The High Price of Efficiency

by Roger L. Martin

IN HIS LANDMARK 1776 work The Wealth of Nations, Adam Smith showed that a clever division of labor could make a commercial enterprise vastly more productive than if each worker took personal charge of constructing a finished product. Four decades later, in On the Principles of Political Economy and Taxation, David Ricardo took the argument further with his theory of comparative advantage, asserting that because it is more efficient for Portuguese workers to make wine and English workers to make cloth, each group would be better off focusing on its area of advantage and trading with the other.

These insights both reflected and drove the Industrial Revolution, which was as much about process innovations ...

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