Cost of Specialization

In July I wrote about Supermarket Convenience (which is to say that having lots of choices can itself be a burden). While I was at one of these markets today, I found a name for this phenomena. It's the cost of specialization. In order to compete in the supermarket business in a city like mine markets need to find niches where they can distinguish themselves. For one market, fresh produce at low prices is the name of the game. For another market, affordable prices and a wide selection are what motivates me to go there. For a third market, I go because they price Clif Bars lower than anywhere else and I buy them by the box (Maple Nut... best flavor ever... look it up). For other options there is a pure laziness factor if I need something quickly and put aside the fact that I hate Stop and Shop.

Anyway, what's my point? Well, anybody who has taken an introductory economics course knows about benefits of specialization. That's when two productive citizens use all their energy to learn how to make two different products as efficiently as possible. If they're on a desert island, Citizen 1 labors to get coconuts and drink the milk that's in them while Citizen 2 labors to catch fish. This is about twice as effective as if they each spent half their day milking coconuts and the other half fishing. At the end of the day, they find they've got a two day supply of coconut milk and fish to share so they can either take the next day off or spend it trying to get rescued.

While that theory works well for the economy in general, it ignores the social cost of specialization. Suppose a third Citizen is on the desert island and he wants coconut milk and fishes, too. But imagine there isn't anything else he can produce that the other two Citizens want. Citizen 3 is forced into a corner.

He can produce a better product than one of the other two citizens and take their place in the economy (generally called "competition"). Though, this results in an economic swap where Citizen 3 switches places with one of the other two people on the island. Essentially, the end result is more of a certain product with less effort.

Another option for Citizen 3 is to collude with one of the other people by making a deal to help produce more of that product, but limiting production so that there is only enough to go around. This is a called a "duopoly" and it's not good for the Citizen who isn't in on it (who has to work extra to then be able to afford the market limited price of whatever is controlled by the duopoly.

Option three is to do nothing and hope that Citizen 1 and Citizen 2 increase their production so that they can afford to provide him with enough charity to survive. This welfare system doesn't sound that great, but it's ingrained in the "competition" system explained above.

Of course, there is always a fourth option. He could beg the Citizens until one of them "hires" him. They'll train him, pay him a wage, and give him production quotas to meet. Eventually, Citizen 3 will be doing all the work that one of the other Citizens used to do (based on their training) and they'll be free to put their feet up as long as he keeps producing.

That's the cost of specialization. You'll eventually be working to feed the person who hired you. The question becomes, how do you avoid this cost? The answer is... collaborate openly and figure out a way to make everybody accountable for injecting a fair quantity of blood, sweat, and tears into the overall work effort. An unproductive boss is no more useful than an unproductive charity case.

In the desert island example, this means Citizen 3 alternates between working with the fisherman and the milker. In the real world, it means figuring out a true "average work done per citizen" and then mandating that as the new economic standard.

Now, I know designing CAD models and working on the high steel aren't time-comparable (a useful thought exercise is to ask the question, "which one adds more value to the project?"), but I'd suspect there's a 2-to-5 time ratio of "terrible job" to "awesome job" where these things could be rated fairly by economists. In this fairy-tale "fair" world (do you suppose it's called a fairy tale because the plots generally end up benefiting a character who is accustomed to getting the shaft?) the "terrible job" workers would work "national average amount of work" / 5 hours, while the "awesome job" workers would put in "national average amount of work" / 2. It shouldn't need to be stated that "national average amount of work" is a normalized value somewhere between 50 and 150 hours per week (or 2500 to 7500 hours per year).

And yes, I'm essentially saying "Welfare is stupid, stop overpaying American corporate executives, and give the 10% of the country who are unemployed some work to do." Also, what I'm saying is to evaluate people's spots in an organization more fairly. A "great employee" will spend about 20 hours fraternizing with co-workers and 30 hours doing real work. This somehow exceeds and fails to meet the typical 40 hour work week which is supposedly normal in America. I'm saying... tell "mediocre employees" who just want to make a living and support their families that 30 hours is enough. Not everybody wants to spend that extra time doing something that doesn't add value. Perhaps they'd rather go home and work on keeping their families together? I think this would be a good side-effect of my guidelines... a lower national divorce rate and more kids with a pair of positive parental role models.

Meanwhile, next time you think of all the effort you're saving because of benefits of specialization, remind yourself about the costs of specialization that are also incurred where society makes available 101 different ways for average citizens to get by without making any contributions to the greater good.