Lazy Luddite Log: The Service Sector

4.3.06

The Service Sector

The following item is to be published in a forthcoming edition of the Australian Democrats National Journal. Copyright belongs to the writer however so I may as well stick it here too. It is entitled The Service Sector and Progressive Politics.

Have you ever noticed how many political activists romanticize the primary and secondary sectors of the economy? The positives of working on the farm or in the factory are exaggerated and the negatives overlooked. It has struck me as peculiar that nobody seems to have done this for the tertiary sector. This is unusual, as there are many benefits that are arising from the growth and dominance of a service economy, particularly from the perspective of progressive politics. Consider the following:

Ecological Sustainability

In any industry there is a significant level of resource consumption associated with establishing a farm or factory or whatever. Once the site is operational, the level of resource consumed at any one time reduces compared with the time in which it was established. This reduction in resource usage between establishment and operation is much more significant for services than for agriculture or manufacturing. Consider a car factory and then compare it with - say - a cinema. The car factory consumes a particular level of resources for every car it produces. In contrast a particular film reel is produced once but then can be played many times over. Every time it is played a service has been rendered to consumers and wealth has thereby been generated but the resource consumption associated with that product is nominal. Think of other services such as a barber or a website designer to see how little is consumed in producing their product.

It is almost as if wealth is produced from next to nothing. The services sector is driven by humans interacting with other humans moreso than by the use of natural resources and so has much more potential for growth regardless of any natural limits to growth. As such a service economy is much more conducive to ecologically sustainable development than older forms of economy.

A Diverse and Tolerant Society

The services sector depends on the interaction of humans for its existence. Many services can be defined as the conducting of relationships, including the transfer of information from person to person, rather than the making of things. The fewer barriers to human interaction the more vibrant a service economy becomes. Differences of gender, sexuality, culture, creed, generation, locality and interest are overcome by those who wish to have more customers or partners.

Contrary to the old saying, familiarity breeds respect, and the more that prejudice is set aside for the sake of success in working life, the more it will be abandoned altogether. This would be particularly strong in an economic activity that is defined by human interaction. Whether it is a case of correlation or causation, it seems that the growth of the service economy goes hand-in-hand with the development of a more tolerant and diverse society.

What to make of all this?

I have written this short item just to explore some processes and associations that seem overlooked by many. It seems that the development of a service economy may be conducive to key objectives in progressive politics. What are the implications of having political activists recognize this connection?

It may make sense for us to develop policy positions that work alongside rather than contrary to these processes. It may even be worthwhile to factor the prominence of the service sector into political self-promotion - who advocates for the needs of service sector workers as a distinct group in society? In the end however it hardly matters what political activists do. Such processes have a life of their own independent of what governments or political interests may do. The service economy is here to stay and hopefully that is a good thing.

Labels: Political

14 Comments:

Nice writing. Interesting point about cultural diversity.

But I think you will find that the cost of the service sector is borne by primary producers and consumers. I can't see that there is any wealth generation in tertiary industry, merely redistribution.

I also believe that as without primary and secondary industries, the tertiary ones could not exist, their pollution is just done indirectly.

PS: I count research scientists as primary producers of knowledge.

By Anonymous, At 05 March, 2006
I think I am using the descriptions of the three sectors as they are generally used by economists. There are some who categorise 'information' as a whole separate sector which would include researchers but also (to throw in a contrasting case) advertising agents!

The thing to ask - Jac - is how do we decide what is of value? You may have difficulty seeing the value in a movie or a haircut or a new website but many others do see the value in those and are prepared to pay for them. We have to get beyond thinking that only things we can hold and touch are of value.

You are right in saying that services depend in part on the products of the older sectors. A website designer needs a computer which they run on electricity and they also need coffee to power themselves! But those things will tend to exist anyway and it is what the person then does with them that produces something new that others may value. Is any more pollution occuring as a result of this person designing a website as opposed to just surfing the net for the heck of it?

By Dan, At 09 March, 2006
I don't want to sound grumpy at all, because I'm not - I'm curous about what you are saying, and want to challenge it for clarification.

That said, I've got to argue that comparing someone building a website for a business to someone surfing for their own amusement is like comparing apples with firetrucks. By your token - if someone is playing cricket, wouldn't their resources be better spent planting trees?

