The economic activity can be carried out by both **individuals** and **organizations**. Even if the majority of it is carried out by organizations. What allows organizations to dominate are: - **Efficiency**, ability of producing an **organizational rent**. - **Social needs**, organizations fulfil human needs for sociality through deep, beneficial interpersonal relationships. The *organizational rent* is the product of intelligent cooperation among several people who are pursuing the same goal, leading to an economic advantage. This cooperation enables each worker to receive more than when selling the outcome as an individual effort. The lower cost or higher quality of outcomes compete away individual producers. **Social bodies** **are human groups that often take on the traits of institutions, that is, they adopt stable rules and models of behaviour.** These social bodies are normally divided into two groups: ***families*** and ***organizations*** (*Firms*, *State*, *Non-Profits*). The first ones are natural social bodies, while the second are communities whose purpose is attaining relatively specific goals, with rules of conduct that are deliberately designed and formalized. The main purpose of **families** is *non-economic*, but satisfying the needs of family members, including economic ones. Typical economic operations: consumption, income generation, internal work, saving and investment, insurance management, paying taxes, financing and building capital. The purpose of **firms** is *economic* (*for-profit*) mainly to produce *revenues*. They satisfy needs of core stakeholders, *employees* and *shareholders*, who are essential to the existence and governance of the firm; but also non-core stakeholders, *customers*, are also crucial. Typical economic operations: buying input, transformation, selling output. *Firms are a crucial part of society and on their own terms they take part in the attainment of the common good.* There is then a social nature of the firm showing that the action undertaken by a firm is influenced by constraints arising from extra-economic finalism. The purpose of **States** is *non-economic* (political, social, cultural). The aim of a national political community lies in the complex realization of the social and spiritual development of its citizens. They are divided in branches (central/federal, regions, provinces) and other entities. The core stakeholders are the national community and state employees. Typical economic operations: production and consumption of public goods, as well as generating rewards for employees. The state finance itself through **taxes** and **debt** (BTP). ![[image2.jpeg]] The purpose of **Non-Profit Organizations** is *economic* (*not for profits*), including a combination of goals entailing producing rewards, producing and consuming goods by members of the organization. They may be very similar to firms in how they are managed and organized. They use a mix of volunteers and regular employees. They may sell products or services, pursue interests of members, provide public goods for free. In order to be a Non-profit organization has to be private. The primary economic goal is to satisfy the needs of certain categories of people. Depending on the type of organization, these people may be members or excludable users or the entire community. One of the most apparent aspects of modern economic systems is specialization. The degree of specialization in modern economic activities can be seen on three levels: - By **macro - classes** of organizations, the fact that we have four different social bodies that carry out economic activity. **Only families** would lead to a "**self-consumption**" model, inefficient because too small to achieve adequate specialization. They have a room in the economy because they are natural social bodies. - **Only firms** would lead to an "**anarcho-capitalism**" model, firms can take full advantage of specialization, adapting their size and investments to all technical opportunities. - **Only state** would lead to an "**absolute hierarchy**" model, because beyond a certain size coordination costs are too high, the state is anyway efficient to solve market failures. - **Only non-profits** would lead to some **utopian narratives**, non-profits are fundamental to solve state failures. - **Within each macro-class**, while in families relatively analogous sets of economic activities occur, firms are highly specialized in the production of specific types of goods targeting specific categories of costumers, and in carrying out particular kinds of transactions. - **Within each organization**, we find specialization within single organizations, where various organizational units and individuals perform specific tasks, tapping into special skills and resources. **Organizational charts** represent division of labour and coordination within each organization. Why are people inclined to organize their activities by specialization? Of course, there are clear advantages inherent to specialization: **activities take place with more speed and efficiently, with less effort and with higher quality results**. These advantages, interpreted in economic terms, can be called **specialization economies**. The sources of specialization economies are: - **Learning Processes**, repeating the same activity leads to develop manual dexterity, discovering more efficient and effective ways to perform the activity, creating an inventory of problems and solutions. - **Individual Skills**, specialization allows to assign tasks to those people who are most skilled at them. - **Technical and managerial orientation**, people with a particularly focused technical and managerial orientation can be assigned specialized tasks. This would guarantee that pre-set goals are effectively pursued. Conversely, problems of integration can arise with others who have a different orientation. - **Setting / Set - up costs**, these are the costs to shift from a task to another, Taylor introduced for the first time in Ford Motors his theory on chain and specialized operations to reduce set up costs. - **Facilities and Equipment**, until now we have referred to the specialization of a single worker. Just as important are specialized facilities and equipment. They also combine well with specialized work, because specialized workers may be required to run them. - **Job identification and motivation**, a high degree of labour specialization can impact individual motivation in a positive way. Very specialized people tend to identify with their job and enjoy a sense of command over their work situation. Mastery, the feeling of being irreplaceable and the quality of results contribute to satisfying the need for esteem. Specialized works can allow people to reach the **top of Marlow's** **pyramid**. Specialization can also result in disadvantages. Therefore, the optimal degree of specialization can be found by striking a balance between advantages and disadvantages. The major limitations are: - **Cost of coordination**, someone must divide and organize work, Managers' don't contribute to the production, but they are a high cost for the firms. - **Cost of rigidity and specific investments**, varied skills and multi-purpose facilities can be easily redeployed to new tasks, while specialized resources are less flexible. - **Demotivation**, highly repetitive tasks can reduce esteem and self-fulfilment.