Related Expertise: Business Strategy, Corporate Strategy, Corporate Finance and Strategy
After two or three centuries during which manufacturing consolidated into larger and larger enterprises, technology is now restoring opportunities for the lone craftsman making things at home—with extraordinary consequences for careers and lifestyles. The powerful trends toward making things oneself and choosing freelance careers over full-time employment recreate some of the economic and social dynamics of Athens between 500 and 300 B.C.—and pose important challenges to businesses and society. If we understand the forces behind the changes in industry structure since those times, we will have a better sense of how and why the dynamics of that structure are reversing and what that might mean for our daily lives.
To build a large business, you have to win more volume than others in a competitive marketplace; this means having an advantage your competitors cannot match. For a competitive advantage to be of value, it must be manifested in one of the elements of return on capital: revenues, costs, or capital employed. In classical Athens, with no industrial machinery and much of the work done by slaves whose maintenance costs were identical and whose capital costs reflected their skills, it was not possible to get an advantage in costs or in capital utilization. To compete successfully, you had to differentiate your product to make it worth more than your competitors’.
A talented jewelry maker could differentiate his work but would struggle to expand if customers associated the work with him as an individual. To form a large enterprise, it was necessary to have a product whose quality mattered but had to be made by a team of people. Shields are a fine example; their quality mattered very much to purchasers and each required a team of eight to manufacture. Athens’ largest manufacturing operation was a shield factory said to employ 120 slaves. Other large factories made differentiable products with similarly anonymous processing requirements, including luxury furniture, monumental sculptures, and knives.
For a huge range of other products, which made up most of consumption—such as everyday clothes, basic ceramics, simple metalwork, and carpentry—there was no basis for differentiation. Almost all Athenian citizen households would have family members or slaves who made clothes. Some might make a surplus to sell; other households would have to buy some clothing. Many would have made simple wooden, ceramic, or metal objects for their own use and sometimes to exchange with neighbors or sell in the marketplace.
The nature of a society in which most households participate, at least occasionally, in making goods is radically different from the world we are used to. For Athenian citizens, the flexibility offered by casual manufacturing formed a vital income-earning component in a portfolio of activity. Probably because it was a slave society, citizens generally avoided working for others. If hard-pressed, one person might agree to help a neighbor on his farm and be paid for it, usually in kind, but he wouldn’t sign up for long. He might work on a public-building project, which brought kudos as well as income. Some civic duties were also paid, including military service, attending the assembly, and being selected as a juror—but except in times of war, these payments would not support a family year-round. Most citizens had a small farm, which provided some, but generally not all, of their food.
By reducing their expenditures and bringing in some income through making simple household products, Athenian citizens managed to enjoy a rich and varied life. They had time to go to the theater and games, and some evidently had time to philosophize. Without permanent commitments to an employer, they could respond instantly to a military call-up and were able to vote in the assembly and act as jurors when required. Some might choose to work very hard to improve their income, but few saw that as a major objective. This varied freelance lifestyle underpinned the practice of democracy and Athens’ wonderful achievements in architecture, drama, art, and philosophy.
The industrial revolution changed the economics of manufacturing by creating new forms of advantage based upon operating costs and capital investment. Starting in the eighteenth century, the lower costs offered by mechanization, mass production, and shared information drove production into fewer and larger units, and the amateur craftsman in the family workshop was squeezed almost out of existence. From a social point of view, manufacturing had ceased to be an opportunity for modestly skilled craftspeople to supplement their living through casual engagement, mixing it with a range of other useful or interesting activities. By the twentieth century, pretty much the only way to earn money through manufacturing was in full-time employment, and those involved had little time for anything else.
Now, though, the information revolution is reversing the consolidating effect of the industrial revolution. The Internet eliminates many of the information advantages of colocation and cost sharing. There is less need for in-house knowledge or apprenticeships: online courses range from a few hours to many months in any handicraft you can name. Plenty of sites will help you keep up with fashions or innovations in your chosen craft. Raw materials, even specialized ones, can be sourced on the Internet—and to any required degree of pre-processing. Maker’s Row, Etsy, Alibaba, and similar ventures enable makers to find customers without heavy advertising or distribution expenditure. Crowdfunding sites such as Indiegogo and Kickstarter can help with financing. And the physical process itself is being simplified and transformed through programmable microcontrollers, desktop CNC milling and routing, and 3D printing. It is now much easier and cheaper than ever before to make high-quality products using your own designs.
The implications for the individual, for society, and for manufacturing companies are significant. For the individual, the restoration of competitive equality between the home craftsperson and the large factory creates real opportunities for the freelance lifestyle that many young people aspire to. As Forbes reported last year, 60 percent of Millennials in the U.S. stay fewer than three years in a job and 45 percent would prefer more flexibility to more pay. In a recent survey, 87 percent of UK graduates with first- or second-class degrees saw freelancing as highly attractive, and 85 percent believe freelancing will become the norm. Many are attracted to the idea of making things for themselves—hence the revival in craft markets and fairs. Make magazine has a paid circulation of more than 100,000 and is growing fast, and 195,000 people attended “Maker Faires” in California and New York in 2013.
For a long time now, most people in the developed world have been spending the prime of their lives pursuing a specific full-time career. Now many of them plan to divide their time among various forms of income-creating and leisure activities, as the mood and financial necessity move them. Can we use the opportunities this freedom brings to create a great society in the way the Athenians did, or will there be a lot of idle hands the devil can make work for? And what are the implications for health care, unemployment benefits, food stamps, pension plans, mortgages, military service, and so on?
Some manufacturing businesses will face a completely new challenge, one in which the stock weapons of increasing efficiency and reducing costs will be of little use. Few makers will recognize the opportunity cost of their time in a very businesslike way, given the psychic rewards they find in exercising their craft. Now that the other components of cost (procurement of raw materials, training and product development expenses, marketing investment, and energy) are available at rates not much different from those achieved by large enterprises, would-be makers will not be deterred by price cuts from established players. The number of people choosing to make things for themselves may not turn out to be a very large proportion of the population, but it will vary significantly among products. And even a small volume reduction in industries with a high level of fixed costs—which applies to most manufacturing—can lead to more aggressive competition and serious margin erosion.
Manufacturers should start by assessing the vulnerability of their output to substitution by the home craftsperson. Analyzing the nature of the items that were made in large enterprises before the industrial revolution will suggest what types of product line are most defensible. Relevant independent variables might include bulk, product complexity, the ability to personalize design or features, and the potential for display. Strategies for the most vulnerable products might need a complete rethink.
A version of this article originally appeared on HBR.org.