Haircuts and movies are descretionary spending items. In a purely practical (if inapplicably capitalist) sense, descretionary spending should come when the value of what we have created exceeds the value of what we consume. As a species, we have earned negative descretionary spending value, as humans are consuming more than we can sustainably produce. What's worse, I fear much of the excess in consumption is paying for websurfing and coffee. By which I mean, entertainment and indulgence.

I do see the value in a movie, an occasional haircut and many websites. My concern is that consumers are not paying enough for them to address their real indirect cost. The burgeoning service sector is a bubble that will inevitably burst when the ultimate source(s) of wealth that pays for it becomes unviable.

Primary industry really *is* the foundation of the economy. that point cannot be overstated. It's also a large part of the interface between human activity and the environment. Primary industry needs to be looked after responsibly and carefully.

It's a needs hierachy of some sort, regarding tending to the essentials first. I fear that what Western civilisation (at least) is doing with our wealth is akin to spending a significant portion of the rent and grocery money on going to the fair.

I'm curious to know what aspect of the service sector does not depend on products of older industries?

By Anonymous, At 11 March, 2006
@Jac: The question of discretionary spending is really orthogonal to the sector.

All three sectors produce both luxuries and essentials. The cinema produces luxuries just as much as the strawberry farmer or the toy manufacturer; meanwhile, teachers and physicians produce necessities, like the wheat farmer or the baker.

By Anonymous, At 14 March, 2006
@jiri: There are luxury products produced directly in primary and secondary industries, of course, but I would be stunned indeed if descretionary income were not a far higher proportion of revenue for tertiary rather than than primary or secondary industries.

By Anonymous, At 16 March, 2006
To Jiri

Thanks for the comment on necessity and luxury items coming from all sectors. I think there are also lots of items that fall into a grey area in which circumstance and interpretation determine whether they are 'needs' or 'wants'. Those definitions change over time. Once the only things considered absolutely necessary were food and clothing and shelter. Now consensus includes much of health and education and even communications and transport.

To Jac

I cannot identify any service that can be done free of the products of the other sectors - everyone needs food in order to live and work! What I am saying is that many products of the service sector generate much value while consuming few resources (in many cases because they are reusing existing products from those other sectors).

I think we may be coming at this topic with very different objectives. Mine - as stated in the original item - is that of 'Ecologically Sustainable Development'. I think that we can steer a path that incorporates both respect for the limitations of the natural environment and works towards improvements to human livelihoods and living standards.

With that in mind look back at the web page designer. They are worth comparing with the person who is simply web-surfing because both utilise the same existing resources: The person has the computer and the coffee. But they may also have the skills and artistic sensibility to make very attractive and functional websites. If they sell the product of this human ability then additional value is generated. And exercising that ability is virtually pollution-free!

Say they have been contracted to do a site for a therapeutic massage service. The web-designer gets an income from what they have produced. The massage service gets more customers as a result of the website and more income for themselves. Wealth is generated in this process more than once and all because of that person using existing tools but in a particular way. They have got an income free of the need to 'dig it up or chop it down'.

You seem to think that economics is a zero-sum game in that if someone benefits then some other person or the environment must automatically suffer. But in many services I think we can see that wealth that had never existed has been created rather than just redistributed.

You also seem to be letting personal value-judgements determine what you think is worthwhile (e.g. pure research is productive while recreation is ‘indulgent’). But everyone has somewhat different preferences that determine what they are prepared to pay for.

In objecting to ‘discretional spending’ are you wishing to prohibit us from having any personal discretion? I think it is better to give us the credit that we can make decisions regarding what is best for us. We can use both economic power (as consumers) and political power (as citizens) and we can act both individually and collectively to do so. But give us the chance to do that rather than rely on the prescriptions of a select few.

By Dan, At 17 March, 2006
Thank you for replying. I really appreciate your patience. I'm doing some unaccustomed thinking and learning of things...

Zero sum game? Of course it's a zero sum game! Wealth doesn't come from nowhere. It's a representation of energy, and if you have discovered a means of free energy generation, please share!

Your web-designer is paid by the massage therapist who is ultimately paid by people who 'dig it up or chop it down'. The value of the massage is determined by the increased efficiency it generates in the consumers. The website does not generate wealth.

