Nowadays, the most problematic issue of human development is economic crisis. Many thinkers, economic specialists, politicians and analytics are trying to find the answer to the question – what exactly was the reason of the crisis and why traditional regulations of market economy could not prevent it. The aim of the present essay is not to explain such huge issue, but to understand what is in common between Adam Smith’s division of labour, two types of capitalism and social benefits. In this context, the central thesis of the essay is that the main misinterpretation and omission of Smith’s perception of division of labour is lack of attention to the development of human talent through a continuous activity and subsequent improvement of working skills. The main emphasis of this essay is that skills should be developed gradually and be diversified when the basic ones would be well acquired. In the next paragraphs, the connection between mentioned above elements and the central thesis is explained.
Key words: division of labour, Rhineland and Anglo-Saxon models, inborn skills.
Nowadays, the most problematic issue of human development is economic crisis. Many thinkers, economic specialists, politicians and analytics of various are trying to find the answer to the question – what exactly was the reason of the crisis and why traditional regulations of market economy could not prevent it. The aim of the present essay is not to explain such huge issue, but to try to understand what is in common between Adam Smith’s division of labour, two types of capitalism and social benefits. In this context, the central thesis of the essay is that the main misinterpretation and omission of Smith’s perception of division of labour is lack of attention to the development of human talent through a continuous activity and subsequent improvement of working skills. The main emphasis of this essay is that skills should be developed gradually and be diversified when the basic ones would be well acquired. In the next paragraphs, the connection between mentioned above elements and the central thesis is explained.
In order to understand what is missing from Adam Smith’s division of labour and what the misinterpretation of his idea nowadays is, explanation of what division of labour is essential. According to Adam Smith, division of labour was not an inborn phenomenon; it was not part of human natural inheritance, dictated by the conditions of surrounding environment (Smith, 2009). In this context, he argued that division of labour did not depend on human inborn predisposition to a specific kind of activity but on continuous repetition of the same work (Smith, 2009). This means that human talent, working skills and efficiency were developed through a hard work and long-termed commitment to it. In other words, productivity depended mainly on how long the worker had been performing the same activity and how much efforts were applied to it (Smith, 2009). The following example is given to prove this statement. On the first stages of his work, the old-fashioned carpenter, in order to make a table, might require 3 days. Later, after continuous repetition of his work, his skills become improved and he develops a talent. He becomes capable of making a table in a day or even less, he also might become more confident to make tables of other forms in order to spread the field of his competence. The aspect of skills widening on the basis of the initial main skills is important because, nowadays, the situation is the opposite – widening of initial skills leads to a lack of their depths and small abilities to perform tasks independently (Hobson, 2010).
In the industrial epoch, division of labour became the corner stone of industrial progress and improvement of efficiency and productivity of industries. This was achieved through the main benefits from the division of labour, meaning increase of productive powers of labour. Through the “improvement of dexterity increased the amount of work done” time was saved and technological and methodological improvements leading to the subsequent technological inventions took place (Smith, 2009, p. 54). All this progress based on division of labour brought us to the current free market economy and capitalism, which turned stagnant in the recent years. In this context, it may seem that division of labour is outdated and cannot serve the purpose of economic growths, but this statement would be wrong. The problem of current economic crisis is a difference between two models of capitalism and subsequent misinterpretation of skills development in one of them.
One of the main distinctions between two types might is their attitude to skills and their correspondence to the demand of free market economy. Before deriving this difference, classical contradictions between two models should be outlined in their description before crises. According to Christopher Caldwell, in the Rhineland capitalism, characteristic to Germany, the Netherlands, Belgium, Scandinavia, Austria and Switzerland, “a company is an institution; it serves anyone who “holds a stake” in its operation, specifically: clients, suppliers, employees, stockholders, and the surrounding social community – in that order” (2001, p. 32).
From the American and partly British points of view, the old-fashioned approach to business conduct, applied by the Rhineland countries, with their social inclusion and long-termed profits, could not overcome immediate benefits and instant profit making in the Anglo-Saxon model (USA and UK) (Caldwell, 2001). In 2001, the main argument in favour of the second model was the employment market. Irrespective of Europe’s success in stability development, it was not capable of creating working places the way USA did, having unemployment two times lower than in the Europe (Caldwell, 2001).
While, in 2001, in economic growth and dynamics of labour market, the Anglo-Saxon model was viewed as a more successful and efficient one; a decade later, the situation turned to be entirely opposite. The Rhineland countries, which were not so eager to gain immediate profits, managed to withstand the global economic crisis much better than USA. In December 2011, unemployment rate in USA was around 8.5%, while in Germany the figure was only 6% (Marsh & Bishof, 2012). The current situation remains the same – USA and the UK continue to face increased unemployment, while Germany and other countries of the Rhineland model managed to keep rates among 3to 6 % depending on the country (Marsh & Bishof, 2012). The main reason for success of those countries is because the corner stone of their labour policy – are skills development and improvement in along-termed commitment rather than traditional American approach of “hire and fire” (Marsh & Bishof, 2012).
