Adam Smith on Market Changes, Efficiency, and How to Fire Employees
One of the main initiatives of the Trump administration has been to promote government efficiency through a department led by Elon Musk. One might think Adam Smith's writings as some of the first on modern markets would provide support for such an initiative. Yet, while Smith certainly praises the efficiency of the division of labor for increasing productive capacity and decreasing the cost of production and therefore of goods (WN I.i.5), he is not so sanguine about cutting jobs quickly for the sake of efficiency. Smith notes that demand for goods and services will change based on the needs of any society and therefore that some jobs may need to be cut, but he proposes a very different process than the one reportedly being pursued by the Department of Government Efficiency (DOGE).
In a section discussing the potential of the state to utilize retaliatory tariffs to restore free trade, Smith discusses what happens when free trade has been restored. He argues that due to the removal of special government privileges, an industry may need to lay off workers that are no longer needed. Smith advises what process industries should undertake when having to terminate employment of excess workforce. He writes,
In a section discussing the potential of the state to utilize retaliatory tariffs to restore free trade, Smith discusses what happens when free trade has been restored. He argues that due to the removal of special government privileges, an industry may need to lay off workers that are no longer needed. Smith advises what process industries should undertake when having to terminate employment of excess workforce. He writes,
Humanity may in this case require that the freedom of trade should be restored only by slow gradations, and with a good deal of reserve and circumspection. Were those high duties and prohibitions taken away all at once, cheaper foreign goods of the same kind might be poured so fast into the home market, as to deprive all at once many thousands of our people of their ordinary employment and means of subsistence. The disorder which this would occasion might no doubt be very considerable. It would in all probability, however, be much less than is commonly imagined.
(WN IV.ii.40)
Disruptions to industry can cause “disorder” but steps can be taken to mitigate this disorder.
Smith acknowledges that not disrupting manufacturing employment with additional competition (from foreign markets in this case) would be as dangerous as a king continuing to add soldiers to a standing army though there was no imminent need due to war. He argues that the government often protects manufactures from competition because both parties gain “popularity and influence…and wealth” from this arrangement (WN IV.ii.43). But if manufacturers are subject to new competition and have to lay off workers they will “no doubt suffer very considerably” and so “equitable regard, therefore, to his interest requires that changes of this kind should never be introduced suddenly, but slowly, gradually, and after a very long warning” (WN IV.ii.44). Smith concludes that governments should avoid favoring industries because it puts them in a precarious and unsustainable situation of having artificial demand for their goods.
Notice that though Smith is talking about a specific situation when the market may have to adjust to the forces of demand, he offers specific prescriptions for big changes in employment such that workers and employers both can be treated with “humanity”. Smith suggests that changes be introduced slowly, by gradations, and after the employees and the industry have been given advance notice. He also suggests that there need to be low barriers to entry in other industries to allow labor mobility for displaced workers to find a new job.
Smith goes on to suggest that freer trade will benefit workers more than it will disrupt their employment because manufactures not subject to bounties and tariffs “employ the greatest number of hands” (WN IV.ii.41). Secondly, he considers the shift that may occur in employment, at the end of a war when “a great number of people…[are] thrown all at once out of their ordinary employment” (WN IV.ii.42). Smith is considering the conclusion of an actual war in Britain, likely the Seven Years’ War. He argues that he soldiers and seamen were able to find employment with the government as seamen in the merchant-service, which did reduce the wages of those employees, or were “absorbed in the great mass of the people and employed in a great variety of occupations” (WN IV.ii.42).
While the initial DOGE “fork in the road” offer to federal employees may have fit Smith's criterion for humanity in eliminating jobs because of its gradual nature, namely offering to pay employees through September, a federal judge had stayed this proposal, though it may now be allowed to proceed. In the meantime, DOGE has, according to some estimates, fired potentially hundreds of thousands of employees, while others suggest less than 50,000, during the month of February, though no precise figures are available. It has been reported that some employees “los[t] access to email before they had learned they were fired.” While extensive information about DOGE’s actions is not available, reports suggest that the process has not been gradual.
Nor does the process of cuts have clear expectations. There have not been formal announcements of job cuts. Instead, information has come from employees themselves and is only later confirmed by members of Congress. Of primary importance to Smith throughout his writing is a “regular” or “exact administration of justice” (WN V.i.b.1) that is crucial to “the immense fabric of society” (TMS II.ii.3.4) that relies on rule of law. For example, Smith notes that judges should not be able to receive “presents” for favorable decisions (WN V.i.b17).