Someone using the internet recreationally is making no attempt at increasing efficiency. As with any form of recreaton, individual efficiency is improved indirectly because pleasureable activity is mood enhancing, therefore increases an individual's effective capability.

I am certain that no wealth is generated by your hypothetical website. Such a website might only pay for itself by improving efficiency between producers, middlemen and consumers. And that's reducing energy wasteage, not generating energy. Ditto for bringing genuinely more effective products and services to the attention of the consumer. In a case where marketing merely generates the desire for a hitherto undesired product, it either decreases efficency or reduces inefficiency to the extent that the product/service does in the individual instance of it's consumption. The entire service sector only reduces inefficiency to the degree that the product/service offered does in the instance of it's consumption. I still say that wealth is merely re-distributed in tertiary industry whether well invested or not, and we know that with energy or with money, some is lost with each evolution.

You say that tertiary industries 're-use' the products of other industries. If you are referring to recycling, I say 'yay', and that it is a good thing. Somehow, I don't think that's what you mean. But it touches on what I mean.

From an insanely reductionist perspective, ecological sustainability requires that human civilisation not degrade the environment. Until that excruciatingly difficult, and likely impossible requisite is met, no discretionary spending is justified. (Discretionary spending, by that definition implies reverse entropy, which is a whole other kettle of krill.) I'm not against individual discretion, just uncomfortable with wasteful consumption.

Existing discretionary spending impacts the balance between wealth production and environmental harm. Existing discretionary spending is not wealth generated and spent, it is voluntary inefficiency. (If the actions of unthinking people can be called 'voluntary'.)

Humans, like other animals, love our grooming. Hair cuts for individuals, spiffy websites for businesses, wether they pay for themselves or not, they act as the most primitive kind of status symbol. They make a statement of efficiency and desirability. Being elaborately groomed is a sign that an individual's capacity to maintain their health and safety exceeds the minimum, and allows 'leisure time'. The more time an individual can spend on grooming, the better their genetic material, therefore the more desirable they are as a mate, right? As a species, humans have taken conspicuous consumption beyond time and into accessories as an extension of elaborate grooming. We make ourselves 'sexier' and more culturally 'fit' by having bigger houses, more fashionable clothes, endless vistas of plastic gee-gaws, flashier advertising and weirder art. We have exceeded the planetary ecology's capacity to cover the cost of our grooming, yet we can't bring ourselves into check for fear that someone else will snatch advantage from us.

I'm certain that all of this can be expressed in far more elegant ways, but I've never studied politics or ecenomics, so my terminology is lacking. What I've stated above is at odds with the culture I live in, and I'm too lazy to swim against the mainstream and live my ideals. But despite my lounging here trying a new brand of Cuvee (bleah!), I do believe that our culture of consumption without regard for true cost is seriously doomed.

I'd love to be wrong. Please tell me how I'm wrong?

By Anonymous, At 17 March, 2006
Some resources are finite - like uranium. Other resources are infinite - like my reserves of patience! Just kidding...

Jac I think that your strongly held global perspective is preventing you from recognising the veracity of any aspects of my specific illustrations. It may be worth taking a look back over what I have written and take note of my blatant use of italics for emphasis.

I will return to my webpage designer just one more time. They live in a house (from which they work). They wear clothes. They eat food. They have a computer which runs on electricity. Just by living a modern life they are having an impact on the environment. What they then do for a living utilises only those things they consume just by living and as a result is only as environmentally degrading as them living. Nobody says they have to work this way. They could have had some other job that has its own additional environmental impact. But they do a job that arises merely from a small modification to existing home life. So possibly you object to the basic modern life rather than to the having of a service job. And if you still have objections to the service job itself then possibly your objections are moral rather than environmental in origin.

In the rest of this comment I will elaborate on some of the concepts that may have been controversial in this discussion...

Value

The value of goods and services is subjective rather than objective. We as humans decide value by a process of discussion (e.g. haggling).

Consider a kg of grass seeds. Note that they have been harvested so the basic environmental impact has been done. Now somebody uses a mortal and pestle to turn the seeds into a kg of flour. Suddenly the value of the stuff has grown despite the fact that there is still just one kg of it. The act of processing it is known as 'value-adding' and everytime it is done the value grows. It results from human actions rather than just from what was in the world to start with.

The GDP of planet Earth is considerably bigger than it once was and yet the Earth is the same size it always was. It is because of this subjective nature of wealth that we cannot always assume that it is a zero-sum game.

