History of Service Industry

7/29/2019 History of Service Industry

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service industry, an industry in that part of the economy thatcreates

servicesrather than tangible objects. Economists divide all economic activity into

two broad categories, goods and services. Goods-producing industries are

agriculture, mining, manufacturing, and construction; each of them creates somekind of tangible object. Service industries include everything else: banking,

communications, wholesale and retail trade, all professional services such as

engineering, computer software development, and medicine, nonprofit economic

activity, all consumer services, and all government services, including defense

and administration of justice. A services-dominated economy is characteristic of

developed countries. In less-developed countries most people are employed in

primary activities such as agriculture and mining.

The proportion of the world economy devoted to services grew steadily during the

20th century. In theUnited States, for example, the service sector accounted for

more than half the gross domestic product (GDP) in 1929, two-thirds in 1978,

and more than three-quarters in 1993. In the early 21st century, service industries

accounted for more than three-fifths of the global GDP and employed more than

one-third of the labour force worldwide.

The simplest explanation for the growth of service industries is that goods

production has become increasingly mechanized. Because machines allow a

smaller workforce to produce more tangible goods, the service functions of

distribution, management, finance, and sales become relatively more important.

Growth in the service sector also results from a large increase in government

employment.

Service Sector in India today accounts for more than half of India's GDP. According to data for

the financial year 2006-2007, the share of services, industry, and agriculture in India's GDP is

55.1 per cent, 26.4 per cent, and 18.5 per cent respectively. The fact that the service sector now

accounts for more than half the GDP marks a watershed in the evolution of the Indian economy

and takes it closer to the fundamentals of a developed economy.
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Services or the "tertiary sector" of the economy covers a wide gamut of activities like trading,

banking & finance, infotainment, real estate, transportation, security, management & technical

consultancy among several others. The various sectors that combine together to constitute

service industry in India are:

Trade

Hotels and Restaurants

Railways

Other Transport & Storage

Communication (Post, Telecom)

Banking

Insurance

Dwellings, Real Estate Business Services

Public Administration; Defence

Personal Services

Community Services

Other Services

There was marked acceleration in services sector growth in the eighties and nineties, especially

in the nineties. While the share of services in India's GDP increased by 21 per cent points in the

50 years between 1950 and 2000, nearly 40 per cent of that increase was concentrated in thenineties. While almost all service sectors participated in this boom, growth was fastest in

communications, banking, hotels and restaurants, community services, trade and business

services. One of the reasons for the sudden growth in the services sector in India in the nineties

was the liberalisation in the regulatory framework that gave rise to innovation and higher exports

from the services sector.

The boom in the services sector has been relatively "jobless". The rise in services share in GDP

has not accompanied by proportionate increase in the sector's share of national employment.

Some economists have also cautioned that service sector growth must be supported by

proportionate growth of the industrial sector, otherwise the service sector grown will not besustainable. In the current economic scenario it looks that the boom in the services sector is

here to stay as India is fast emerging as global services hub.


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It was on the year 1910 when the thought that a craft may be used to bring

shipments began. History suggested that a shaft of silk was the initial to be

shipped in a plane. The conveyance was carried from Dayton to Columbus in

Ohio. This was mentioned to be the initial protest of the air freight.

In 1919, other conveyance took place. A converted bomber was shipped by the

American Railway Express. The freight was 1100 pounds, and was ecstatic from

Washington D.C to Chicago. Unluckily, the craft and the radiator froze had to

home in Ohio. However, that didnt inhibit the people from using the craft

asfreight carrier.

During the late 1920s, more airlines operated as freight carrier. The

origination of the freight conduit was used for American business only. The air

freight had helped them not usually in making the travel of goods hurriedly but

moreover the swift gait of the process.

Undeniably, the obsolete stages of the air freight business done a noteworthy

growth.

By the year 1927 to 1931 the number and size of the shipments had increased

from 45,000 pounds to roughly a million pounds. Though there were a few bid at

formulation and organizing the air freight business, the blurb air freight did not

run until World War II ended.

The tip 4 well known airlines namely: American, United, TWA and Eastern

shaped the Air Cargo Inc. The primary assignment of the firm was to collect up

and broach cargo.

The Air Cargo was active until the finish of the world. But in 1944, United and

TWA began to be eccentric and had their own air freight business.

