 |
 |
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 [log in to unmask] -- -----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 [log in to unmask] Gunnar Swanson Design Office 1901 East 6th Street Greenville NC 27858 USA http://www.gunnarswanson.com [log in to unmask] +1 252 258-7006 ----------------------------------------------------------------- PhD-Design mailing list <[log in to unmask]> Discussion of PhD studies and related research in Design Subscribe or Unsubscribe at https://www.jiscmail.ac.uk/phd-design ----------------------------------------------------------------- ----------------------------------------------------------------- PhD-Design mailing list <[log in to unmask]> Discussion of PhD studies and related research in Design Subscribe or Unsubscribe at https://www.jiscmail.ac.uk/phd-design -----------------------------------------------------------------