Download Service Economy--Several Problems about Concept and Distinguishable Criteria

Service Economy--Several Problems about Concept and
Distinguishable Criteria
YANG Kun 1, YU Qiuying 2, ZHANG JinCheng 3
1. Associate professor, Business School of Nankai University, PH.D of service management.
2. The graduate student, Business School of Nankai University.
3. Professor, Modern Management Institute, Nankai University, advisor for Ph.D candidates.
1. [email protected]
Abstract: Nowadays in China, the service economy is a hot topic. However, when judging and utilizing
this concept, the proportion of service industry in GDP and in the whole employment population is often
used. This method not only has many problems, but also ignores the inherent influence of service traits on
and statistic data. More scientific and comprehensive data should be used to appraise service economy,
which is very important to have a correct understanding of service economy and to correctly make
macro-economy decisions.
Keywords: Service economy, Concept, Distinguishable Criteria
1 Introduction
Nowadays the service economy is a hot topic. Although this wording means a huge change in the
economic structure and shape, people always use a simple way to define and judge the service economy.
Generally, they only inspect the proportion of the service sector in the total economic output and
employment. But even such a simple evaluation method is also interpreted in different ways when being
used, for instance:
1 The phenomenon that tertiary industry occupies a leading position in the economic activities is
called “Service-oriented economy”. [1]
2 Based on the work of their national people, it is more appropriate to call many so-called developed
industrial countries as service economy. [2]
3 The so-called service economy is also called as service society, and according to the definition the
western scholars made in the 1960s, service economy refers to the economy that the value increase in
service industries accounts for more the 50 percent in GNP. [3]
4 The coming of service economy is mainly reflected on these indicators, firstly, the tertiary industry
accounting for a growing share in the GNP of each country; Secondly, service workers accounting for a
growing share in the total number of workers.[4]
5 Along with the coming of the service society, one kind of service economy arises at the historic
moment and develops swiftly and vigorously. To analyze the service economy, according to the
definition which was made 20 years ago, its characteristic is that over 50 percent of GNP is created by
service sector.[5]
2 The Origin of Service Economy
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2.1 V Fuchs’ service economy
V Fuchs, an American economist, proposed the concept of service economy for the first time in a
paper published in 1965. He pointed out that,"this country (referred to the American - authors to pour)
firstly entered a new stage of economical development and was in the service economy, namely we were
the first one to become such a country in the world., more than half of the population were no longer
engaged in the food, the clothing, the housing, the automobile and other visible products productions”. In
1968, V Fuchs published another work, service economy ,this is the first work that study service theory
comprehensively and specially. The main study method of this book is empirical study, and its
characteristic is that it utilized a lot of statistics and statistical methods, for example, using 94 tabs and 20
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charts. Perhaps this is one of the reasons that afterwards people mainly rely on statistical data to judge
service economy.
2.2 Bell’s post-industrial society
D.Bell, an American Sociologists, proposed the concept of Post-industrial society in 1974 in the
book The advent of post-industrial society. He pointed out that, from the view of economy, the
development of human society followed this law that is Pre-industrial society--industrial
society---post-industrial society. There are four features for the post-industrial society:
Post-industrial society is a service society.
Knowledge, science and technology play an important role in social life.
Professional and technical staff is of outstanding importance.
The value system and the way of controlling society begin to change.
The outstanding contribution of D.Bell is that he holds that service society is a society development
phase after industrial society. Highly developed industry, ample material wealth and high rate of
urbanization are the base of the service economy. He highlighted the importance of technology,
knowledge in the economic and social development, and also pointed out that the social quality should be
redefined. ”If in industrial society, we define social quality according to the quantity of commodities, in
the post-industrial society we should define social quality according to the service and comfortable
feelings--- health, education, leisure and arts. So the standard of living in industrial is determined by the
amount of material product, and in post-industrial society, we pay attention to life quality. It is determined
by service standards such as health, education and entertainment.” When discussing the essence of the
service society we should pay attention to this point.