Smith also promotes workers being able to pursue what jobs they please without the undue influence of elites:
Smith acknowledges that not disrupting manufacturing employment with additional competition (from foreign markets in this case) would be as dangerous as a king continuing to add soldiers to a standing army though there was no imminent need due to war. He argues that the government often protects manufactures from competition because both parties gain “popularity and influence…and wealth” from this arrangement (WN IV.ii.43). But if manufacturers are subject to new competition and have to lay off workers they will “no doubt suffer very considerably” and so “equitable regard, therefore, to his interest requires that changes of this kind should never be introduced suddenly, but slowly, gradually, and after a very long warning” (WN IV.ii.44). Smith concludes that governments should avoid favoring industries because it puts them in a precarious and unsustainable situation of having artificial demand for their goods.
Notice that though Smith is talking about a specific situation when the market may have to adjust to the forces of demand, he offers specific prescriptions for big changes in employment such that workers and employers both can be treated with “humanity”. Smith suggests that changes be introduced slowly, by gradations, and after the employees and the industry have been given advance notice. He also suggests that there need to be low barriers to entry in other industries to allow labor mobility for displaced workers to find a new job.
Smith goes on to suggest that freer trade will benefit workers more than it will disrupt their employment because manufactures not subject to bounties and tariffs “employ the greatest number of hands” (WN IV.ii.41). Secondly, he considers the shift that may occur in employment, at the end of a war when “a great number of people…[are] thrown all at once out of their ordinary employment” (WN IV.ii.42). Smith is considering the conclusion of an actual war in Britain, likely the Seven Years’ War. He argues that he soldiers and seamen were able to find employment with the government as seamen in the merchant-service, which did reduce the wages of those employees, or were “absorbed in the great mass of the people and employed in a great variety of occupations” (WN IV.ii.42).
While the initial DOGE “fork in the road” offer to federal employees may have fit Smith's criterion for humanity in eliminating jobs because of its gradual nature, namely offering to pay employees through September, a federal judge had stayed this proposal, though it may now be allowed to proceed. In the meantime, DOGE has, according to some estimates, fired potentially hundreds of thousands of employees, while others suggest less than 50,000, during the month of February, though no precise figures are available. It has been reported that some employees “los[t] access to email before they had learned they were fired.” While extensive information about DOGE’s actions is not available, reports suggest that the process has not been gradual.
Nor does the process of cuts have clear expectations. There have not been formal announcements of job cuts. Instead, information has come from employees themselves and is only later confirmed by members of Congress. Of primary importance to Smith throughout his writing is a “regular” or “exact administration of justice” (WN V.i.b.1) that is crucial to “the immense fabric of society” (TMS II.ii.3.4) that relies on rule of law. For example, Smith notes that judges should not be able to receive “presents” for favorable decisions (WN V.i.b17).
Smith also promotes workers being able to pursue what jobs they please without the undue influence of elites:
Let the same natural liberty of exercising what species of industry they please be restored to all his majesty’s subjects, in the same manner as to soldiers and seamen; that is, break down the exclusive privileges of corporations, and repeal the statue of apprenticeship, both which are encroachments upon natural liberty, and add to these the repeal of the law of settlements, so that a poor workman, when thrown out of employment either in one trade or in one place, may seek for it in another trade or in another place without the fear either of a prosecution or of a removal, and neither the public nor the individuals will suffer much more from the occasional disbanding some particular classes of manufacturers, than from that of soldiers.
(WN IV.ii.42).
Smith is considering government jobs when he considers soldiers and sailors. Approaching interferences within the market well is a challenge as Smith said in paragraphs preceding the discussing of large shifts in the labor force on the process of retaliatory tariffs to reach a freer trade situation being the purview of “the science of a legislator” but often failing under the deliberations of “that insidious and crafty animal, vulgarly called a statesman” (WN IV.ii.39). Similarly, Smith laments in the next paragraphs after discussing job cuts “that the freedom of trade should ever be entirely restored in Great Britain, is as absurd as to except that an Oceana or Utopia should ever be established in it" (WN IV.ii.43).
While Smith certainly argues for the fluctuation of markets according to supply and demand and consequently free trade, he also argues for measures that make these changes more bearable for workers, especially gradual changes and the elimination of special privileges for the elite that make it harder for workers to follow the market for labor.
More by this author:
Why does the Division of Labor Matter?
What can Adam Smith teach us about the moral economy of sanctioning oligarchs?
Adam Smith, the American Founding and the Political Problem of Wealth
While Smith certainly argues for the fluctuation of markets according to supply and demand and consequently free trade, he also argues for measures that make these changes more bearable for workers, especially gradual changes and the elimination of special privileges for the elite that make it harder for workers to follow the market for labor.
More by this author:
Why does the Division of Labor Matter?
What can Adam Smith teach us about the moral economy of sanctioning oligarchs?
Adam Smith, the American Founding and the Political Problem of Wealth