Adam Smith’s use of multiple references for his pin-making examples’, European Journal of the History of Economic Thought, 13(4): 480-512.  Lawyers who are sticklers for facts would want to know these details.
We should also note Smith’s clear statement that “the division of labour must always be limited by … the extent of the market” (WN I.iii: p 31).  For any law firm its numerical size and individual specialisms normally reflects the size of its business. 
A small firm – one lawyer only – will require her to be generalist serving all kinds of legal purposes or an highly specialised professional who receives commissions from several other law firms because of her high expertise in a single legal skills set and her remuneration would reflect her specialised skill set and the number of other firms using her service.
There are also some very large law firms whose combined partners cover every aspect of the law supplied by its individual skilled specialist professionals who combine to serve all the needs of their clients, though none of them are generalists.
I have attended such meetings where individual specialists from the same law firm join the negotiations to cover their client’s needs depending on what subject is under discussion.  But the point remains they can only specialise and develop their individual skill sets if there is sufficient work in those special areas to justify their fees.  Otherwise, individual partners must “double or treble up, much like the “small manufactury” Smith visited” where “some of them consequently performed two or three distinct operations”.
I recall negotiating a business agreement with an Edinburgh professional lawyer whose main expertise was in representing her firm’s female clients but she could also turn her hand to negotiating her other client’s business interests.  I did not notice any lack of skills on her part when it came to the specific business issues we were negotiating.
So, while taking the point that Toby Brown makes about considering the division of labour, I also remind him of Smith’s clear understanding that multi-tasking remains a function of the overall size of a law firm’s market.


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