2.3 Fisher-Clark hypothesis and three-industry theory
Actually as early as in 1935, a New Zealand scholar named Fisher proposed the classification of three
industries for the first time in his book The collision of safety and progress. In 1940, an English scholar
Clark(it’s a coincidence that Clark is not only a economist but also a statistician.) published the conditions
of economical progress, where he expounded the theory of three industries further, and formed the Clark
classification of three industry: agriculture which mainly produce primary products is the primary industry,
it’s agricultural society when the primary industry accounts for the largest proportion in national economy;
the industry that mainly process primary products is the Secondary industry. When it accounts the largest
proportion it is industrial society; other industries are totally called tertiary industry. Service industry is a
tertiary industry, and it is service economy society when service industry accounts for the largest
proportion in national economy. The historical order of industrial development is from the primary
industry to the secondary industry then to the tertiary industry. From the macroscopic perspective,
service-oriented economy refers to that the tertiary industry accounts for over 50 percent in the national
economy with the trend of increasing, that is to say, it has already become the dominant industry sector in
national economy. From the microcosmic perspective, the tertiary industry refers to that service input
increases in the economic structure. This causes the big change in production process, and then causing
the change in essence, and at last becoming the service-oriented phenomenon. In the third edition of the
condition of process in 1957, Clark advocated using service industry instead of tertiary industry which
was proposed by Fisher. Afterwards an American economist Kuznets directly called the primary,
secondary and tertiary industry as agriculture, industry and service industry.
Fisher and Clark’s another theoretical contribution is Fisher-Clark hypothesis. They considered that
in the process of a nation’s industrialization, it’s inevitable that the employment goes from one sector to
another. So the economy type can be distinguished by the activity that most labor do. Thus the statement
of service economy can be defined according to the activities that had accrued nationwide.
Now we can go to the conclusion that during the 1930s-1970s, western scholars discussed service
economy from different views and achieved a unanimous appellation on this economic pattern. But they
didn’t carefully study the essence of service economy nor gauging it further, neither did they get final
conclusions. This caused different ways of expression and the criteria of gauging service economy were
simplified into two statistics as well: one is service economy’s contribution to employment; the other is its
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contribution to GDP. According to these two indexes, most developed countries have already entered the
service economy era. This also told the leaders of the nations those are still in industry society how to enter
the service economy: developing service industry vigorously, taking in more employment and producing
more service value at the same time.
However, some basic problems to these gauging criteria can not be evaded. First of all, according to
the statistics, even in 1929, 55 percent of American workers were employed in service industry; in 1948,
about 54 percent of the GNP was created by service industry. But even now when we look back we also
don’t consider America was in service economy era at that time. So some other important features must
exit when people evaluate service economy. Secondly, the definition of the basic statistic unit can
influence the result of statistics. For example, in different nations, whether the service people working in
manufacturing industry should be considered? Different countries have different criteria, and in some
countries, internal service and output of service in manufacturing industry are considered as service
income, but in some other countries they consider it to be manufacturing income. (In America,
employment and service value in manufacturing industry are considered to be within manufacturing
industry). Thirdly, the differences in society system and economy system of different countries can also
influence the value of the statistics. For instance, the income and employment in service industry of China
are very low, but considering the enterprises those are in planned system for a long time (especially
large-size state-owned enterprises) bear many social duty and are engaged in a lot of social service work,
the real income and employment in service industry may not be at such a low level. At last, the point
which I would like to underline is that some characteristics of service and service industry have some
influence on the statistics, but those influences are somewhat concealed or overlooked. For example, how
to reflect the characteristics of service when it is considered as process consumption? Considering that the
service industry system is confused, whether the service economy those are in different nations or
different areas but under the same statistics have differences in essence
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3 Some Problems about Criteria of Service Economy
3.1 How to reflect the customers’ satisfaction
Service is an activity, a kind of process consumption. This characteristic determines that the service
output can not only be judged by quantity, but also by the quality of customer perception. Take China for
example, now we all sense the new atmosphere and the development of service sector, but the service
industry also brings us two much troubles, vexations, disappointments and angers. In 2001, China
Telecommunication created the value of output of nearly 100 billion Yuan in just a quarter, but it is one of
the service areas with which customers are most dissatisfied. In the one hundred thousands prosecutions
that the Customer Association listed, 28 percent were caused by Telecommunication and Postal Service.
