What is Specialization? Specialization could be an approach developed by a business to deliberate on the assembly of a awfully restricted vary of product or services so as to achieve most productivity, experience and leadership within the targeted field. Firms that specialize say they get a far better come on investment.
As we know that the main goal of economic activity is the satisfaction of human wants. Most of the goods and services that we use to satisfy our wants come to us through a complex chain of production. To illustrate, let us construct a history of the pair of shoes you are now wearing.
THE DIVISION OF LABOR | SPECIALIZATION
The hide may have come from a steer fattened on the pampas of the Argentine and slaughtered in a plant located in Buenos Aires. The machinery and the equipment of the slaughterhouse may have been made in England and transported to the Argentine in a Greek tramp steamer built in Norway. Perhaps the hide was shipped to Boston in a British ship, then sold through wholesale channels to a plant in Nashville, Tennessee, and transported there in a freight car which moved over three railroad systems. In Nashville it was cut up and worked on by many men, using a number of complex machines. These machines had been produced with the use of still other machines, which in turn had been produced by other men using other materials, tools, and machines. Out of all this emerged a finished pair of shoes. The shoes moved from the factory through wholesale and retail channels into your hands against the payment of a ten dollar bill. When you turned over that bill to the retailer, a long cycle of production was completed. The final payment was made for all the work performed in many lands and over many years.
Division of labor involves cooperation. In a modern economy, the making of even a pair of shoes involves a near miracle of cooperation and coordination. It is quite impossible to say how many persons, some living, some long dead, were involved in one way or another. The tasks which these people performed were many and varied. If we could identify every one of the tasks and watch the men and women at work, we would be struck by the fact that most of the tasks were quite simple. Also, we would find that the workers and employers were largely unaware of the complexity of their joint efforts. How then was this amazing feat of coordination accomplished? How was the cooperation of each person obtained?
The answers to these questions lie in the details of what we have called “economic organization.” Much of the rest of this book is devoted to showing how these questions are answered under a free enterprise type of economic organization. At this time it is important only to note that all forms of economic organization involve cooperation and coordination. The main differences between economies based on free enterprise and those based on detailed production planning relate to the methods of reaching decisions and bringing about the necessary cooperation.
Division of labor defined. The term, “the division of labor,” describes a method of production in which a complex process is broken down into a number of small tasks. When one (or a related group) of these tasks tends to be performed in one place, we refer to this as territorial specialization or the territorial division of labor.
During the 19th century the territorial division of labor was considerably expanded. Countries and regions within countries specialized. Paris became noted for women’s fashions, Lancashire in England for its textiles, Holland for its cheeses and tulips, Denmark for its bacon and eggs, and Brazil for its coffee. Ceylon is now noted for its tea; Burma for its rubber plantations. In this country Detroit is associated with automobiles, Hollywood with motion pictures, the South with cotton and tobacco, etc.
Much of the world’s territorial specialization rests on climatic conditions or upon the distribution of natural resources. However, an important part of economic activity is not tied to given locations by unalterable factors such as rainfall and coal deposits. It is this locationally freer part that gives rise to some of the most interesting and difficult issues in the field of social control. Why is Switzerland such a great watch-making country? If competition from Swiss-made watches is hurting the American watch-making industry, should the American firms be protected by tariffs on Swiss watches? Why did the American textile industry start in New England?
Why is it migrating southward? If this shift causes unemployment and individual hardships in New England, should the Federal Government intervene to stop or at least slow down the movement?
In other words, should goods be permitted to move freely from one region of a country to another and from one country to another? It should be clear that the answer to this very important question must be sought in the advantages and disadvantages of territorial specialization. Lets discuss the following;
(1) the conditions that promote the division of labor,
(2) the economic advantages of specialization, and
(3) some of the more important social consequences and complications of specialization.
CONDITIONS FAVORING SPECIALIZATION
An elaborate division of labor depends upon the presence of a number of favorable conditions of which the following deserve attention: (1) the use of money; (2) the size of the market; (3) exact standards for weighing and measuring; (4) the protection of the claims of specialists; (5) surpluses to carry the load of waiting involved in modern production; and finally (6) a favorable social environment.
