In this chapter, we start presenting a framework for the definition of industrial development policy. We have shown, in the previous chapter, the importance of the analysis of production organisation in the study of the determinants of industrial development and the wealth of nations (viewed as wider than economic wealth, and intending social and environmental sustainability). Production organisation has changed dramatically, with the unbundling of the various phases of the production process and the creation of global value chains. Parts of the production process can be carried out by suppliers spatially separated, even in different countries. Production organisation was analysed by Adam Smith as the division of labour, giving rise to the modern firm. We extend the analysis of labour division to the evolution of production organisation in the twentieth century and up to today. We do not pretend to re-interpret Smith or to provide an exhaustive account of his ideas; rather, we use some of his ideas to provide the foundations of our framework for the definition of industrial policy. Note that Bianchi (1981) already used a framework based on the work of Adam Smith to explain the dramatic changes in production organisation that arose in the 1970s and 1980s, especially in the automobile sector. We extend it to explain changes arising since then. In our view, the essence of the firm is the division of labour, namely the coordination of specialised skills and competencies of different individuals, in a dynamic and complementary manner, since skills and competencies are...
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