Some thoughts taken from Adam Smith's masterpiece " The Wealth Of Nations" written in 1776. The example given by him is of pin making. A person is needed for straightening the wire,one for cutting,one for shaping it and many others are required for its completion. Suppose totally there are 10 distinctive processes; take the case where there are 10 labourers working independently towards making pins. The total output would be, say TQ. But when this distinctive process is distributed among the 10 labourers, labour gets divided and the total output becomes, say TQ + a,(where 'a' is a constant which has an expected value(E) of more than 2TQ.
The reasons for this increase as mentioned by him are mainly three:
2)Saving of time
3)Application of machinery invented by workmen
This division of Labour is also known as Specialization. This has creeped into all aspects of the economy -Medicine, Engineering and even Education. This also increases the employment opportunities in a nation. The opulent countries all are higly specialized in all aspects of their working, which has resulted in an increase in efficiency, known as X-efficiency which is caused about by Technology advances.
The latest of these as seen in the media, is BPO(Business Process Outsourcing) and KPO(Knowledge Process Outsourcing) whereby a particular firm Specialises in a business process fully and, mostly these Specialised firms are set up in developing nations and does work for the Developed countries thus letting the Developed nations have a share in their low costs, owing to the low level of wages prevailing. Presently there is a division of technology too! All this has been brought about by Globalization and Liberalization. Has this resulted in an Efficiency increase in the developing countries? Will it contribute in the near future? Are the Developing countries gaining by the Theory of Comparitive advantage(also Absolute Advantage)?
P.S.Only the example and the reasons for increase in production and productivity are taken from the book.