From Smith’s point of view, the difference between two models would be in their commitment to pay attention to the development of skills in their labour. In this context, the Rhineland model would follow his scheme of paying attention to gradual skills development. First of all, the basic skills for the job should be developed through a routine repetition of tasks and only then diversified (Hobson, 2010). On the other hand, the Anglo-Saxon model is based on the competition and immediate outcomes. For the job market, this means that, in order to get a job, an individual should be extremely competitive; in order to do this he/she should have substantially diverse skills (Hobson, 2010). Although there is nothing wrong about having diverse skills, the problem is their depth and person’s inability to develop subsequent talent in a specific job.
The essence of the Rhineland model of skills improvement and jobs preservation is most brightly described on the example of German system of apprenticeship. The essence of this system is a long-termed commitment of an employer to keep employee on the position even under conditions of economic crises (Marsh & Bishof, 2012). This measure is achieved through the introduction of “an employment insurance levy which is paid to a firm to keep an apprentices employed from 6 to 12 months” while stagnation or economic difficulty passes (Marsh & Bishof, 2012). This approach became known as short work or Kurzarbeit in German (Marsh & Bishof, 2012). The main target of this approach is not profit-oriented but contributes to investment in the development of young, skilled professionals that would be able to contribute to economic improvement of the country both during and after the crisis (Hobson, 2010). Thus, this approach has both economic and psychological impacts. It does not only keep unemployment rates low and improves skills of young specialists, but also contributes to the increase of optimism in society and ability to work for the future benefits.
On the other hand, the bright example of the Anglo-Saxon treatment of the labour market is the British benefits and unemployment payments, which are sometimes higher than pensions or minimal wages estimated in £26,000 in January 2012 (Marsh & Bishof, 2012). The main problem arising from this approach is high youth unemployment, and subsequent lack of skills and any progress in encouragement of those skills, since social benefits and unemployment payments are already enough for comfortable living (Hobson, 2010). This is also partly the fault of the model itself, because business enterprises have no sense of responsibility and desire to contribute to the skills development (Hobson, 2010). Therefore, one might justly conclude that, in a long-term run, the Rhineland model is more efficient than the Anglo-Saxon one.
From all mentioned above, the meaning of Adam Smith’s concept of labour division and its meaning for the development of the modern economy can be tracked through the comparison of two types of capitalism and their influence on economic and societal culture of global environment. From Adam Smith’s perspective, the disperse character of modern skills development does not contribute to the economic growth, mainly because under conditions of unification and multi-tasking of labour skills, productivity diminishes (Smith, 2009). This means that instead of gaining basic skills and their improvement during a certain period of time, an individual has to spend time and efforts on acquisition of various skills in order to get job and perform better in life. Returning back to the example of a carpenter, according to the Anglo-Saxon approach, instead of acquiring the initial skills of making a simple table in the first couple of years, the carpenter would have to learn how to make various forms of tables in the first year and maybe even how to cut wood and find the way to deliver the wood from the forest. This example makes it obvious that no division of labour is represented in such case. Although this example might be viewed as an exaggeration, it gives a clear idea that multi-tasking contributes to reduction of division of labour as it was developed by Adam Smith.
So, the connection between two types of capitalism, unemployment, skills development, social benefits and Adam Smith’s division of labour was established, but what exactly it tells us. The very distinguishing of this connection brings us to the existence of two different economic and societal cultures, which under conditions of globalised economy are interconnected and have to cooperate. The thing is that the Rhineland model, unlike the Anglo-Saxon one, does not omit the developmental nature of skills. One might argue that this assumption is quite irrelevant, since just as in USA and the UK, freedom of profession preference is the same (Caldwell, 2001). This argument would be correct. The difference is in society that values old-fashioned attitude to hereditary approach of skills development and improvement. In Germany, it is still common to follow family professional sequence, which from Smith’s perspective, contributes to the prevalence of the long-term skills development and passing of know-how, which in their turn are the corner stone of division of labour (Hobson, 2010).
In this context, the Anglo-Saxon division of labour is based on the mentioned above concept of immediate profits – people chose jobs not because of their inclinations to certain activity, but because of desire to earn money in an easy and fashionable way. In this context, labour force just as employers is reluctant to spend time on the development of skills and subsequent improvement of productivity. This in its turn results in continuous hiring-firing circle and convenience of unemployment instead of skills improvement. At this point, an economic mistake is strengthened by human psychological factor and desire to get the most at the fastest time. Just as employers want to get the most and immediately, labour force that does not want to invest much in the development of the skills in one specific field but prefer to get unemployment benefits. On the other hand, other people try to accommodate to the requirements of the market and proceed with diversification of their skills and multi-tasking improvement.
The meaning of the mentioned above problem is development of consumptive behaviour even in the sphere of the labour market, which eventually destroys the very concept of division of labour and contributes to destruction of the very traditional meaning skills and talents. Nowadays, skills are relevant only in their contribution to competition and gaining immediate profits or not gaining any in the current economic stagnation. The possible solution of the problem could have been adoption of the common model of capitalism. On the other hand, that is not something economists can decide to do over night.
Caldwell, C. (2001). Europe’s “social market”. Policy Review, 109. 29-45. Hobson, J.A. (2010). Work and Wealth: A Human Valuation. London, LD: Routledge.
Marsh, D. & Bishof, R. (2012, January 26). ‘Hire and fire’ has destroyed Britain’s job economy. The Guardian. Retrieved from http://www.guardian.co.uk.
Smith, A. (2009). An Inquiry into the Nature and Causes of the Wealth of Nations. New York, NY: Digireads Publishing.