An Achilles Heel of modern society- specialisation and division of labour

April 6th, 2010

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Last month, in Hedging against currency crisis with electronic gold, we asked whether you are interested in reading articles with TEOTWAWKI (The End Of The World As We Know It) theme (i.e. survival skills/gears, self-sufficiency, guns, supplies stockpiles, e.t.c). This is the result of the reader poll:

  1. Almost 60% are interested.
  2. Almost 29% are indifferent
  3. Around 11% are not interested

Therefore, it seems that the majority wants to read more on the TEOTWAWKI theme. In future, if there is enough material on TEOTWAWKI, we may spin off those topics to another blog and linking to them from here. That way, we can keep stick to the theme in this blog for new visitors and at the same time, cater to our long-time loyal readers who are interested in the TEOTWAWKI theme.

But before we start the series on TEOTWAWKI, we must prepare the groundwork and establish the premise of this theme. If not, visitors may think that we are a bunch of extremist survival nuts. Our loyal readers will want to be assured that we are not becoming nut cases…

Firstly, we think it is important to start with the correct words to describe this theme. As you can see from our previous articles, incorrect words lead to wrong and fallacious thinking. For example, in Will governments be forced to exit from ?stimulus??, we railed against the economic jargon called “stimulus.” Therefore, as we write this article, it gradually dawned on us that TEOTWAWKI is probably the incorrect word (or rather, acronym) to use- it gives people the impression that we are a bunch of survival nut cases. Instead, we think the better word is “self-sufficiency.” This word nicely encapsulates the idea that we are driving at and is consistent with the general tenor of this blog.

Much of the prosperity and luxury that we enjoy today is possible only because of specialisation and division of labour. That is the opposite of self-sufficiency. As societies get more and more complex, the specialisation and division of labour becomes finer and finer. Consequently, we are all losing more and more of the basic skills that many of our forefathers will find trivial. As we expend more and more effort and energy in getting more and more skilled in our area of finer and finer specialisation, we ‘outsource’ more and more of our basic needs to other people who are specialised in those areas.

While specialisation and division of labour is vital for economic prosperity, there is an Achilles’ Heel- economies become more and more vulnerable to economic shocks. As we explained before in Overproduction or mis-configuration of production?,

This is the key insight from the Austrian School of economic thought. Over-production or over-investment is not the problem. Rather, the trouble lies in the mis-configuration of production and mal-investments.

As labour becomes more and more specialised and divided, it becomes harder and harder to reconfigure the misconfiguration of supply and demand for labour that is the result of economic shocks.

To illustrate this point further, consider this fact: 1% of the US population grows all of the food for all Americans (source: The Ultimate Suburban Survivalist Guide). We have no doubt this is the same for Australia too- that the tiny minority of the population supplies the entire population with food. So, what does the other 99% of the population do? As you would know the answer by now, the working proportion of the other 99% are specialised and divided into their own area of speciality, serving the rest of the population.

The crucial question to ask is this: what is the ‘glue’ that stick together all these specialised and divided labour into a system that we called the “economy?” The answer is: energy. As we wrote in Smart money in alternative energy?Part 1: current energy quandary,

The most important ingredient that drives the efficiencies, comforts, automation and wonders of today?s modern way of life is energy. The trains, cars, ships and aeroplanes that transport massive quantities of people and goods over vast distances quickly require energy in the form of fuel. The heavy machines that do heavy physical work far beyond the scope of human labour require energy too. The powerful computers that process and store vast amount of data and information as well as automate mental labour requires energy in the form of electricity. The heating in winter and cooling in summer of our abode requires energy too. Take energy away and our modern way of life will very much grind to a halt and bring us back to the hard life of our ancestors. In fact, contemporary life rests on the premise of abundant and cheap energy.

In the food example, for the 1% of the population to supply food to the other 99%, there must be a way to distribute them through vast distances. In Australia’s case, some of the final consumers of the food that it produces are overseas, separated by thousands of kilometres of oceans. Not only that, the production of inorganic fertilisers that gives modern agriculture the amazing yields requires a lot of energy. With today’s modern machines and equipment, the farmer today can do the job of multiple ancient farmers at much faster speed. This requires energy.

Now, assuming that energy prices will be getting more and more expensive in real terms in the long run (i.e. Peak Oil, secular rise of Chinese/Indian demand, e.t.c), what will this imply? The conclusion is clear: the real cost of many things that we take for granted today will increase- that includes the cost of food, which is one of our most basic need. With that, it implies that the division and specialisation of labour that underpin the modern way of life as we know it will be fading away. That does not mean we will all return to the stone ages. But it will mean that it will be getting more and more expensive to ‘outsource’ our basic needs to other specialised labour. That means, we will have to be more multi-skilled and self-sufficient, which is the way our forefathers were in the first place.

Should there be any Black Swans (e.g. geopolitical acts, natural disaster) that will disrupt the just-in-time supply of energy to our local area, our modern way of life will be disrupted instantly. If the disruption is too sudden and unexpected, and relief is not on its way quick enough, society can easily descend into chaos simply because the highly specialised and divided labour of today’s society will not have the basic self-sufficiency skills to adjust. Also, having the skills alone is not enough- without adequate stockpiles of essential supplies, all the skills and adaptability will not help much. Think about it: how many of us keep a stockpile of basic supplies that are essential to our daily needs? Many urban dwellers simply buy supplies from the nearest supermarket as the need arises. Should there be a severe disruption of energy and other basic services, many otherwise decent folks will have to resort to looting the supermarket just to survive. As we read The Ultimate Suburban Survivalist Guide, we learnt that during Hurricane Katrina in the United States, some decent folks looted the supermarkets in order to distribute supplies to their neighbourhoods.

In short, the specialised and divided labour of today carries an Achilles Heel. There is another Achilles Heel of modern society. Keep in tune!

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