Hi Gunnar,

After reading your post, I wondered about the benefit of looking beyond
Ricardo. The advent of electronic data processing has changed many of the
assumptions on which Ricardo's analyses and theories were based. Perhaps
more importantly, currently we are in a transition situation between  the
before and after effects of electronic data exchange and knowledge
automation.

In what follows, the focus is on the effects of electronic data exchange,
the transitional effects of knowledge automation are even more significant
but  left to another time. 

There are radical changes afoot due to electronic data processing practices
that have been obvious since around 2000 and are now in play and these
radically (as in 'by its roots')  change the 'specialization picture' and
appear to  turn some of Ricardo's theories on their  head, although you
might regard what the issues that follow in terms of a redefinition of
Ricardo's 'rent'. 

Six  issues relating to the effects of electronic data processing on the
future benefits or otherwise of specialisation are:

1. Dis-Economy of Scale (the opposite of 'economy of scale')
2. Role of Coasian Transaction costs in defining the dis-Economies of Scale
and 'economies of Scale'
3. Effects of electronic systems and improved algorithmic/neural net
systems) (Computers, Software, wide and local area networks, Internet,
Artificial Intelligence, computers such as Watson, etc.) in reducing the
transaction costs that result in dis-economies of scale.
4. Consequenct significant  increases in economic efficiency (profits)  of
organisations  from operating at massively higher levels of scale than
currently found.
5. Subsequent pressures  towards acquisitions and mergers and extinction of
ecosystem niches for very small specialist organisations.
6. Consequent tendency towards reduced system stability  and increased
possibility of global system collapse due to reduced number of stabilisaiton
loops in the systems and high positive feedback.


 The cost of producing an item or providing a service can be separated into
two components: a) the direct costs including materials, wages etc; and, b )
the transaction costs (taken more broadly as the costs of providing the
organisations infrastructure, documentation, decision making etc. associated
with and providing support for the activities  that generate the direct
costs). Note: this is an extension of the concept of Coase's theories about
transaction costs  that emerged in the MIS field around 2000. 

As organisations increase in size, the direct costs reduce (what is often
called the economies of scale).  Problematically, however, the transaction
costs increase as organisations increase in size  because there is more
internal communication and the like (this is called in MIS,  the
'dis-economy of scale').  The maximum size of organisations occurs when the
effects of the dis-economies of scale due to transaction costs mean that
there is no more advantage in increasing size to gain economies of scale.

Electronic systems significantly reduce transaction costs. For example,
around 2001, to process a cheque cost a bank around $20 per cheque using
conventional banking methods. To processes the same money as an electronic
payment via internet banking cost around 1/10 of a cent. The transaction
cost reduced enormously.  Banks had been limited in scale by  the increases
in internal  transaction costs of managing a larger banking organisations.
The reduction in transaction costs offered by electronic banking enabled
banks to jettison their previous transaction processes (e.g staff, and
branches) and offered scale benefits leading to mergers and transition to a
much smaller number of larger banks. Incidentally, as transaction cost
reductions  were uneven, there were increased advantages in banks moving
towards retail banking (where transaction cost reductions were highest) and
with a tendency to specialise (as a retail bank, or commercial bank etc) at
a much higher organisational size and then gain the benefits of market
segmentation by  offering boutique services under different brands as if
they were smaller organisations. This is pseudo-specialization.

The same is found in any organisational ecosystem. When I interviewed CEOs
of large design companies  around 2003-2005, the above process was playing
out with them laying staff off because ot the reduction in 'transaction
costs' (and improved productivity)  offered by Apple computers. Typically,
it seemed that they moved to laying off 3 staff in 4.   Profitability of the
larger firms increased. Smaller firms operated in the eco-system niches.
Many designers moved into design education. One of the aspects of
'transaction costs' in design activity is the cost of the 'transactions'
with the body of knowledge and expertise (fonts, research, best practices,
etc). These aspects of  the transaction can now be  accessed directly using
computer software and hardware(Adobe and Apple spring to mind again) at much
lower 'transaction costs' than training and using individual human
designers. In essence, you can see the scale and profit changes of the
design industry being split between 'design businesses' and 'automated
design service software businesses' (Adobe and Apple) . The benefits have
almost exclusively gone to the latter, who have specialised, reduced
transaction costs, and massively incr4ased in size and profit  via
transaction cost reduction. In contrast, small design firms are on a much
slower track caught between specialisation, reducing prices, and  merger and
acquisition to reduce transaction costs.  Worse, the reduction in
transaction costs offered via Adobe, Apple and the like, have resulted in a
large body of competitors as diy desktop publishing. The latter resucing the
scale of the market  and creating its own pressure on prices. In theory,
this leaves design businesses caught between multiple profit reducing
factors, some pressuring towards specialisation to increase profit by cost
reduction and some pressurising towards 'generalisation' to have sufficient
work at smaller organisational scale. All are  shaped by the effects of
changes in transaction costs due to electronic systems.

Similar developments are obvious in university systems. 

Mostly, this goes a bit beyond Ricardo. Which is I guess part of the reason
Ronald Coase got a Nobel prize for it. 

Best wishes ,
Terry

---
Dr Terence Love
PhD(UWA), BA(Hons) Engin. PGCEd, FDRS, AMIMechE, PMACM, MISI

Honorary Fellow
IEED, Management School
Lancaster University, Lancaster, UK

Director,
Love Services Pty Ltd
PO Box 226, Quinns Rocks
Western Australia 6030
Tel: +61 (0)4 3497 5848
Fax:+61 (0)8 9305 7629
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--




-----Original Message-----
From: PhD-Design - This list is for discussion of PhD studies and related
research in Design [mailto:[log in to unmask]] On Behalf Of Gunnar
Swanson
Sent: Thursday, 12 September 2013 4:02 AM
To: [log in to unmask]
Subject: special

My sophomores are designing magazine spreads of a PJ O'Rourke thing about
economics so we've been talking about Ricardo's Law and the (economic)
advantages of specialization. I also just read a nice piece about Fluxus
that Ken sent me in an off-list extension we had of the recent "art"
discussion here. I'd never thought of the similarities of Clement
Greenberg's approach to art criticism (where each medium is considered in
terms of itself as opposed to the Fluxus--and in more recent years, pretty
much the whole art world--approach of deliberately crossing boundaries) and
David Ricardo's approach. In Ken's article, he mentioned Fluxus member
Robert Filliou who started out as an economist but seems to have taken a
very non-economist approach to life and work.


 
I haven't had the time to think whether there's really anything here but we
talk enough on this list about transcending disciplines that I wonder if
anyone has anything to say about different notions of
specialization--Ricardo's idea that the British should stick to making cloth
and the Portuguese should make port wine and everyone should trade, the
value and pitfalls of academic specialization, the competitive advantages of
specialization in design, the IDEO (et al) notion of the T shaped person. .
. .
 
Clearly, I don't have anything solid to say about this but I know I won't
have time to solidify anything in the near future so I thought I'd toss it
out to see if anyone can make better sense of it than I have.


Gunnar

Gunnar Swanson
East Carolina University
graphic design program

http://www.ecu.edu/cs-cfac/soad/graphic/index.cfm
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Gunnar Swanson Design Office
1901 East 6th Street
Greenville NC 27858
USA

http://www.gunnarswanson.com
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+1 252 258-7006


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