Monday, April 2, 2018

Is "Total" Specialization Subject to Decreasing Returns?

When does specialization provide the most benefit to society? Are there times when highly specified divisions of labour aren't as useful, as they seemingly should be? Specialization as total output expectation, isn't always as simple or functional as one might expect. Hence a recent post from Tejvan Pettinger, reminds me how specialization in general could benefit from a closer examination. In response to a reader who wants to know why specialization is efficient, he provides what can only be considered a traditional response:
Specialisation in the labour market means workers concentrate on specific jobs. Rather than learn every trade - electrician, plumber, doctor, teacher - it is more efficient and practical if we specialise in one particular job.
Of course, regular readers won't be surprised that I find complete specialization in the above areas to be problematic for total factor productivity, in low income settings which lack productive economic complexity. What if we are holding back simple economic outputs that could help to restore human capital - capital which is presently not perceived as fully functional? Only recall as well, that tradable sector activity generally adapts divisions of labour according to how product evolves, as opposed to the "permanent" divisions of labour which are frequently associated with non tradable sector activity.

Pettinger continues:
However, if we were just a barter economy - without money. This specialization would be a lot more difficult. If I grew potatoes - we could swap potatoes for eggs and vice versa. This is a very primitive form of specialisation - and it does work - even without money. However, this is very limited if we want to develop the complexity of the economy.
When you go to the dentist, he doesn't want paying in potatoes...If there is a form of money which is widely accepted, then you can pay the dentist with these coins and then he can decide if and when he wants to buy potatoes. 
Consider this natural progression of monetary representation, from simple commodities to more specific forms of product and skill arbitrage. One can readily imagine skills arbitrage claims as revenue ownership claims in a "territory" made up of potential time value supply and demand. However, specific skills arbitrage claims lack a true representative relationship, with the full range of potential time value claims in a given territory of time coordination - especially given the reality of time and place scarcities for economic engagement. Put simply: What if more dentists prefer money to potatoes, than there are potatoes to serve as an initial wealth source of monetary representation?

In other words, time claims without the participation of all time aggregates, can ultimately distort productivity and output in both tradable and non tradable sector activity. When time can't function as a unit of account alongside money, we lack any steady state relationship between time based product (such as the dentist time value claim) and total wealth capacity (goods and services) in a fiat represented services dominant economy.

On the other hand, it likely wouldn't present a problem in a tradable sector dominant economy, should dentist associations make specific skills/time value claims on aggregate wealth. The problem of sectoral imbalance occurs once similar skills/time valuation claims begin to dominate the economic landscape. Doctors prefer money to apples, etc. Once this pattern emerges, the convenience of monetary exchange for time based service providers, begins to create inconvenience for other economic actors who lack similar options for making explicit demands on existing wealth and monetary representation.

Unlike tradable sector divisions of labour - where compensation and activity continually adapt to changing circumstance - too much non tradable sector knowledge production has assumed that economic conditions would always be able to "obey" their terms of engagement. There's an interesting way to think about this disconnect from reality: Whereas goods manufacture has also adapted to structural change via "just in time" physical warehousing, knowledge based production has yet to even begin the process of doing so, even though the same digital transformational means are already in place. Meanwhile, the educational investment requirements for knowledge providers and participants - instead of utilizing adaptive "just in time" knowledge applications - still rely on "just in case" educational requirements.

These "just in case" requirements for human capital investment - in spite of extensive online knowledge content - assume it is still reasonable for people to memorize the equivalent of entire warehouses of knowledge, just to get at the knowledge particulars that even apply in one's daily interactions with others. It's no longer financially reasonable, for knowledge providers to insist on extensive "just in case" educational investment as the sole means of economic participation. Let's begin to think differently, about knowledge application and specialization in the 21st century.

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