Economies of Scale

Everyone who has lived in a share household has experienced an economy of scale. A kitchen will serve three residents just as well as one. The same thing happens on a much bigger scale and my hunch is that this phenomenon helps a modern developed economy to minimise its environmental impact. What has more environmental impact - 1 modern farm growing food for 1000 consumers or 250 family-run subsistence farms (assuming 4 persons per family farm). My hunch is that the modern farm has less environmental impact and that it is therefore better for us to use modern organisational methods and technology to free the huge majority of the population from such tasks so that they can do other things like services. It also gives us a better quality of life and a more interesting community. Makes sense to me.

By Dan, At 20 March, 2006
Your blatant use of italics to emphasise the existing resources that are being 'put to use' does not register with me, because the supply of the resources is proportional to demand. Less demand; less electricity. More demand; rolling brownouts. (Hang on, that's not how it's supposed to work. Must have been privatised.;-))

The electricity used by the web designer still causes pollution. I certainly agree that a consumer makes useable product is doing more to mitigate the cost of their existence than someone who consumes the same resources but produces nothing. However, in discussion about different levels of industry, a better comparison would be between the web-designer and the flour miller. Otherwise, we're discussing the merits of social security.

I do understand value-adding. The value lies in the investment of time, equipment and skill. Almost anyone can grind flour, but if their time is more valuably spent doing other things, it is efficient for them to pay someone who specialises in milling (therefore reaps the benifits of economies of scale) to do it for them.

As well as the cost of growing and harvesting the grain, any by product of processing, the cost of the existence of the person processing the grain, or developing the website, has to be borne by the environment.

Economies of scale bring efficiency, but at the cost of diversity (and in share housing, at the cost of privacy and just a bit of sanity) where diversity is more important, as in biodiversity, I vote against broadacre monoculture.

I quail that I can even begin to think of a person in terms of whether their productivity justifies their existence in a meta-ecenomic sense. Not to ask that question of the human race, though, is impossible in the long term.

At first glance, I'd attribute the increase in GDP to the increase in population, therefore demand and man-hours available for production, plus the increase in the mineral and organic resource potential that is in play. This growth is not sustainable.

I don't object to service jobs. I do object to them being touted as a superior way to 'produce wealth' in an environmentally friendly way. I still say that no wealth is produced, only moved around, and that the pollution it causes is just produced further down the line.

Yes, I do see the modern basic way of life as environmentally catastrophic. It does not prevent me from living it. I'm just conscious that we're going to hell in a handbasket and there's nothing resembling a brake or even a rudder in sight.

It doesn't stop me from looking for one, though.

By Anonymous, At 20 March, 2006
This has been a marathon back-and-forth but as you may have noticed I have been distracted from it recently by (among other things) new things I am writing. I will just add a bit more before abandoning it entirely. It has been interesting.

You refer (in passing) to privatised electricity generation (more correctly privatised electricity billing services) and I find it interesting to note that this very energetic discussion (pun accidental but now recognised and preserved) has never made reference to this economic argument of private versus public. Rather than a classic 'right versus left' economic argument we have been having something much more refreshing.

You say "better comparison would be between the web-designer and the flour miller... Otherwise, we're discussing the merits of social security". I am a bit puzzled here - which one is drawing on income support?

On a tagent - you think that share households can contribute to insanity. I think it may depending on what sort of person you are. I also think that it may in fact improve levels of sanity for some of us who are driven potty by isolation. Here we have a case of how human action and interactions can never be reduced to nice mechanical statements of "this always results from that". The same thing can have opposite effects. But back to the topic...

You also “quail that I can even begin to think of a person in terms of whether their productivity justifies their existence in a meta-economic sense. Not to ask that question of the human race, though, is impossible in the long term". Okay this is more like it. All this time my instances have been referring to just one person in isolated cases. But what if the seeming efficiency (which you do recognise) of many service jobs (even if they are just 'redistributing' energy) is multiplied by an excessively massive human population?

I suppose population is another issue for another day but I can see that it is a daunting thing and the fact that modern ways of living contribute to population growth makes it relevant. Improvements in living standards that come with development have put a massive dent in infant mortality so allowing more of us to live into adulthood. On the other hand ways-of-life in the most developed nations tend towards low birth rates. Some experts project that global population will plateau and then slowly lower this century as more and more nations adopt fully developed nation preferences for small family size. I will understand if you are sceptical of this - predicting population changes is like predicting climate change and such projections can always be in error...