So we can see that service industry shouldn’t only create the value of output.
Considering the importance of customer satisfaction to the health development of economy, some
western developed countries gauge and follow the situation of customer satisfaction from the macroscopic
view by formulating National Index. Just like traditional criteria such as productivity and commodity
prices, this kind of index should be a measuring tool and tell us whether the economy of a nation is health.
This index marks that modern society getting closer to measuring the quality of the economy output, but
the traditional economic indexes always concern about the quantity. The first index of this kind in the
world was established by Swedish organization called Barometer of Customer Satisfaction in 1989. In
1994, the American began to use American Customer Satisfaction Index (ACSI) created by National
Quality Reach Center, University of Michigan. ACSI is a kind of index that reflects the level of customer
satisfaction by utilizing mathematical model to do multivariate statistics. They have got some very
meaningful statistics after utilizing ASCI the measuring index of customers experiencing products and
service.
China also gave response to the ways of valuing and studying customer satisfaction. In 1987, China
Association for Quality (CAQ) began the work of investigating customer satisfaction. From 1999, CAQ
has investigated the degree of customer satisfaction with cars and housing, and put the results to the public.
This approach was concerned by the society. But at which level and in what areas the index should be used,
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what effects does the index should make? People haven’t got a unified understanding now.
3.2 How to reflect customer participation cost
Customers usually participate in service production, then in the value of output that created by
service industry, how to reflect the amount of the payment by customer? Is there any cost that shouldn’t
happen or shouldn’t be so high, whether there is any unnecessary service value created by this
unnecessary cost? For example, there are a lot of public service departments and powerful service
departments supplying services that have the characteristic of monopoly. When fixing up the websites,
designing service processes and charging, these service organizations may only consider their own profit.
Meanwhile, they are lack of scientific decision-making mechanism, community supervision and
restriction mechanism (For example, the price hearing mechanism isn’t perfect). As consumers
consumption scope expands continuously, the direct cost of consumption is increasing unreasonable.[6]
Kuznets also found that per capita output of services industry in developing countries is twice as mush as
that in developed countries. [7] The main reason for this high income lies in monopoly privileges. Some of
the cost that should not happen or being amplified is in fact transformed into the service output. How
much this kind of cost would be? Will it be considered or deleted when comparing the service developing
level in different countries? Angang Hu, director of the National Conditions Research Center of Tsinghua
University has made a calculation, showing that the fare from Beijing to Urumqi (another city in
China)and to Los Angeles are almost equal, but the flight time is seven hours and 15 hours respectively. If
taking into account the condition that the ratio of per capita GDP in China is one-eighth of the United
States’, per mileage service costs by Chinese consumers is 32 times as much as American consumers.
3.3 How to reflect the essence of the service economy
The forms of service industry are various. There are not only service industries that can be operated
in large scale and grow rapidly such as fiancé and telecommunication, but also some cottage-style service
industries that grow slowly. According to the service targets, the service industry includes common
consumption service, production service, distribution service and society service or Public Service;
According to the history of service development and the content of service, service industry includes
traditional service industry and modern service industry. These industries have different contributions to
the society development and economic growth, and can not be generalized. In different countries, even the
same service industry also has different proportions. According to WTO statistics, from the service types
that have international trade, the main areas of trade in services are these three categories: financial
services, business services, and trade services. Different countries have great differences in these three
categories. Now let’s consider an extreme example, an island country that depends entirely on providing
tourism. It must have the two characteristics of the service economy, but this kind of service economy is
different from the one which was represented by the developed western countries that has comprehensive
service system. It is impossible for this island country to have service economy that has developed modern
service industry. Whether these backward countries must take effort to perfect their own service system
when developing their service industries? What indexes or titles should be used to distinguish these
so-called different types of service economy?
