Reference News Network August 23 report: The World Press Syndicate website published an article titled "The 250th Anniversary of Adam Smith" on August 18. The author is Nobel Prize-winning economist Michael Spence. The following is a compilation:

In an era of rapid economic and structural transformation, the insights of Adam Smith's "Wealth of Nations" are worth re-examining.

Two points stand out particularly. First, the "invisible hand" of the market can effectively allocate resources, provided certain conditions are met, including stable currency, a certain degree of trust and moral norms between economic actors, and secure property rights. Externalities and information asymmetry reduce the efficiency and performance of the "invisible hand."

The second, perhaps more important insight is that the efficiency and productivity of an economy are enhanced by "division of labor" (now known as "specialization"). Specialized economies are driven by various knowledge and professional skills. Since specialization cannot function without a reasonable and efficient means of exchange, it relies on Smith's "invisible hand." As specialization develops, the complexity of the economy also increases. As Smith pointed out, specialization is limited by the "extent of the market." That is why, after improvements in transportation and communication reduced the costs of addressing expanding markets, the level of specialization increased.

An important potential constraint on specialization is the risk it inevitably generates. Because the specialization pattern of an economy is structural, change takes time. If the trade system is disrupted, or if certain skills or industries are eliminated (for example, due to technological innovation or changes in demand patterns), individuals, companies, and even entire economies must undergo transformation, a process that may be very difficult and take a long time.

Mercantilism is increasingly being replaced by free trade. In addition, the digital revolution has accelerated advances in transportation and communication technologies, thereby completely relaxing the constraints on the "extent of the market" for specialization. For developing economies, this has changed the rules of the game. Due to their lower per capita GDP, they cannot generate sufficient domestic demand to benefit from the efficiency and productivity gains brought about by the division of labor. Once they gain access to foreign markets and technology, however, they can leverage their comparative advantages to achieve rapid GDP growth. Therefore, the increasing specialization is accompanied by a shift in economic activities across regions. The resulting structural disruption exceeds the speed at which governance structures can evolve to mitigate the rising risks.

Finally, the transfer of global economic power reached a critical point: the constraints on the demand for specialization were relaxed to the extent that risk constraints began to take effect. As structural disruptions become more apparent, the frustration of people in developed economies is deepening, leading to strong backlash in social and political spheres. The result is that many countries now regard economic security and national security as inseparable: although the division of labor within economies remains intact, it is partially reversing at the international level. Although we cannot know exactly where this process will lead, it is foreseeable that it will have a negative impact on productivity and economic growth, which is actually the cost of enhancing resilience and reducing risks. Countries with insufficient domestic demand (whether due to low per capita GDP or small population size) will suffer the most, and the extent of their losses will depend on how much access they still have to global markets.

However, Smith's model of specialization may soon face a more fundamental transformation. Recall that it was based on the localized accumulation of specific knowledge and professional skills, which are not easily accessible or transferable. However, generative AI models, which have already produced numerous effects, seem to be moving toward a direction where they can provide almost any area of expertise to anyone at an extremely low cost.

The potential impact is profound. If expertise becomes no longer scarce, its cost of acquisition will decrease. Only those knowledge and skills that remain difficult to transfer (such as those that are hard to describe or record) will increase in value. In other words, at some point in the future, a significant portion of human capital may be far less valuable than it was over the past 250 years, while another part may be much more valuable. One question that must now be studied is what proportion each part will occupy.

Almost 250 years after Smith introduced the concept of specialization, it remains a key feature of our economy. And it has undergone profound changes. As the perceived interdependence risks rise, specialization is experiencing a partial decline globally. Artificial intelligence may not reduce the level of specialization, but by changing the way knowledge is transferred, it may alter the relative prices of human capital associated with various areas of expertise. (Translated by Wang Diqing)

Original: https://www.toutiao.com/article/7541708443481113151/

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