There were lots of tiny craft owners who longed for to segment of the air

freight industry but were not accepted. The large airlines didnt similar to not asbig airlines to run in the business. One reason for that was the probability that

the tiny airlines might screw up the regular position of the industry. Another

reason was the one-time didnt wish to be entangled in a competition.

Unluckily, the tiny craft operators who attempted fell by the pavement.

Theres usually one that survived- its called the Flying Tigers. The Flying Tigers
http://myfreightsystems.com/http://myfreightsystems.com/http://myfreightsystems.com/http://myfreightsystems.com/


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done it since it carried both army and municipal freight. And it was moreover

well known before as the largest in air freight ship industry.

In grudge of the great start, the air freight business wasnt building that much.

It didnt work well in the business. Until someone in the name of Fred Smith non-stop up his new air freight well known currently as the Federal Express.

The Air Freight Industry Today

Federal demonstrate has been well known currently as one of the successful

air freight carrier. With the assist of modern technology, it right away uses air

freight program to be able to supply the needs of the customers. The air freight

program is the ultimate enhancement for freight forwarders. It will resolve any

problems in the network in addition to give you glorious and cost efficient

services.

Today the FedEx or the Federal Express is related with the (UPS) United

Parcel. The two freight conduit is right away well known to be the many arguable

and devoted air smoothness services in the country.

History of service industry

Services have always been with us : The world's oldest profession, for example, ispart of the service sector. The history of the development of services, and moreparticularly the history of how economists and other social scientists have viewed

services makes a fascinating story and one that is skillfully presented by Delaunayand Gadrey. Their story begins in the classical period where particular attention is

paid to the views of Adam Smith. Smith was not concerned with service sperse,but rather made the distinction between productive and unproductive labor. In thisSmith follows the Physiocrats, and his views that non-productive spending putrestrictions on the formation of capital and therefore slow the development of theeconomy is reminiscent of the earlier Mercantilist views. The connection with


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services is that his "unproductive labor" included workers such as the servants ofwealthy individuals or of the state. Also included on his list were the military, theclergy, lawyers, medical personnel, writers and musicians, all professionals that wenow include in the service sector. Smith's distinction between productive andunproductive labor was shared by later writers such as Ricardo, Malthus, JamesMill, and others. Delaunay and Gadrey identify Heinrich Storch as one of theclassical authors who appreciated the fact that service activities did produce valueand classified John Stuart Mill as taking an intermediate position. Delaunay andGadrey spend a full chapter on the contributions of Karl Marx, perhaps asomewhat excessive allocation given that they conclude in the end that Marx didnot significantly extend the debate on services. Of course Marx's views wereimportant for they influenced the national accounting systems of the Soviet Unionand other communist countries, where services were not counted in national outputand as a consequence service industries were often neglected. Delaunay and

Gadrey then argue that the concern with services diminished until about the FirstWorld War by which time all activity was seen to provide a service, and thedistinction between goods and services was no longer considered relevant. Onlythe Marxists persisted with the distinction between productive and unproductiveactivities. The next era in which services rose in prominence was the period 1930-70 with the development of national income statistics. Here the names of ColinClark, Allan Fisher, and Jean Fourastie are prominent. It was in this period that thenational accounts were divided into three subgroups; primary activities, secondaryor industrial activities, and tertiary or service activities. This is the period whenconcern was first expressed about the productivity of the service sector, and whenthe growing importance of service activities in the economy was noticed. Theclassical dichotomy between productive and unproductive work, and the view thatonly durable commodities lead to wealth formation, and the corollary that anyactivity that does not produce a commodity is unproductive, seems somewhatstrange to us today. Nevertheless in this distinction there may be a hint of one ofthe defining characteristics of some of the activities that we currently define asservices. Consider, for example, the activity of transporting a commodity from one

place to another. The transportation does not, by itself, produce utility. Indeed itwould be preferable if the producer and the consumer were close enough to each

other that transportation would not be required. Transportation exists becausethings are not where we want them to be, and the production of transportation iswasteful in the sense that it uses up resources that could otherwise be used to

produce commodities that would increase utility. In this sense some services are"unproductive" for they do not directly lead to an increase in our welfare. Theother extreme view, that all activity is productive and provides a service, is equallyunfashionable, but again there is some justification for such an approach. It is


