The Quality of Our Machinery and Capital Equipment

Better machinery is often said to be the best way to increase productivity. When machines are used, power is not limited by human strength but comes from other sources, such as coal, gas, oil, or even atomic power.

New technologies— changes resulting from the use of new machinery and methods — can be used by business to improve productivity. The development of the micro-computer and its application to business problems, for example, has increased the productivity of thousands of businesses.

To use machinery efficiently, producers must also usedivi­sion of labor— the practice of breaking down large, complex tasks into a series of small ones so that each worker can become an expert in his particular task.

The importance of division of labor has been understood for many years. In one of his more famous passages in his book, The Wealth of Nations, Adam Smith described how pins were produced more efficiently when labor was divided.

"One worker draws out the wire, another straightens it, a third cuts it, a fourth points it, and a fifth prepares it to receive the head. Making the head requires two or three operations, and putting it on the pin is yet another job. Even the placement of the pins in the paper from which they are sold is a job in itself.

I have seen a small factory of this kind in which only 10 men were employed. Small as it was, however, the 10 men could produce as many as 48,000 pins a day. But, if they had worked separately outside of the factory, no one of them could have made as many as 20 pins — perhaps not even one pin."

The pin factory that Adam Smith described also demonstrates the advantages ofspecialization. Specialization refers to the production of a limited variety of items by a business, region or country. Just as Smith's factory specialized in pins, "Silicon Valley" in California specializes in the production of microchips, and the nation of Singapore specializes in ship-building.

By narrowing the focus of their production, business firms and geographic regions become expert at what they do. This enables them to reduce costs. Since lower costs enable everyone to live better, specialization raises living standards. However, specialization also makes us more dependent on one another for the things we need.

Specialization has a similar effect upon nations. It improves living standards while at the same time making nations more interdependent.

Using Our Resources Effectively. The factors of production can be combined in any number of ways, some more efficient than others. When they are combined efficiently, productivity will be relatively high. When they are combined inefficiently, productivity will be relatively low. Decisions about combining the factors of production rest with management.

If the production process, for example, it is management's responsibility to acquire the necessary capital (in the form of machinery, tools and equipment). Similarly, management must hire and train the firm's labor force and motivate the workers to do the job. In other words, managers must employ both capital and labor to maximize productivity.

How do managers achieve this goal? One way was developed by Henry Ford who introduced a new way to manufacture his Model T Ford back in 1913. Prior to that time, workers and their tools moved from station to station to complete their tasks in building each automobile. One slow worker slowed everyone else. Ford introduced anassembly line that brought the car to the worker on a conveyor belt. As a result, each worker had to complete his task before the car passed his work station. If a worker could not finish his task in that time, the task was modified or he was retrained or fired.

Another way to increase productivity is to let workers partici­pate in designing and improving the production process. Profit sharing and stock ownership also motivate workers. This is exactly what many companies now do. It has been found that workers with a stake in the firm's welfare work smarter because they get part of the profits when productivity increases.

Business Conditions. There are times when business condi­tions in general are very good, and others when they are poor. These periodic ups and downs in the economy, known as the business cycle, affect productivity. When the economy slows down, sales decline. This leads retail stores to reduce the size of their inventories and postpone adding new lines of merchandise. For similar reasons, when business is poor, wholesalers and manufacturers reduce their inventories and production levels to cut costs.

Although business firms can reduce the size of their inventories and production levels at will, they are often reluctant to lay off workers. Some fear that if business suddenly improved, they might not be able to replace their experienced staff. Others may be concerned about the impact of a layoff on their employees and their families. In other instances union restrictions may prevent employers from laying off workers as quickly as they might other­wise prefer.

Whatever the reason, keeping workers longer than called for by business conditions results in reduced output per worker or, to put it another way, a decline in productivity.

When times are good, the opposite occurs. Employers are able to employ the optimum number of workers, and produc­tivity increases.

The History of Economic Thought