“One man draws out the wire, another straights it, a third cuts it, a
fourth points it, a fifth grinds it at the top for receiving the head;…
Those …persons, therefore, could make …upwards of forty-eight
thousand pins in a day. But if they had all wrought …independently, …
they certainly could not each of them have made twenty, perhaps not
one pin in a day …”
–Adam Smith, The Wealth of Nations, 1776
For Adam Smith, dividing the manufacture of goods into minute unskilled tasks had unimagined benefits. His goal was not only a pin or a tool but also mass production, more workers with wages to spend, a transport infrastructure, trade, lower costs and innovation.
Explaining the wonders of a division of labor in The Wealth of Nations, he was not thinking about Taiwanese orchids.
Rather like the artisanal manufacturing that the division of labor replaced, traditional orchid growing required expertise. With cachet that oozed glamor and prestige, one plant could sell for $80 and more. In 1978, a specially bred custard yellow orchid was sold by one breeder to another for $100,000.
Now, orchids are cheap because of Adam Smith’s division of labor. Taiwanese growers cluster their greenhouses so that each one can specialize in a different stage of the orchid’s early life cycle. Starting with germination and ending with potting, one plant moves from grower to grower. Each 4 to 6 month growth stage will typically involve a different greenhouse with someone who specializes in that segment of the orchid’s life. The result? Mass production, more workers, a worldwide transport infrastructure, lower costs and continuing innovation.
As for prices, an efficient supply chain has meant they could decrease. But also, with many small businesses cooperating and global competition, it has resulted in smaller profit margins. Since Taiwanese orchids entered the US in 2004, their price has dropped 30%. A small potted plant can have a wholesale price as low at $3.33. A plant that takes 4 years to grow can sell in the US for $8.50.
Yes, we are talking about the evolution of an orchid supply chain. But, couldn’t we also be describing a laptop computer or one of Adam Smith’s pins?
Sources and resources: Hat tip to the Wall Street Journal for most of my orchid facts. Complementing the contemporary description, this NY Times article from 2004 provides an historical perspective while my research for Econ 101 1/2 was the source of my Adam Smith ideas.