Paper short abstract:

Smith’s division of labour, stressed by Young and (subtly) by Hirschman, helps appreciate what industrial development entails. In a transnational-corporation dominated world, caution against passively joining global value chains is advised. Creating domestic linkages (division of labour) is pivotal.

Paper long abstract:

Industrial development can be appreciated as attaining increasingly intricate division of labor in the economy, akin to Smith's woolen-coat example in his Wealth of Nations, which represents how the necessities and conveniences of the "day-labourer" of his time were procured with the "assistance and cooperation of many thousands" of "branches" of work across the economy. That insight of Smith was later accentuated by Young, who characterised the division as "industrial differentiation" that involves increasingly "roundabout methods" of production. In a world with growing production fragmentation, there are opportunities for developing countries that are otherwise reliant on primary/agricultural production to latch onto nodes along certain global value chains (GVCs). Smith believed that "universal opulence [resulting from division of labour] … extends itself to the lowest ranks of the people". Such optimism cannot easily be justified in today's world when critical nodes of key GVCs are monopolised by giant transnational corporations, which adversely impact north-south income distribution and technology diffusion. In this context, instead of leaving outcomes to Smith's "invisible hand", cases can be made for state involvement in southern development promotion by strategically facilitating the activation of domestic production linkages à la Hirschman, who first focused on market size as the key enabling factor for activating them, but subsequently emphasised overcoming "technological alienness". This is not a call to return to centrally planned division of labor, as when a state simultaneously establishes certain sectors that are chosen based on synchronic input-output analysis, for history has revealed its many drawbacks.