Specialisation vs generalisation

A key factor that will be returned to a lot in the next few posts will be the effect of specialisation in the markets businesses interact with. As a general rule specialising is more efficient than trying to address multiple markets or tasks. While this is by no means a universally applicable rule, it is a key factor that has driven our advancement societally and personally.

Essentially if we in a western culture needed to produce all of the things we posses and what we consume there is really no chance that we could manage. In fact if we needed to produce, hunt and gather all of what we possessed and consumed we would struggle to reach even a 2nd world standard of living. Some reality TV programs show this to great effect.

Human advancement has been driven by specialisation and community. Look at food as a basic example. A person that is just farming produces much more than one that hunts and farms. A plot of land devoted to one type of crop, or a few complementary crops produces more for the effort than a mixed crop. The downside of this is that there is less variety in what is produced which would not make for a healthy diet. If one person farms and one hunts though, they can share the produce between them so both get more in total and still have variety. A village of specialists can produce a lot with a greatly varied diet.

Our modern capital market is an extension of this basic community food sharing economy. Each of us works in a specific area to produce something in the chain of goods to people. By being highly specific we are able to be highly efficient which enables a higher level of consumption. This also allows us to actually have free time in which to fit entertainment and relaxation, enabling these markets to even exist.

Specialisation has a limit to the benefit it can deliver. In terms of how people work getting too specific can remove some of the interest in the work, which has a negative effect on productivity. Being too highly specialised also hinders a person or companies ability to shift to suit changing markets and situations. There aren't that many positions still available for telegraph operators.

This perspective is key to the thesis I am developing here and is how the four markets get tied together. The environment is important by simply being there as apart from energy everything we possess and consume must come from the environment. As a species we crave companionship and family, we are safer and happier when we have other people we can relate to and depend on which creates a community. The efficiency of specialisation creates the opportunity for a labour market within a community. A capital market is one way, and the best way we have found to date, to track and reward participation in the labour market. Over time this has grown to become a market in its own right with specialist labour that devotes itself solely to the movement of capital.

Over the next posts I will expand on the previous paragraph giving some more detail on the four markets.