Money and specialization. Specialization goes back to the very beginnings of recorded history. Even as late as the Middle Ages we can find examples of the earlier, simpler forms of division of labor. There was the hunter, the farmer, the smith, the carpenter, the weaver, the fuller, the Cartwright, and a host of other craft specialists. Old family names carry the record of this simple division of labor. These specialists worked for the most part with hand tools and were almost entirely dependent for power on their own muscles and upon the strength of domesticated animals. Markets were small and local, and the specialist could (and, to some extent, did) exchange his products directly with other specialists, without the need of a medium of exchange. We speak of such an economy as a barter economy. The process was necessarily cumbersome, time-consuming, and unsatisfactory. It was largely a matter of luck if one specialist found others who had what he wanted, in the quantities he wanted, and were prepared to take in exchange what he had to offer. Exchange was immensely promoted, therefore, whenever a people agreed upon someone commodity as a medium of exchange. Thus the social invention of money encouraged the division of labor, and every improvement in the quality and reliability of money made possible further specialization.
The role of the market. Adam Smith long ago pointed out that “the division of labor is limited by the extent of the market/’ The market is a four-dimensional concept, involving area, number of buyers, their purchasing power, and time. If, for example, a shoemaker could sell only 20 pairs of shoes per month, and if he could make one pair of shoes a day, there would be no advantage in his breaking the job down into many small parts and employing a helper for each specialized task. If, however, he could sell 75 pairs of shoes per month, it might be profitable for him to hire helpers to perform the less difficult tasks while he devoted himself to those requiring special skills. But what would make it possible for him to sell 75 rather than 20 pairs of shoes per month? One factor might be a breakdown of barriers to trade between localities. In the Middle Ages, it was exceedingly difficult for a shoemaker in one town to sell his shoes even in the neighboring town. Special tolls and other forms of discrimination confronted the “outsider” in every market. With the rise of nationalist-minded rulers, many of these barriers to trade within each country were reduced (at the same time, barriers to trade between countries were increased).
Another factor might be a lowering of the cost of transporting goods from one place to another. Improved roads and canals, better transport vehicles, better protection against robbers, improved ocean transport—any number of such changes—could widen the market for this man’s shoes. A market is said to be widened when some change permits a producer to extend his sales over a wider geographical area. Or the increased sales might have come through an increase in the population in his market area or through a general improvement in the economic well-being of the people in the area. Either of these changes would deepen the market for his shoes. A market is said to be deepened when buyers within a given area are able and willing to buy more than before even in the absence of a price reduction.
These same market factors operate today to determine the extent to which it is profitable to carry specialization. The American market itself is wide and deep enough to permit American producers in many lines to carry specialization further than the producers in any other country of the world. All of us have profited from this specialization through the lowered costs of the things we buy.
The role of standards. Another condition necessary to the full development of the division of labor is the establishment of exact standards of length, area, volume, weight, temperature, pressure, etc. Until quite recently rather primitive and inexact standards sufficed. Each country had its own measures. In England, for example, the “foot” was the length of the king’s foot.
As trade between people in different areas developed, and as tool making and science grew in importance, it became imperative that men should agree regarding the exact meaning of the weights and the measures involved in their transactions. Governments have played a large and constructive role in the establishment of standards.
For example, all of our states define the “yard” as being 0.9144 as long as a platinum-iridium bar which was presented to our Bureau of Standards by the International Bureau of Weights and Measures. The American bar is identical in length with a similar bar located in France when that bar is supported in a definitely specified manner, at the temperature of melting ice, and at standard atmospheric pressure. Despite the great advantages to be had from the general adoption of international standards, most countries keep customary standards and content themselves with expressing them in terms of the international standards. This diversity is inconvenient enough when the national units have different names; it is downright confusing when two areas use the same term but define it differently. The British quart is larger than the American quart; the Georgia bushel is not the same as the New York bushel. These differences serve no useful purpose. International trade would be facilitated and we would all be better off if national governments could agree upon a single set of physical standards.
The protection of claims. As the products of specialists move from hand to hand and from place to place and are combined with the products of other specialists, claims must be kept distinct, identifiable, and enforceable at every instant of time. Contracts must be made and must be legally binding. Without the legal protection of claims, the division of labor could never have advanced much beyond the narrow limits set by the shortcomings of barter. Our modern economy with its minute division of labor is essentially a credit economy. It rests on a vast network of reciprocal obligations and it can persist only as long as men take it for granted that these obligations will be observed. Thus the protection of claims through dependable commercial law is an essential prerequisite to the development and to the maintenance of the division of labor.