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clearly true for any durable good, and is also true for many goods that are notusually considered as durable. We buy clothes because they provide a service bykeeping us warm (or protecting our modesty) and we buy food because eatingkeeps us alive. Of course defining everything to be a service hardly helps in ourtask of differentiating between goods and services and identifying distinguishingcharacteristics, but this approach does highlight the importance of the earlierquestion of how services should be defined and how they should be distinguishedfrom goods.The growth of statistical analysis and the measurements of GNP that gained

prominence in the interwar period led to a renewed appreciation of the importancethat services played in the economy. The growth of the service industry is welldocumented in the Economic Council of Canada Report and by several of thechapters in the NBER volume edited by Zvi Griliches. Michael F. Mohr documentsthe rise of the service industries in the period from 1960 to 1990, and Griliches, in

his introduction, dates the beginnings of the acceleration of growth in the servicesector to be about 1960. The share of services in GNP rose from approximately 40

percent to 60 percent from 1947 to 1990, while employment in services in thatsame period rose from approximately 40 percent to around 70 percent. This rapidincrease in the service sector raised a number of fundamental questions andspawned several different research approaches. A projection of the service growthrate into the future prompted sociologists such as Daniel Bell (1973), to predictthat economic activity would soon be almost conlpletely dominated by the servicesector. As noted in Delaunay and Gadrey, Bell predicted that by the turn of thecentury the industrial sector could be as small as the agricultural sector had become

by the 1970s (approximately 4 percent of the labor force). In addition to the rapidgrowth in the service sector, the Post Industrial Society literature emphasized theimportant role of knowledge, science and technology, the importance of

professional and technical people, and suggested that fundamental changes in thevalue systems and forms of control in the society were taking place.These are all discussed in Delaunay and Gadrey. The idea that the economy couldsoon be dominated almost completely by service-sector industries promptedseveral forms of response from economists. Delaunay and Gadrey identify twostrands of research, the first of which they call the Neo-Industrial Theory of Self-

service, associated largely with the work of Jonathan Gershuny (1978), whichpredicts that in the future more service production would take place in the home bythe consumer using sophisticated consumer capital equipment. The other school,referred to as the Theory of Neo-Industrial Society, includes a diverse group ofauthors who emphasize, among other things, the important role of services in

production and the critical role of technological change in service industriesthemselves. Also associated with this branch of theory are the authors who identify


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the information sector as a more important distinction than service sectorsthemselves. Earlier contributions to this line of thought include Fritz Machlup(1962) and Edwin Parker (1975). To these two approaches could be added what theECC calls the "manufacturing matters" debate to which Rudiger Dornhusch et al.(1988), and Gregory Schmid (1988) are important contributors. Even if one is not

persuaded that the industrial sector is about to disappear, the growth of the servicesector raises several important issues. Early authors on the service industries,including Victor Fuchs (1968) and William Baumol (1967), were concerned notonly with the rapid growth of the service sector, but also with the fact that

productivity in service industries did not seem to keep pace with productivity inmanufacturing. Slow productivity growth in services was seen as a major problemand one that could well have contributed to the overall reduction of the growth ratein major industrialized countries. In his introduction Griliches identifies two

possible explanations for these phenomena. The first is slow technological change

in services associated with their labor intensity, along with potentiallyhigher income elasticity of demand. The second relates to the difficultiesassociated with measurement of output and productivity, which may have resultedin a mismeasurement of productivity growth in service industries. It was thissecond concern that motivated the research contained in the Griliches volume,research that can be seen as an update of the earlier research by Fuchs (1968),also sponsored by the NBER.The question of why there has been such a substantial shift to service industriesis considered in some detail by ECC. They identify and examine four traditionalexplanations. These four are "first, that consumer demand for services hasincreased faster than for goods; second, that labor productivity growth has beenslower in services than in goods; third, that goods producers are now simplycontracting out for services that were formerly produced in house; and fourth,that there has been strong growth in the intermediate demand for services asinputs to the production process" (ECC, p. 3 1). After examining personalexpenditureson goods and services for the period 1971-86, ECC found that the incomeelasticity of demand for goods was actually higher than it was for services, and

both were less than unity. They concluded that there was no statistically significant

difference between these two elasticities. They also examined the distribution oftotal final exppnditure by consumers on goods and services and found there wasno significant increase, or perhaps a small decrease, in the share of total domesticservices accounted for by goods and services. The paper by Alan Heston andRobert Summers in the Griliches volume also adds support to the view thatchanges in consumer incomes cannot account for the growth of services. Theyreport on some results from the United Nations International Comparison Project


