Service economy

A service economy is a sector of a larger economy that deals with the creation and distribution of services rather than goods. It is distinct from economic sectors such as agriculture, manufacturing, construction, and mining, although many experts disagree on exactly what constitutes a service occupation. In general, experts categorize service occupations as trade, transportation, and utilities; information; financial activities; professional and business services; education and health services; and leisure and hospitality services. These service occupations have quickly overtaken industrial and manufacturing occupations in many developed countries. Many experts see the service economy as the dominant form of economics in the twenty-first century, and it continues to grow in size and importance.

Brief History

Economics have been important to people for thousands of years. Since the rise of civilization, people have engaged in different forms of work in order to produce goods and services and to earn payment. This economic activity has helped shape societies and governments, propel great advances in science and technology, and change the human mind and lifestyle.

During their millennia of development, economies have taken many forms. The earliest and most basic form of economy is known as the agricultural sector. The main activities in this sector relate to farming and food production. Agriculture is often referred to as a primary sector because it is fundamental to a society. Without food, no other forms of economics would be possible. The production and distribution of agricultural products were the main economic activities for much of modern human history.

Only in the 1700s, with the Industrial Revolution, did a new form of economy develop. This so-called industrial or manufacturing sector is occupied with the production of all kinds of goods, from processed food to textiles to machinery. Innovations such as factories, automation, and assembly lines allowed people to manufacture more and often better products than ever before. Millions of people left their traditional rural lives and agricultural work to move to cities in search of industrial jobs.

In the 1800s and 1900s, many sociologists and economists viewed industrial economies as the highest level of sophistication, a standard separating developed from less-developed nations. Industrial nations such as the United States and Britain, fueled by the power of their factories, became worldwide superpowers with wealth and influence nearly unprecedented in human history.

However, despite the rapid rise of the industrial economy, its strength quickly waned, particularly among the world’s foremost manufacturing powers. Historians have many theories about why this may have happened. One theory holds that industrial methods became so efficient that product manufacturing became easier and freed up money and workers. Another theory states that the major industrial powers gained so much wealth through industry that their desires and interests changed.

Regardless of the cause, by the second half of the twentieth century, a new form of economic sector was becoming increasingly important worldwide. This sector was called the service economy. By the end of World War II in 1945, service jobs accounted for about half of economic activity in the United States. By the 1980s, that figure had risen to about 60 percent. Service economies, in the United States and worldwide, continued to grow at a fast pace into the twenty-first century.

Overview

In the broadest sense, a service economy is a part of a larger economy that creates services instead of goods. By that definition, service sectors are easily separated from goods-producing sectors such as agriculture, manufacturing, construction, and mining. However, the exact categories included in the service economy are open to debate. For instance, some theorists separate service sectors and government sectors. Other theorists classify government activities such as defense and justice systems as part of the overall service economy of a country.

The difficulty in defining the service economy is partly due to the wide variety of occupations that the term may encompass. In general, types of service occupations fall into several broad categories. These categories include trade, transportation, and utilities; information; financial activities; professional and business services; education and health services; and leisure and hospitality services. These categories may differ slightly between sources.

The category of trade, transportation, and utilities is closely linked to manufacturing-based industries. This category includes the transportation of manufactured goods and any warehousing or other storage services needed as they are conveyed to the consumer. It includes wholesale and retail trade, such as the stores and wholesale outlets that distribute manufactured goods to resellers and consumers. This category additionally includes utility services used by businesses and other organizations as well as families and individuals. Utilities include piping in fresh water and removing wastewater, delivering electricity and maintaining electrical systems, and providing oil or other heating fuels.

Information is one of the most important and quickest-growing forms of service industry. It involves providing consumers with knowledge and other information, mainly through devices, as well as the installation and maintenance of those devices. One of the largest occupations in this field is computer programming. Programmers create software and systems that transport information to and from consumers. Telecommunications is another main field in this category, and may include television and Internet service in homes, schools, and various organizations.

Some service economies deal with the economy itself and its various functions. These financial occupations include banking, a field in which people can deposit, invest, or borrow money for a variety of reasons. Banking is a major worldwide industry that appears in virtually all cultures and countries. Insurance is another financial service, providing people with plans for monetary protection of their goods, health, and the welfare of their loved ones. Real estate is a third major facet of this category, and includes buying and selling of properties as well as renting.

The businesses, big and small, that developed during various economic eras require extensive amounts of service within the service economy. Professional and business services contribute to a large amount of economic activity around the world. One major part is management services, or help in efficiently planning, organizing, and running a business. Management leaders in business may earn large amounts of money and, in turn, their innovations may create huge new profits for the organization. Most businesses also require scientific and technical services. These may include many kinds of service such as studies and polls, laboratory tests, qualification ratings, and equipment calibration and repair.

One of the oldest forms of service economy includes education and health services. The education service relates to all forms of schooling and associated people, tools, and facilities. It includes everything from preschool to tutoring to doctorate courses, and encompasses both public and private modes of teaching. Healthcare services are often included in this category because, like education, they are a means of improving people’s lives. Healthcare covers a range of topics, from over-the-counter medications to specialized counseling to complex surgeries. Various forms of social services related to medical needs, including clinics, screenings, and vaccines, are also included within healthcare.

Finally, the great gains in money and affluence made primarily in the industrial age have opened a huge service industry in leisure and hospitality. Included in this category are arts, such as museums, galleries, and various acts and installations both publicly and privately funded. Entertainment and recreation, encompassing areas ranging from the movie industry to amusement parks to beach resorts, fall into this category. Hospitality also includes a wide variety of fields, such as hotels, food service at restaurants and cafes, and tourism. In many developing countries, tourism-related occupations, such as guides, innkeepers, and translators, provide a large amount of the gross domestic product.

Many other occupations may also fall within the service economy category. Most of these are smaller and harder to study because of their limited impact on overall economic data. For example, one category of service occupation is sometimes called consumer to consumer, meaning it generally occurs between consumers without necessitating any formal business. This may include babysitting, lawn care, buying and selling collectibles, and so on.

The rise of service sectors has made an indelible impact on the world economy. In the United States, it accounts for a large percentage of all economic activity as well as some of the most profitable companies and sectors. Many economists consider service economies the dominant form of economics globally. This is largely due to how eagerly and thoroughly developed countries have embraced service occupations. Just as theorists used to see industry as more sophisticated than agriculture, in the twenty-first century, most theorists see service economies as a main indicator of economic progress in a country or region. However, this perspective fails to account for the continued importance of manufacturing and agriculture, mainly in developing countries.

Much of the world’s manufacturing and agricultural work has shifted to these countries, largely due to inexpensive labor. Nonetheless, service industries are an important factor in developing countries as well. In these countries, service jobs such as tourism, health, transportation, banking, and education are common. In rare cases, countries that began to develop rapidly during modern times have actually transitioned from agriculture to service economies without developing a significant manufacturing base. India and Sri Lanka are two examples of this type of economy.

Bibliography

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