The importance of surpluses. The division of labor increases output per worker and hence makes it easier for men to develop surpluses over and above their immediate and customary needs. These surpluses in turn favor the further elaboration of the division of labor. Robinson Crusoe could stop to fashion a bow and arrows because he did not need the last ounce of his energy to gather food. Once a surplus has been created the further development of the division of labor becomes progressively easier. Men can be supported from this surplus while they devote their time, energy, and ingenuity to devising new and better ways of doing things. Others can be fed, clothed, and housed while they add to our supply of capital goods and durable consumer goods. Still others can cater to our desire for education. Our complex, enormously productive and highly specialized economy depends upon the surpluses accumulated by past generations. These surpluses are represented by our vast stocks of tools and machines, our factories, office buildings, our roads and railroads, our schoolhouses and homes and, last but not least, “the whole mass of commonplace and of specialized knowledge which enables people to work in disciplined harmony for each other and to make use of each other’s products.” A surprisingly large part of our annual effort is required merely to maintain this vast stock of material and immaterial wealth. If we neglect this maintenance, we can increase for a short time the supply of consumer goods and thereby increase our material well-being. A society, like an individual, can consume its capital. However, this surplus is, in a very real sense, a trust to be handed on to our children. It can and it always will be drawn upon to tide a nation over a great emergency; it is dangerous to draw upon it in ordinary times simply that we may live beyond our means.
The role of environment. Division of labor can exist under almost any type of social environment. However, for specialization to develop to its most advanced forms (see the discussion of mass production below) and for it to be supplemented by technological progress, special environmental factors seem to be required. One of the most important of these factors is a willingness of men to accept and adjust to change. In Western Europe during the feudal era, custom and tradition had a strong hold on the minds of men.
The same is true today in many of the so-called “underdeveloped” countries. In such an environment, both specialization and technology are likely to be frozen at very simple levels. Another environmental factor of great importance is the philosophy of life which motivates the men and women in a given society. If the goal of life in this world is largely to prepare for life in the next world, the best minds and talents will not be devoted to improving the techniques of production or the level of specialization. It is not for the economist to say that such “other-worldliness” is a better or worse approach to life than the “this-worldliness” which seems to characterize modern Western societies. He is, however, in a position to say that “other-worldliness” is not conducive to economic progress. The economist can say also that these philosophical differences must be taken into account when plans are made to improve the well-being of the peoples in the underdeveloped countries. We shall come back to this point in our discussion of American foreign economic policy.
ADVANTAGES OF SPECIALIZATION
Our discussion so far has taken for granted the economic gains of specialization. Now we must ask just how and why specialization leads to lower costs of production. There are a number of reasons for the technical superiority of specialized over non-specialized operations.
More effective use of human resources. In the first place specialization promotes a more effective use of men differing widely in natural aptitudes than does non-specialization. The making of a pair of shoes, for example, involves operations of varying degrees of complexity. There may be a dozen men capable of performing the simplest operations for every one able to perform the most complicated task. It would obviously be advantageous, therefore, to relieve the very skilled worker from the routine and easily mastered phases of the job and put him exclusively to the task which he alone is capable of doing easily and well. The result is more and better shoes than would otherwise be possible. If, as is apparently the case, skills and aptitudes are very unevenly distributed in a population, much is to be gained by breaking down a complicated job into simple repetitive tasks and then assigning to each man the task that appears to be most suited to his abilities and his temperament.
Increased efficiency. A subsidiary advantage follows from this first advantage. Not only is it possible to assign an individual to a task suited to his abilities, but it is further inevitable that the constant repetition of the task will increase, up to a certain point at least, the ease, precision, and speed with which it is performed. Practice makes perfect. Workers with various skills become more efficient.
Saving time. A third advantage of the division of labor is the saving of time. The master shoemaker who has to assemble his own tools and materials, to shift from one tool to another as the shoe takes shape, and to stop to serve his customers obviously wastes a lot of time in the absolute sense, as well as in the relative sense of devoting a large part of his time to doing things which less skilled workers could do equally well. As the scale of production increases, the production process can be planned. A boy can be hired to keep the shoemaker supplied with the needed materials and to clear away the waste and collect the finished shoes. A little thought and a visit to a modern shop will make it clear how large a role this saving of time plays in modern production.
Machines and power. A fourth advantage of the division of labor is that it paves the way for the replacement of the hand tool and the muscular power of the worker and his domesticated animals by precision machines and mechanical power. As the division of labor became more complex, men of ingenious mind and acute powers of observation noticed that certain productive processes involved identical motions repeated over and over again. They also noticed that the excellence of the product was frequently reduced by the inability of the worker to repeat these motions with complete fidelity. Why not attach an iron arm to a wheel and the tool to the iron arm and let the man turn the wheel? In this way he could secure that identity of motion that he was unable to maintain when he himself grasped the tool and attempted the impossible task of forcing his arm to repeat the motion. Once this idea was grasped, the development of the division of labor went ahead rapidly. Heretofore, the breakdown of jobs appears to have been on the basis of differences in the skills required. Now it was advantageous to make a further breakdown with a view to separating out a process involving the repetition of some simple movement and to developing a machine to take it over. Invention, itself, now became a recognized form of specialization.