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(ICP) where cross-section studies on some 60 different countries were undertaken.The countries in the study range from low-income countries such as Ethiopia witha per capita GDP of $275 US to the United States with a per-capita income ofapproximately $1 2,000 US. One of their most interesting conclusions is that thereis virtually no change in the share of services in GDP as GDP per capita increases.The second possible reason for the increase in the proposition of services inGNP examined by ECC is that the slow growth of productivity in the servicesector has resulted in a relative increase in their absolute size. This argument wasmade by Baumol (1967) and has more recently been emphasized by Baumol,486Blackman and Wolff (1989). These authors describe the phenomena as the "costdisease" and argue that slow productivity growth, by increasing relative cost, has

been responsible for the rising share of employment in the U.S. economy. Thesearguments have been reviewed by Rowthorn (1992), who concludes that while

low productivity growth has been an important factor in the growth of services,demand factors have also played an important role. The ECC is also critical ofthis approach. They divide the service sector into dynamic services, traditionalservices, and non-market services and argue that, while productivity in servicesoverall has been somewhat lower than in the goods sector (1.4 percent per yearas compared to 1.8 percent per year) this has been largely due to a poor showing

by traditional services and non-market services. Dynamic services have, in fact,had a larger productivity growth than have goods (2.0 percent year as comparedto 1.8 percent). They note that the sector where productivity growth is lowest,namely non-market services with a small negative productivity growth per year,is also a sector that has not grown significantly over that time period. They alsoargue that there has probably been a bias in measurement of productivity changesin both goods and services, with an upward bias for goods and a downward biasTor services. They conclude that very little of the growth in services can beattributedto differences in productivity.A third possible explanation for the growth of services is contracting-out.The argument is that many firms that traditionally performed service activitiesinhouse

have found it more efficient to hire these service activities from independentservice-producing firms. Thus firms that at one time employed their own lawyersnow use the services of a law firm. In the first case these activities would becounted as output of the industrial sector to which they belonged, while in thesecond they would be attributed to the service sector. ECC examines thisargument,and although they find that there have been some shifts to contracting out,


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they conclude that this cannot be a major explanation fo the growth in the servicesector.The fourth explanation is that the overall growth in services is a reflectionof the increase in the demand for intermediate services. This possibility wasdiscussed

by Osberg, Wolff and Baumol (1989) and is examined in some detail byECC. The argument is that the final products included in measures of GNP requirea larger input of services than previously. ECC used an input-output model totest this hypothesis and found that there was no substantial increase in the extentto which services were used to produce final output. They thus conclude thatalthough each one of the four possible explanations provides some increase inservice activity, taken together they cannot provide a convincing explanation ofthe growth in the overall service sector. They therefore suggest a fifth possibilityrelated to the "manufacturing matters" argument, originally developed to counter

the advocates of the post-industrial society. The argument is that goods andservices are very dependent on one another, that the expansion of the goodsindustries results in an expansion of services, and that the expansion of serviceoutput results in an increase in demand for goods. They show that theexpansion of goods requires proportionately more services as inputs, andconclude that this interdependence of goods and services, and particularly thefact that the increase in goods production requires the expansion of the service487sector, may account for the increase in the overall proportion that servicesmake up in GNP.The ECC analysis of the interrelation between services and goods is carefullydone, but in the end is not completely persuasive. In particular, even if the outputof goods requires the production of more services, this by itself does not suggestthat the growth rate of services would be faster than for goods. Moreover, in arecessionary period with a fall in the output of goods, the ECC logic would seemto suggest a proportionately larger fall in the output of services. I am aware ofno evidence that suggests that there has been such a relative change in the outputof services. I am aware of no evidence that suggests that there has been such arelative change in the output of goods and services in the recent recession.

One of the interesting features of the service economy has been the rapidgrowth in the service sector that has occurred since the 1960s. Early explanationsseem to have taken it for granted that it was demand-driven, but recent researchcasts serious doubt on this explanation. No other completely satisfactoryexplanationhas yet been provided, however, and thus the cause of the rapid increase inoutput of the service sector stills remains somewhat of a puzzle.

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History of Service Industry