But even if there are too many of us, is it right to object to specialisation allowing most of us to move into the services while only a handful extract stuff from the land or make it into things? Surely we need to put the magnifying glass back onto the primary and secondary sectors - the ones that do in fact consume natural resources - and look at ways in which they can become (even) more efficient?

Looking back over past posts I can begin to see why we have been talking at cross purposes a bit. There are fundamental differences of how we see things. I notice for instance that you seem to peg wealth to energy. From a scientific perspective I can understand that energy is finite and can only be converted from one form to another. From your energy perspective the services I describe are basically non-existent - imaginary products are exchanged for imaginary remuneration (since money is imaginary) so to your mind nothing has occurred. But then in an economic sense wealth is imaginary - it all has to do with the satisfaction of human desires, many of which are totally subjective. The webpage designer gets an income from nothing but it is an income others are happy to pay them and that others are then happy to take in exchange for other products.

You say that the environmental impacts of development or overpopulation concern you and then lament your own part in all this. But I think it is a mistake then to have a blanket objection to an entire economic sector (particularly since other sectors are more the culprit) or indeed to something as general as the satisfaction of wants (luxury) as opposed to needs (necessity). What does make sense is to look at specific practices case-by-case. Is farm x using too much water coz they grow rice rather than rye? Is factory y spewing a lot of fumes that can be minimised by some change in technology if only they bother investing in it? Are we all owning too many separate gadgets that can effectively be replaced by just one gadget per person which serves as a clock-phone-camera-planner-musicplayer-torch all in one?

As to the guilt you seem to be feeling... well I am sure you try things that minimise your own impact on consumption. But then the impact of any one person is small. However your political impact may be more significant than any economic impact you have if you participate in debates like this. Of course the circulation of this weblog is miniscule compared with - say - a national newspaper. But you can always send letters to them!

By Dan, At 30 March, 2006
Just about that social welfare thing:

I said "that a consumer (who) makes useable product is doing more to mitigate the cost of their existence than someone who consumes the same resources but produces nothing."

You cite three examples of individuals. Each consumes resources that could be used to do work. Two do work. (miller, web-designer) One does not (the unproductive web-surfer). I say that if someone is using resources and not producing anything, they must be in reciept of welfare support. The web-designer and the miller make a better comparison in a discussion about levels of industry than does someone who does not appear to be involved in any level of industry.

And yes - my comment about share housing was tongue in cheek. Isolation or share housing, insanity is inevitable. It's just a matter of choosing the form of the destructor. :-P

By Jac, At 01 April, 2006
I appreciate your willingness to look at the services sector objectively; and especially like the statement that familiarity breeds respect. I don't know that it is necessarily true; more likely familiarity breeds understanding; and from that understanding may arise a true respect; but familiarity with that which is deserving of contempt ought to produce contempt.
Thanks,
Tommy Pain
http://whatisamoderate.blogspot.com

By Tommy Pain, At 12 April, 2006
Thanks Tommy but I think the virtue of my post is merely in recognising the existence of the service sector rather than in examining it objectively (I think I am somewhat subjective on the topic). Many seem to overlook it utterly. Why it took Australia three decades longer than European nations to recognise that the service sector could be a source of government revenue.

By Dan, At 15 April, 2006
I recently looked back over this post and related comments and have a new way of clarifying my concept using some old and new concepts. As we know I stated that my 'web designer' exists and the tools that person uses and the coffee they drink all exist and they design webpages just for fun. In other words we have a case of voluntary work that exists in terms of _energy_ usage but is excluded from the monetary reckoning of economic value. However this talented amateur decides to start selling what they do - to 'monetize' to use a new-fangled word. Suddenly there is a new job and new product but all from an existing activity. I think a lot of the growth in services is just this - stuff we once did for ourselves we now do for one another at a cost. The enonomy grows yet the consumption of energy stays the same. That is my hope anyway. I hope recognizing that voluntary activity _is_ consuming resources anyway adds something to my past comments.

By Dan, At 11 September, 2015

Lazy Luddite Log

4.3.06

The Service Sector

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