Adam Smith noted this new development in his well-known discussion of the advantages of the division of labor. All the improvements in machinery, however, have by no means been the inventions of those who had occasion to use the machines. Many of the improvements have been made by the ingenuity of the makers of the machines, when to make them became the business of a peculiar trade; and some by that of those who are called philosophers or men of speculation, whose trade it is not to do anything, but to observe everything; and who, upon that account, are often capable of combining together the powers of the most distant and dissimilar objects. In the progress of society, philosophy or speculation becomes, like every other employment, the principal or sole trade and occupation of a particular class of citizens.
Like every other employment, too, it is subdivided into a great number of different branches, each of which affords occupation to a peculiar tribe or class of philosophers; and this subdivision of employment in philosophy, as well as in every other business, improves dexterity and saves time. Each individual becomes more expert in his own peculiar branch, more work is done upon the whole, and the quantity of science is considerably increased by it.
Mass production. A further advantage of specialization is that it makes possible the economies of what has come to be known as mass production. We have mass production when a producer turns out very large numbers of items identical in every respect. This is technically possible only through the use of power-driven machines and specially designed tools. It is economically possible only when there exists a market broad enough and deep enough to absorb a very large output. In many lines of production the American market is the only one today broad enough and deep enough to warrant the use of the best equipment that engineers can design with their present knowledge. That is the principal reason why mass production has been carried further here than anywhere else and why the American level of living is the highest in the world. In parts of the world where broad markets do not exist, the economies of mass production cannot be had even if the people were to be given the funds and the know-how to acquire and operate modern specialized equipment.
SOME SOCIAL CONSEQUENCES OF SPECIALIZATION
It would require many books and the wisdom of many men to identify and assay all the consequences that have flowed from the specialization of the last 200 years. The consequences cited in the preceding section are regarded by most people as desirable, as evidences of progress. More people enjoy more goods and services and a far wider array of goods and services than ever before. In the countries where specialization has gone the farthest the work day is relatively short, and much of the really exhausting physical labor has been taken over by power-driven machinery. In these countries famine is almost unknown, and life expectancy is two to three times as high as it was a couple of centuries ago or as it is in countries that have not yet developed the complex division of labor. All these things are surely good. Yet there have been losses as well. In this section we shall examine a number of consequences in which gains and losses are blended. We shall find that specialization is not an unmixed blessing, that it brings with it various problems and complications which must be handled properly if the net result of specialization is to be beneficial to mankind.
Growth of population. The first and most obvious result of the shift from the simple division of labor to the complex specialization characteristic of the modern world has been the growth in population. Our knowledge of the population of Western Europe prior to 1800 is scant and uncertain. There was probably a decline in the dark centuries between the fall of the Roman Empire and the emergence of the feudal system and a slow but pretty steady growth from around 1650 on until the powerful new technologies of the Industrial Revolution made themselves felt. Thereafter the growth was phenomenal. By 1929 the peoples of Europe and their descendants overseas had risen from about 100 to about 642 millions. During the same period the population in the area that is now the United States increased from about 52,000 to about 130 million; non-European stocks increased by about threefold. The population of the world today is in the neighborhood of 2,350 millions. Population experts predict that it may pass the three billion mark in the next fifty years.3 Unless the new methods of production can bring a fuller and more satisfying life to these increasing numbers there is no clear reason why we should regard the new methods as a boon to mankind.
