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What is (a) service?
The information and service economy
August 29 2007
Bob Glushko and Anno Saxenian
Outline
1. Residuals and other conceptual
confusions
2. Tangible v. intangible goods v. service
3. Service as a relationship
4. What is the link between information and
the service economy?
What is (a) service?
Services as a residual category
US employment as % of total
80
70
60
50
Services
Manufacturing
Agriculture
40
30
20
10
0
1850 1880 1900 1925 1950 1975 2000
Service sector as a residual
1992 SIC-based service sector, US census
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Finance, Insurance, Real Estate Industries (FIRE)
Retail Trade
Services (e.g. health care, hotels, schools, etc.)
Transportation, communications, and utilities
Wholesale trade
Service sector as a residual, II
1997 NAICS-based service sector, US Census
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Accommodation and Food Services (Sector 72)
Administrative and Support, Waste Management, Remediation
Services (Sector 56)
Arts, Entertainment and Recreation (Sector 71)
Educational Services (Sector 61)
Finance and Insurance (Sector 52)
Health Care and Social Assistance (Sector 62)
Information (Sector 51)
Management of Companies and Enterprises (Sector 55)
Other Services (Except Public Administration) (Sector 81)
Professional, Scientific and Technical Services (Sector 54)
Real Estate and Rental and Leasing (Sector 53)
Retail Trade (Sector 44-45)
Transportation and Warehousing (Sector 48-49)
Utilities (Sector 22)
Service sector as a residual, III
 2002 new categories proposed
 Tertiary: FIRE, wholesale and retail trade,
transportation, communications and utilities
 Quarternary: information-based services
(software,
 Quinary: people-oriented services (culture,
recreation, entertainment, etc.)
 Does this help?
Classical economists’ confusions
 Adam Smith, J.S. Mill, A. Marshall, et al.
 Good = material, tangible commodities
 Service = immaterial, intangible, perishable
 Stocks (v. flows) basis of wealth creation
 Manufacturing = productive labor
 Service work = unproductive labor
Peter Hill on good v. service
 What is a good?
 Goods are entities of economic value that
can be owned, traded, inventoried
 Goods are produced prior to consumption
 What distinguishes a service?
 Services cannot be produced without
agreement, cooperation and possibly even
participation of consumer
 Simultaneous production and consumption;
producer and consumer of service inseparable
The rise of intangible goods
 Entities that are like goods, but no
physical dimensions, spatial coordinates
 Software, law brief, musical score, blueprint
 Entities that are recorded and stored on
media such as paper, films, tapes, or disks
 Can be replicated, distributed, manipulated,
traded, stored, customized
 These intangible goods—not services—
and are growing very fast
Where does this leave us?
 For Hill, services involve relationships
 Services cannot be produced without the
agreement and co-operation of the consumer
 Outputs of services are not separable from the
consuming unit; no independent existence
 But does producer-consumer interaction
in service provision limit location, scale?
 e.g. surgery, massage, advertising, haircut
 What about large scale software customization
process? On-line purchasing or auction?
Information as an input
 Data and information of any sort can be
considered raw material as well as goods
 In physical form (paper, books) it takes great
effort to search, retrieve, store, manipulate,
transform information
 When digitized, information is:
 Easily stored and processed – databank, data
warehouse, data mining
 Easily customized, enriched, accumulated,
transformed - even across great distances
 Easily distributed - infinitely scalable
Growing information content of services
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Web-based platforms and reusable software
components transform services as well as
goods: eBay, Google
Information systems allow separation of
production and consumption of services:
global supply chain management, remote
medical screening
US information sector, 1967-97
 1967: Information sector 46% of GNP
 Of which information services 36%
 1997: Information sector 63% of GNP
 Of which information services 56%
 US GNP value added and wages concentrated
in information services
 US employment dominated by non-information
service jobs
Source: Apte, Karmarkar, Nath 2007
Professional, scientific & technical services
 Fastest-growing sectors (employment, output
and productivity) in advanced economies
 Finance, accounting, insurance, law, consulting,
graphic design, surveying, etc.
 Once a service, performed by individual practitioners,
now can gain scale through re-use of
components/modules of info or artistic output
 About 45% of gross output by these sectors is
intermediate output rather than to final customers
 Aggregate service value-added to final
manufacturing output now close to 25%
Computer and software services trade
Trade in business, professional &
technical services
Beyond classification schemes
 “There are no such things as service
industries. There are only industries
whose service components are greater
or lesser than those of other industries.”
Theodore Levitt, 1972
 We’re all in services now, more or less .
..
Focus on service relationships
Early observers of service economy
 Daniel Bell, The Coming of Post-Industrial Society: A
Venture in Social Forecasting ,1973.
 Rise of white-collar information and service jobs,
liberation from drudgery of manual work,
professionalism & creativity
 Robert Reich, The Work of Nations: Preparing Ourselves
for 21st c. Capitalism, 1991.
 Inherent inequality of 21st c. economy: Routine
producers, in-person servers & symbolic analysts
 Peter Drucker“The Age of Social Transformation” 1994.
 Knowledge work requires not only new forms of work
organization (teamwork), also social and political
innovation
Drucker’s “knowledge society”
 Growing importance of specialists, specialized
knowledge (applied knowledge) v. generalists
 Shift from knowledge to “knowledges”
 Requires knowledge workers to work in teams
– teams, not individuals, as work units
 If not employee, knowledge worker must
have affiliation with an organization
 “The knowledge investment . . .determines
whether the employee is productive or not, more
than the tools, machines and capital ...”
 “The essence of management is to make
knowledges productive.”
Drucker on management
 Management is the distinctive organ of all
organizations, even if they don’t use the term
 Management is taught in business schools as a
bundle of techniques & procedures (e.g.
budgeting, personnel relations)
 “The essence of management is to make
knowledges productive.”
 Management is a social function—and in its
practice it is truly a liberal art
 Twentieth century is century of organizations,
will require social and political innovations
Paradigms of economic growth
 Mainstream economics
 Adam Smith and perfect competition
 All firms have access to same “recipes”
 Allocation of resources via invisible hand
 Productivity growth via specialization and
division of labor; no intangible assets
 Main threat is monopoly=>government’s
role
 Posits equilibration and equalization of returns;
no role for innovation / creativity
Paradigms of the economy
 Schumpeter’s creative destruction
 Entrepreneurs and technological change as main
drivers of growth
 Incentive to innovate: short term monopoly rents,
enforced created by copyrights and patents
 Continuous innovation creates losers in a “continuous
gale of creative destruction”
 Network effects (increasing returns) amplify costs
 Challenge of continuous displacement of older
firms, products, regions, workers, and inherent
inequality