Economies of Scale, Part II: The Division of Labor

While recovering from an accident late November, I found myself able to do little other than read books. One of them was Revolution In Time by the great economic historian David Landes, which gives a comprehensive history of clocks and time keeping, both in the West and in other civilizations like China. Despite the fact that China built one of the world’s first clocks in the 11^th century, the technology was never developed further and knowledge of clock-making disappeared after the death of its inventor, Su Sung.  The reason why clocks and clockmaking emerged in Europe rather than China was a consequence of the Catholic Church: monastic orders needed a way of keeping track of when to pray and sing their matins and vespers. Anna Grzymala-Busse has written about how the Church played an under-recognized role in creating the modern state (see my interview with her below); to this can be added its incentivization of clockmaking.

One of the great stories told in Landes’ volume concerns the reasons why the Swiss ended up being so critical to the global watch industry. As I noted in Part I of this series, The Wealth of Nations begins with Adam Smith’s famous depiction of an imaginary pin factory. A similar real-life scenario was playing out in Switzerland’s Jura valley, an area northeast of Geneva around Neuchatel and other small villages in the foothills of the Jura mountains. (There was an interesting sociology to this development; many Swiss watchmakers were not Catholic but Protestant Huguenots expelled from France after the revocation of the Edict Of Nantes by Louis XIV. That Protestant heritage has something to do with the precision and discipline for which the Swiss are known to this day.)___STEADY_PAYWALL___

In the same year as the publication of The Wealth of Nations (1776), Swiss watchmaking took a new turn that guaranteed its dominance for at least the next two centuries. Landes describes a certain Frédéric Japy of Beaucourt:

Japy had bigger ideas, and in 1776 he took a step that was to change his life, that of the region, and the character of watchmaking in the Jura.  He purchased for the enormous sum of 600 Louis d’Or from Jean Jacques Jenneret-Gris of Le lochle… an assortment of machines for the mass production of a standard ébauche [what we would today call a watch movement]. By 1780, we are told, Japy was employing and housing some 50 'apprentices', plus numbers of journeymen, and turning out 43,200 pieces.  Where Japy, like other rough movement makers, have been selling his work by the piece, like so many eggs, in the markets of Neuchatel, he was now able to apply at unbeatable prices a steady stream of standardized material to the établiseurs of the district…  By 1795 Japy was making over 100 verge escapements a a day… Ten years later annual output was up to 100,000 per year…

Part of the advantage that the Jura valley held over Geneva, Paris, or watchmaking towns in Germany like Glasshȕtte had to do with the fact that this small area contained hundreds of smaller workshops that provided the parts that were needed not just for the watch movements and their cases, but also for the highly specialized precision tools that were needed by watchmakers to ply their trade. These localized supply chains and the social capital embedded in them account for the regional advantage enjoyed by places like Silicon Valley today.

Adam Smith's account of the productivity gains brought about by economies of scale and an ever-increasing division of labor became an enduring theme in subsequent 19^th century social theory. The Communist Manifesto constituted a direct reply to Smith, in which Karl Marx argued that specialization and the division of labor led to the alienation of workers. They became small cogs in a giant industrial machine, and thereby lost the intimate connection to the production of useful goods and the self-sufficiency they once enjoyed. This alienation was satirized in Charlie Chaplin’s classic movie Modern Times, and has become a standard left-wing critique of capitalism ever since. The industrial worker was dependent on forces beyond his control: Marx railed against the globalization that was occurring in his day, in which events in distant parts of the globe could undermine a worker’s well-being. 

Other theorists by contrast had more nuanced views of the effects of a division of labor. The great French sociologist Emile Durkheim wrote an entire book entitled The Division of Labor in Society, in which he distinguished between a mechanical as opposed to an organic division of labor. The former referred to tribal or village societies, in which the major social units were small scale groups that were essentially similar to one another. The society could only grow by adding more of these identical units. An organic division of labor by contrast built upon the increasing requirements for specialization that large-scale enterprise entailed. Durkheim pointed out that the latter constituted the very essence of a modern society; not only did it produce far more wealth, but specialization laid the ground for individualism and expanded opportunity. The social theorist Ferdinand Tönnies labeled this as the transition from Gemeinschaft (community) to Gesellschaft (society), as peasants left their villages and moved to big cities in search of factory work. 

Industrialization in recent decades has certainly created alienated labor, just as it did in the early 19th century factories observed by Karl Marx. Much of East Asia has seen millions of peasants uprooting themselves and moving to large cities like Guangzhou or Shenzhen where they could obtain factory work. Wages are low, hours long, and work dull and repetitive. Bangladesh has seen horrific fires in its garment factories, much like the 1911 Triangle Shirtwaist Factory fire that contributed to the formation of the International Ladies Garment Workers Union in the United States. Nonetheless, these workers have made the shift from Gemeinschaft to Gesellschaft voluntarily, because life in a society characterized by complex division of labor increases their overall life chances and opportunities for their children.

So economies of scale drive an ever-expanding division of labor up through the present, and are a foundation for life in a modern society.  But there are also major downsides to scale and specialization, which have contributed greatly to the social and political angst of the present moment.  I will discuss downsides in Part III of this series.

Francis Fukuyama is chairman of the editorial board of American Purpose and Olivier Nomellini Senior Fellow and director of the Ford Dorsey Master’s in International Policy program at Stanford University’s Freeman Spogli Institute for International Studies.

Francis Fukuyama's Economies of Scale series:
Part I: "Economies of Scale, Part I: Artificial Intelligence"
Part II: "Economies of Scale, Part II: The Division of Labor"
Part III: "Economies of Scale, Part III: Power, Inequality, and Dependence"

Image: By by Remy Gieling / Unsplash.