Service economy can refer to one or both of two recent economic developments:
- The increased importance of the service sector in industrialized economies. The current list of Fortune 500 companies contains more service companies and fewer manufacturers than in previous decades.
- The relative importance of service in a product offering. The service economy in developing countries is mostly concentrated in financial services, hospitality, retail, health, human services, information technology and education. Products today have a higher service component than in previous decades. In the management literature this is referred to as the servitization of products. Virtually every product today has a service component to it.
For example, IBM treats its business as a service business. Although it still manufactures computers, it sees the physical goods as a small part of the "business solutions" industry. They have found that the price elasticity of demand for "business solutions" is much less than for hardware. There has been a corresponding shift to a subscription pricing model. Rather than receiving a single payment for a piece of manufactured equipment, many manufacturers are now receiving a steady stream of revenue for ongoing contracts.
Environmental effects of the service economy
- Much easier integration with accounting for nature's services
- Much easier integration with state services under globalization, e.g. meat inspection is a service that is assumed within a product price, but which can vary quite drastically with jurisdiction, with some serious effects.
- Association of goods movements in commodity markets with negative commodity (representing emissions or other pollution, biodiversity loss, biosecurity risk) public bads so that no commodity can be traded without assuming responsibility for damage done by its extraction, processing, shipping, trading and sale - its comprehensive outcome
- Easier integration with urban ecology and industrial ecology modelling
- Making it easier to relate to the Experience Economy of actual quality of life decisions made by human beings based on assumptions about service, and integrating economics better with marketing theory about brand value e.g. products are purchased for their assumed reliability in some known process. This assumes that the user's experience with the brand (implying a service they expect) is far more important than its technical characteristics
Product stewardship or product take-back are words for a specific requirement or measure in which the service of waste disposal is included in the distribution chain of an industrial product and is paid for at time of purchase. That is, paying for the safe and proper disposal when you pay for the product, and relying on those who sold it to you, to dispose of it.
Those who advocate it are concerned with the later phases of product lifecycle and the comprehensive outcome of the whole production process. It is considered a pre-requisite to a strict service economy interpretation of (fictional, national, legal) "commodity" and "product" relationships.
It is often applied to paint, tires, and other goods that become toxic waste if not disposed of properly. It is most familiar as the container deposit charged for a deposit bottle. One pays a fee to buy the bottle, separately from the fee to buy what it contains. If one returns the bottle, the fee is returned, and the supplier must return the bottle for re-use or recycling. If not, one has paid the fee, and presumably this can pay for landfill or litter control measures that dispose of diapers or a broken bottle. Also, since the same fee can be collected by anyone finding and returning the bottle, it is common for people to collect these and return them as a means of gaining a small income. This is quite common for instance among homeless people in U.S. cities. Legal requirements vary: the bottle itself may be considered the property of the purchaser of the contents, or, the purchaser may have some obligation to return the bottle to some depot so it can be recycled or re-used.
In some countries, such as Germany, law requires attention to the comprehensive outcome of the whole extraction, production, distribution, use and waste of a product, and holds those profiting from these legally responsible for any outcome along the way. This is also the trend in the UK and EU generally. In the United States, there have been many class action suits that are effectively product stewardship liability - holding companies responsible for things the product does which it was never advertised to do.
Rather than let liability for these problems be taken up by the public sector or be haphazardly assigned one issue at a time to companies via lawsuits, many accounting reform efforts focus on achieving full cost accounting. This is the financial reflection of the comprehensive outcome - noting the gains and losses to all parties involved, not just those investing or purchasing. Such moves have made moral purchasing more attractive, as it avoids liability and future lawsuits.
The United States Environmental Protection Agency advocates product stewardship to "reduce the life-cycle environmental effects of products." The ideal of product stewardship, as administered by the EPA in 2004, "taps the shared ingenuity and responsibility of businesses, consumers, governments, and others," the EPA states at a Web site.
Role of the Service Economy in Development
Services constitute over 50% of GDP in low income countries and as their economies continue to develop, the importance of services in the economy continues to grow. The service economy is also key to growth, for instance it accounted for 47% of economic growth in sub-Saharan Africa over the period 2000–2005 (industry contributed 37% and agriculture 16% in the same period). This means that recent economic growth in Africa relies as much on services as on natural resources or textiles, despite many of those countries benefiting from trade preferences in primary and secondary goods. As a result, employment is also adjusting to the changes and people are leaving the agricultural sector to find work in the service economy. This job creation is particularly useful as often it provides employment for low skilled labour in the tourism and retail sectors, thus benefiting the poor in particular and representing an overall net increase in employment. The service economy in developing countries is most often made up of the following:
The export potential of many of these products is already well understood, e.g. in tourism, financial services and transport, however, new opportunities are arising in other sectors, such as the health sector. For example:
- Indian companies who provide scanning services for US hospitals
- South Africa is developing a market for surgery and tourism packages
- India, the Philippines, South Africa and Mauritius have experienced rapid growth in IT services, such as call centers, back-office functions and software development
- Information revolution
- Product-service system
- Services marketing
- Service system
- Precarious work
- Massimiliano Cali, Karen Ellis and Dirk Willem te Velde (2008) The contribution of services to development: The role of regulation and trade liberalisation London: Overseas Development Institute
- Vandermerwe, S. and Rada, J. (1988) "Servitization of business: Adding value by adding services", European Management Journal, vol. 6, no. 4, 1988.
- Christian Girschner, Die Dienstleistungsgesellschaft. Zur Kritik einer fixen Idee. Köln: PapyRossa Verlag, 2003.
- EPA Product Stewardship Web site "highlights the latest developments in product stewardship, both in the United States and abroad."
- Coalition of Service Industries Web site "The leading trade association representing the U.S. service industry in international trade negotiations."
- The (new) service economy is not the same as the service sector, described at "Science of service systems, service sector, service economy" on the Coevolving Innovations web site
- An input-oriented approached based on Richard Florida's work at "Talent in the (new) service economy: creative class occupations?" on the Coevolving Innovations web site