No one person can do everything. No matter how hard some may try. However, they can do very well in one particular thing. This is specialization and it is an important concept in economics. “Specialization is following one’s comparative advantage” (Hayne 27)
What is specialization?
According to Investopedia, specialization is “a method of production where a business or area focuses on the production of a limited scope of products or services in order to gain greater degrees of productive efficiency within the entire system of businesses or areas.’ (Investopedia)
What does specialization do for the economy?
Specialization allows you to find the absolute best person or business for the task you require. I required a wedding dress. I had it hand made in London because I thought they were the best. They specialize in weddings and wedding dresses. “Specialization and exchange expand people’s production possibilities.” (Hayne 27)
Why is specialization important?
Specialization on a personal level effects the economy overall in that it helps to foster trade and gives a comparative advantage to producers. “Economic growth was a consequence of the evolution of commercial society, a society in which everyone specializes and then lives by exchanging.” (Hayne 33)
Examples of specialization
A long time ago, I had the great idea to take my little hobby of the internet and marketing on the internet and turn it into part time winter work. I started out taking literally any offer that was given to me even if I had no clue what I was doing (which was most of the time). While I did eventually learn many things and even became good at them, I was certainly no expert. It was not for lack of trying however.
After a few years, I decided I was going to be a bit more selective about the projects that came my way. Instead of building websites, I would only work with WordPress websites. Instead of all forms of internet marketing, I was sticking to blogging, social media, newsletters, and SEO. These were my top 5 favorite things to do in internet marketing and things I had become very good at doing.
By taking that little step to specialize my talents and focus only these aspects, I have been turning clients away daily. Currently I am in the process of developing courses where people can learn these topics on their own so I am not tied to my computer 24/7.
My fiancée on the other hand, has yet to do this. His day job is as a boat mechanic and restorer. On Sunday’s, he takes the tractor out and goes around to some of the other farms that have asked him to do some work on there. However, he still gets ideas of converting our house into apartments to rent out and buying a bigger boat so he can give tours to tourists on Sundays. I am constantly reminding him that with a wedding coming up and a house remodel shortly thereafter, these are probably not the best ideas for us right now.
Benefits and disadvantages of specialization
Again, specialization allows individuals to focus on one area. However, being overly specific about their area of specialization is not advised. In addition, there must be others out there who are specializing in the same field. Healthy competition fosters ideas and growth in the economy. “Benefits of specialization include greater economic efficiency, consumer benefits, and opportunities for growth for competitive sectors. The disadvantages of specialization include threats to uncompetitive sectors, the risk of over-specialization, and strategic vulnerability.” (Boundless)
Global effects of specialization
Countries specialize in areas that they are naturally good at and also benefit from increasing returns to scale for the production of these goods. They benefit from economies of scale, which means that the average cost of producing the good falls (to a certain point) because more goods are being produced. Similarly, countries can benefit from increased learning. They simply are more skilled at making the product because they have specialized in it. These effects both contribute to increased overall efficiency for countries. Countries become better at making the product they specialize in. (Boundless)
While many people can do many things, it is best to focus on one area as a specialization to gain the highest economic benefit for yourself and in general. Specialization allows people, companies, and nations to grow economically through higher quality and lower cost of production.
Sources:
Heyne, P.T., Boetke, P., & Prychitcko, D. (2014). The Economic Way of Thinking (13th ed.). Upper Saddle River, N.J.: Prentice-Hall.
http://www.investopedia.com/terms/s/specialization.asp
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