Thursday, June 18, 2015

Endless repositories of ad hoc explanations

Division of labour. It’s a thing. A big thing in economics.

But like many core economic concepts[1] it is mostly an endless repository of ad hoc explanations.

In my last post I showed how Adam Smith’s observations of production techniques in 19th century pin factories lead him to make many contradictory remarks about the division of labour. Yet the implicit argument of a single causal mechanism leading from more division labour to greater productivity has become gospel, filling pages of economics texts for a century.

Let’s take a recent example to show exactly why the division of labour is such a slippery concept.

The title, and indeed much of the text reporting the discovery of new stone tools from Jordan, implies that these tools are somehow evidence of the dawn of the division of labour.
These toolmakers appear to have achieved a division of labor that may have been part of an emerging pattern of more organized social structures

They were gearing up for a clearly defined division of labor, including firewood gathering, plant gathering, hunting and food foraging.
But the invention of these tools probably led to less division of labour rather than more!

Let me digress for a moment. To be clear about a division of labor story requires being clear about the counterfactual world of undivided labour. It should not involve counting up the labelled roles within organisations, as larger organisations will have more uniquely named roles for their employees purely due to size.

To really narrow down we need to think in terms of tasks, not labelled roles given to different people. And then think about all the tasks that need doing for basic production of life’s necessities, then make everyone do all necessary those tasks AT THE SAME TIME IN THE SAME ORDER.

That’s right. That is the counterfactual of undivided labour. A tribe of people who all wake up at the same time, collect berries from the same location at the same time, start a fire at the same time, hunt alone the same animal at the same time, cook the animal at the same time, build a hut at the same time. Also procreate at the same time.

The reason all of this has to occur at the same time is because if it doesn’t then we have naturally a division of labour already. I hunt animals while you collect fruit. Though tomorrow you may hunt and I may collect berries. Turn-taking is quite clearly not the fundamental idea behind the division of labour, yet I often get the feeling the fancy terminology is used to capture this childish idea.

More important is the question of complementarities in joint production, like hunting in groups. I track, you kill. Division of labour.

But if we invent the spear I am able to more effectively hunt AND kill myself than in a team of specialists. Two tasks by one person becomes more efficient. The hunter becomes an anti-specialist, accomplishing more tasks than before.

Even in the iconic pin factory, the story of specialisation can be seen in reverse. Modern pin factories require very few people to do all the 18 tasks required in Smith’s time and in far greater quantities. The specialist maker of a single pin production stage has been replaced by a generalist who controls the whole process, including, no doubt, more advanced packaging.

The division of labour story about productivity is mostly a story about naming conventions for roles in society rather than the tasks achieved in those roles. I am an engineer, you are an account. Mostly though we both use spreadsheets to add numbers, make phone calls, type sentences, maybe drive a car. In fact from a task perspective rather than a role-in-group perspective, there is almost no specialisation. The majority of tasks are the same. But with more people we define each other’s roles more precisely. The ‘division of labour’ story unravels into a ‘large groups can accommodate more named roles’ story.

In modern lives as a whole there are far more tasks we each undertake. Rather than each doing fewer tasks better, we are all doing more than ever thanks to technologically superior capital. The diversity of our own life experience is far higher than ever. More so, those countries with more diversity, rather than specialty, are routinely the most economically advanced.

Returning to the ancient stone tools of Jordan, the invention of those tools would allow the tribe as a whole, and each member within it, to achieve a greater variety of tasks than ever and expand their production possibilities. But if the number of tribe members was the same, no additional specialisation of tasks could take place. Each unit of labour would accomplish a more diverse variety of tasks than ever, which is what expands the production frontier.

To really make the point, imagine a tribe of 50 people can undertake 100 productive tasks. Then with the invention of new tools, the number of possible tasks the tribe can undertake expands to 125. Clearly, the means the average tribe member is doing 2.5 instead of 2 tasks each - the opposite of what you'd expect from a division of labour story.

So what exactly is this phenomena of divided labour about anyway? To me it is mostly a sign of our level of ignorance about human coordination in groups. When looking to why one company, one country, or one historical period was different from the others, the idea of a division of labour is a catch all term that means ‘something to do with cooperation in groups’, and without further refinement, is an endless repository of ad hoc explanations.

fn[1]. I’m thinking here of concepts like capital (including human), technology, utility/preferences. The phrase 'endless repository of ad hoc explanations' comes from this paper.

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