Growing interdependence. Another far-reaching consequence of the complex division of labor has been the growth of interdependence of man on man and region upon region. Any division of labor, of course, makes man dependent, to some extent, upon his neighbor. Only a Robinson Crusoe can be completely independent. But until very recently this dependency was among persons who lived, as it were, face to face with one another. Throughout the Middle Ages the overwhelming majority of the people lived in small rural settlements grouped around the medieval manor. Virtually their every want was satisfied by their own production or by the production of their immediate neighbors. Only the lord of the manor, his family, a few of his more important retainers, the higher ranks of the clergy, and the rich burghers in the larger towns consumed products made in far places. The simple folk in the towns and on the manor lived out their lives within a radius of a few miles of their birthplaces and were fed, clothed, and housed with materials produced within the same narrow confines. Feudal society as a whole was dependent, but the dependency was primarily upon impersonal and, as far as they were concerned, uncontrollable forces of nature. Given a cycle of favorable growing weather, the people and their flocks grew fat and multiplied. Given a cycle of bad weather, the people and their flocks grew thin. Hunger and disease cut numbers down to what the local farming lands could support. And if these two grim agencies of population control failed to reestablish the balance between production and reproduction, wars between rival manors could be counted upon to complete the task. Subject to these important limitations the great majority of the people of medieval Europe lived out their lives in communities possessing a high degree of self-sufficiency and independence. The new specialization changed all this. Today, in countries with an advanced capitalistic structure the majority of the people live in towns and cities of considerable size, perform simple, repetitive tasks, and are dependent for their daily bread upon the uninterrupted interchange of goods and services with peoples scattered across the world. There is not a city in the United States in which the people could be fed adequately if the complex division of labor broke down. In the same way every highly industrialized country faces disaster if the international exchange of goods and services is interrupted (as Great Britain has discovered in two world wars). It is not surprising then that modern man looks at this complex division of labor and territorial specialization with mixed feelings. Some of the most important problems of today arise out of men’s efforts to escape from this interdependence upon which their very existences have come to depend.
Belief in progress. The growth in population and the slow but steady rise in the material well-being of the broad masses in the countries of the West created a popular belief in the inevitability of progress. For the first time in recorded history man appeared to have at his disposal a technique of production so powerful that it could wipe poverty from the face of the earth and provide, as a matter of right, a decent living to all. The new and optimistic attitude toward life engendered by this faith in progress has had profound social, psychological, and political effects. In the United States it has been responsible for much of our social legislation and for our popular confidence in public education. The improvement factor, providing for an automatic annual increase in wages, which was first introduced into a contract entered into by the General Motors Corporation with the United Automobile Workers, CIO, reflects this faith in the inevitability of progress. On balance the faith appears to have promoted tolerance and to have released energies wherever people were able and willing to welcome and adjust to change; as a consequence, progress has justified and strengthened this faith in these areas. Where this type of environment does not exist or where it has been seriously weakened by popular demands for personal security, the belief in progress leads to disappointed hopes and to revolutionary movements which end in tyranny rather than progress.
Joy in work. A substantial fraction of each man’s life is devoted not to spending but to earning income. His happiness, then, depends not just on what he gets but also on what he does. There are many who argue that specialization has taken most of the joy out of work. These people point to the greater monotony of highly repetitive tasks, to the nervous fatigue that may be involved in fitting one’s pace to that of the machine, to the sense of futility that may be involved in doing one minute and apparently insignificant task hour after hour and day after day. John Ruskin was sure that the life of the medieval craftsman was more satisfying than that of the mechanic of his day.4 Many poets, artists, and professional people are prone to agree with Ruskin. But all that they are saying is that they do not think that they would be happy tending a machine. The steady decline of the hand crafts appears to prove that most men prefer the incomes and satisfactions of the new work methods to the incomes and satisfactions of the old ones. Also modem managers seem to be increasingly aware of the need of each man to derive satisfaction from his job. The techniques of modem personnel management represent, in part, an attack on this problem.
The business cycle. As far back as the record goes there have been good and bad times, but there is considerable evidence that these changes only assume the roughly rhythmic character that has given rise to the expression “the business cycle” in societies in which most of the “economic activities have taken on the form of making and spending money.” This is simply a way of saying that the phenomenon of the business cycle is presumably connected with the way in which a complex money economy operates. If this is true, the great gains in productivity which have resulted from the use of money and the elaborate division of labor which money makes possible may be offset, in part, by the periodic losses which result from mass unemployment. We shall be concerned with the business cycle in later chapters and with the possibility of controlling it without destroying the productivity of a money economy and without assigning to the State powers of direction so great as to threaten our personal and political liberties.
Specialization, as it has developed over the last 200 years, has created societies quite different from those of any preceding age. Probably the majority of the adults of the generation that ended in 1914, in the United States at least, believed that mankind stood on the threshold of an era of abundance, freedom, and peace. Two world wars and the collapse of popular governments in many parts of the world have shaken this comfortable optimism. We know that what has been accomplished in the past is nothing to what lies within our grasp, if we use wisely the enormous new forces that are at our disposal as we enter the atomic age. But we also know that progress is not inevitable.