152 PETER ACTON
to a similar business.^25 To put this in perspective, one should bear in mind that
the average size of a factory today is ten to fifteen employees.^26 Rather than
asking why there were no small firms, we might more profitably ask why firms
in certain manufacturing businesses were able to attain a reasonable size, while
many remained very small.
One explanation of this – that firm size is a function of division of labour
and that, before the widespread use of machinery, there was not much scope
to divide labour within a process – is embraced by a number of scholars,^27 but
its explanatory power is limited. The productivity benefits of labour division,
first articulated by Adam Smith, are very real. Smith, whose famous pin factory
occupies the whole of the first chapter of The Wealth of Nations, starts with
the observation that ‘The greatest improvements in the productive powers of
labour ... seem to have been the effects of the division of labour.’^28 His pin
factory has ten people allocated among, perhaps, eighteen tasks and producing
48,000 pins in a day, or 4,800 each, compared with a sole, unskilled operator
who ‘could scarce, perhaps, with his utmost industry, make one pin in a day,
and certainly could not make twenty.’ Smith attributes this remarkable produc-
tivity gain of between 240 and 4,800 times to three effects of the division of
labour: an increase in dexterity from practice, less downtime moving between
tasks and labour saving machinery. He is quite specific about the impact of
dividing labour tasks: in terms of practised dexterity, he suggests that a smith
who was not used to making nails could make about 200 to 300 in a day, one
who made them regularly but not exclusively might get to 800 to 1,000, and
one who made only nails could make 2,300. Specializing in just one step takes
it up to the figure of 4,800 (Table 6.1):
We do not know what proportion of a general smith’s time making nails
and other objects was spent specifically on nails, so we cannot measure how
much specialization had increased in moving to nails (which raised daily out-
put 2.9 times), but we can test the value of moving from making all of a nail to
specialising in producing one-tenth of one by using experience curve analysis.
The Boston Consulting Group established that in any enterprise, unit costs fallTable 6.1. Impact of Division of LabourSkill and Focus Nails per
man/dayImpact of Division of
Labour
Non-smith 1–20 -
Smith who does not make nails 200–300 N/A (impact is smith skill)
Smith who makes nails and other objects 800 N/A (impact is expertise in
nails)
Smith who only makes nails 2,300 2.9×
Smith who only does one or two stages
in nail-making