According to the research by Shaojun Huang, service economy in developing countries may be
different from that in developed countries. The essence of service-oriented economy in developed
countries is information-oriented economy. However, service-oriented economy in developing countries
is probably commerce-oriented, whose output and employment are more like the traditional service
industry. Moreover, in the process of economic development there are in fact two fast-growing periods in
services sector: the first period is “commercialization” before industrialization, while another is
“information-oriented period” in late industrialization. As circulation departments and information
departments are all included in service industry, these two periods are totally different in essence, despite
in the surface there is rapid increase in the proportion of service industry in the economy. Different
countries and areas should develop their service industry vigorously in the light of their own situation, and
should be clear what kind of service economy should be developed. It is unreasonable for them to rush
into action beyond economy development phase. The economy that can be fast developed is the one that
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can be replaced by mechanism or using low quality workforces. The modern service industry with
knowledge-intensive should be developed slowly, especially when needing high level professional
personnel.
4 Conclusion
In short, from the historical view, the percentage of employment and value of output could somewhat
reflect the social and economical features of different countries and areas in different times. But taking
into account the traits of service and service industry, it’s not appropriate. If we use these indexes to gauge
service economy, the statistics may be lack of comparability and practical sense, and may overlook some
much more important essences of service economy. So it’s necessary to probe and establish more
comprehensive evaluation standards, guiding us to correctly make macroscopic economy decisions and
gauge economy achievement. For example, establishing a structural coefficient for service economy, and
using customer satisfactory index. These are all determined by the traits of service and service industry.
Meanwhile we should treat service industry importance correctly, especially the relation between
manufacturing industry and service industry. A French scholar, Gadre, pointed out that, nowadays
manufacturing industry and service industry become more and more dependent on each other for survival.
These two economy sectors depend on each other for success, and we shouldn’t take one as the other’s
engine. A report from Japan Industry Competitiveness Strategy Meeting also warned policy decision
makers that manufacturing industry, which accounting for 80 percentage of Japan’s economic output,
keeps a high productivity all over the world, and it finally drew the Japanese economy. Henceforth people
gave expectation to the service industry. But to the Japan’s overall development, manufacturing industry
plays much more important role than service industry.
References
[1] Research Group about establishing the service industry chain between Hong Kong and the mainland
strategy vision and countermeasures, Discussion about Hong Kong and the mainland service industry ,
Beijing, China economy publisher, 2001: 5
[2] J.A.Fitzssimmons, M.J.Fitzssimmons, transferred by JinCheng Zhang, XiuCheng Fan. Service
Management---operation, strategy and information technology. (1nd ed) Beijing: Machinery Industry
publisher, 2000: 14~15
[3] Ningjun Zhang, Dejun Cao. Service industry entering new century and it’s development. Financial
science, supplement 2000: 292
[4] Zhiyuan Kuang , Wuyong Fan. Service Marketing. (1nd ed) Guangzhou: Guangdong Ecomomic
publisher, 1990: 12~13
[5] Jinglun Han. The Newest International Enterprise Administration. (1nd ed) Tianjin: Tianjin University
publisher, 1998: 345
[6] Huiyu.The supervision system in China Government. Reofrm. 1993(3):93~94
[7] Shuying Wang. The tertiary-history theory and development. (1nd ed) Tianjin: NanKai University
Publisher, 1994:290
Acknowledgement
This research was supported by the National Natural Science Foundation of China (No.70672034)
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