Economic Specialization: My Background

Back in my undergrad days at UC San Diego, I majored in Management Science (basically a more math-heavy version of Economics). Eventually in my senior year, I became a teaching assistant in my department.

This always made me feel important, because UCSD’s Econ Dept is Top 10 in the nation – and apparently, I was good enough to teach the fundamentals of microeconomics to incoming freshman. But enough about me.

One of the “lessons” taught in Economics is that of specialization.

The idea behind specialization is simple: there are clear benefits to specialization when you account for opportunity costs. You can literally create productivity out of thin air, in a seemingly magical way, where it did not exist before. For the same production inputs, you get more production output.

Example: Sally can produce two (2) baseball bats per hour and six (6) gloves per hour. John can produce four (4) baseball bats per hour and four (4) gloves per hour.

If they split their time evenly, each of the two spending equal time producing baseball bats and gloves, then Sally’s total output (per hour) is one (1) baseball bat and three (3) baseball gloves, while John’s total output is two (2) baseball bats and two (2) baseball gloves. Together between the two of them, they collectively produce three (3) baseball bats and five (5) baseball gloves.

But if they specialize at what they’re best at, Sally would focus entirely on gloves while John would focus entirely on baseball bats, and in the same span of time they will collectively produce four (4) baseball bats and six (6) baseball gloves.

Same cost of labor, higher production output.

However, as I’ve grown older and approach two years running my own business, I’ve realized specialization is subject to context. While specialization is generally smart, there are disadvantages to specializing for specific individuals and firms in an economy.

The entire economy suffers when workers are displaced

Consider for instance, what would happen if Sally & John specialize for so long that eventually, Sally forgets how to make baseball bats and John forgets how to make gloves altogether. Then, one day, the market decides it no longer needs baseball bats. John will be okay – but Sally is out of a job, and incapable of reintegrating into the market anytime soon.

This is the “flip side” of specialization. As the labor force becomes more specialized, job mobility decreases – and any given group of specialty workers risks unemployment if the market shifts.

And when the market does inevitably shift, the effects of those workers losing their jobs negatively impacts all of us (on top of just affecting them personally). Here are just a few examples of why:

  • They collect unemployment, placing a tax burden on everyone
  • Their spending power decreases, reducing trade and the velocity of money
  • Most of all, their fundamental ability to contribute to the economy vanishes, at least temporarily, while they get retrained on new skills and re-enter the job force
  • It often becomes political and sucks up time and attention from legislators and the general public, who could focus on bigger and better things were this not an issue

From a global standpoint, then, despite the relative advantages of specialization in the short term, so too we must weigh the cost of these ripple effects when they occur.

This isn’t an easy calculation, but intuitively you can understand how it weakens the argument for specialization.

Entrepreneurs, business owners, and executives are better off as generalists anyways

While there’s still a good argument for employee specialization within key roles, some “positions” don’t lend as well to specialization. Namely entrepreneurs, business owners, and executives.

Speaking from personal experience, on a daily basis I must exercise a wide variety of skills to complete “my job.” One moment I’m writing code, the next I’m giving a sales presentation to a potential client, and the moment after that I’m filing my taxes. To be even halfway functional, I need to have:

  • People and communication skills
  • Task-specific skills (like design & coding)
  • Project management skills
  • Administrative skills (like accounting and record-keeping)
  • Sales, marketing, and branding skills
  • The effectively juggle all these simultaneously, and
  • To consistently make (good) decisions under uncertainty

Frankly, without this array of “generally” developed skills there’s no way I’d still be in business.

I’ve also heard it spoken elsewhere that entrepreneurs, marketers, and online business owners all perform better as generalists with “a few dominant skills.” In my case, the list of general skills is quite long, while my “dominant skills” are in design, coding, merchandising, people/communication, and consulting.

Should you become a generalist with a few “dominant skills?”

To answer this question, it really comes down to where you’re headed in your career. If you want to open your own business, be a startup founder, become an entrepreneur, etc., then absolutely Yes.

On the other hand, if you are pursuing a more traditional career path within an organization, continuing to specialize in one area that’s in high-demand (i.e., accounting, sales, programming) may still be your best option.

But even if the latter applies to you, consider growing your skills – you never know when you might need them.

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