Prof

A farm vet is in the service sector. An outsourced computer maintenance company is in the service sector. A scientific research company is in the service sector. An engineering design bureau is in the service sector. An outsourced works canteen is in the service sector... They are all useful to the production of tangible goods.

A lot of what is manufactured is instant rubbish (in my opinion) - commemorative plates of William and Kate, in fact the whole souvenir industry, all the paper advertising that comes through my letter box each week, cigarettes, the fifty million brands of cosmetics, racing cars, junk food. My list of dislikes is very long!

The dichotomy of manufacturing good and services bad is a false one. There are useful goods and services, wasteful goods and services (not actively harmful to others) and anti-social goods and services (cigarettes, junk food, over-loud music etcetera). Opinions of course will differ on which goods and services fall into each category.

I know I risk sounding like Malvolio about whom Falstaff remarked, "Dost thou think, because thou art virtuous, there shall be no more cakes and ale?".

http://www.bartleby.com/70/2323.html

Really I am calling for moderation, consideration for others and the development of popular taste rather than tastelessness. Which is not the same as stifling bourgeois conformity. I had enough of that growing up in the 1950s.

Agree with Jeremy in his comments about the broad scope of the definition of services. Freight haulage is included, as is warehousing, as is an internet ISP, and a train operating company, along with a corner shop, and a MacDonalds, and an estate agent and a bank etc. Vastly different businesses, requiring wide skill sets and delivering value to society in different ways.

The issue of balance between goods and services in an economy is directly correlated with GDP, but not so much total GDP as per capita. As a population get and feels richer, they demand more services. They eat out more, take more taxis, go to the cinema more, buy their vegetables in supermarket rather than growing them etc. The companies that grow up to provide these services satisfy demand and the money that is spent on them is recycled into the economy through employment, investment etc. These service industries are also, in many cases, locally located out of necessity. Not much use your corner shop relocating to Shanghai. In contrast, manufacturing is in many cases mobile, and gravitates towards the lowest cost environment where possible. Cheap shipping and warehousing makes manufacturing non-perishables more cost effective in Asia than in Britain in many cases. Hence as an economy grows in wealth, its service sector expands, as its manufacturing base contracts, thereby shifting the balance as seen in the US and UK. This effect is happening now regionally in China where extremely rapid growth in wages has led to an explosion of service industries launching to satisfy demand in areas like Shanghai whereas the rural Western Provinces are still leading largely aggrarian existences.

Before the flood of responses, its worth mentioning that Germany is an exception to this for several country specific reasons. Firstly the cost of war reparations after WW1 and rebuilding after WW2 both suppressed GDP per capita and stimulated specific industries such as construction. More recently the reunification of the former East Germany again suppressed GDP and consequently domestic demand, but also provided a dramatic increase in lower cost labour resource, reducing the relative cost benefit of outsourcing to Asia etc. This was additionally suported by grants from the German govt to encourage companies to move manufacturing to the newly reunified East.

In a global economy, the individual national balance of industrial sectors is inconsequential compared to the balance of imports and exports. Rather than attempting to recreate a widermanufacturing base, perhaps we shoulde concentrate on boosting our exports of things we are good at, many of which fall into that broad category of services.

As an aside, the manufacturing that we still do is the kind that we want, high value, high quality. Well done Rolls Royce on their big engine deal.

All

It is not just us:

McKinsey Quarterly

Japan’s global challenge

For all the international success of Japan’s well-known brands, many Japanese companies have been ceding ground to global rivals for years. If they are to reverse their fortunes, Japanese executives will have to learn to think in new and unfamiliar ways about organization, strategy, and marketing. For more, read “Rebooting Japan’s high-tech sector” and “Japan’s globalization imperative.”

http://e.mckinseyquarter...aaaatxqdntslqpf5eyaaaaa

http://e.mckinseyquarter...aaaatxqdntslqpf5eyaaaaa

Coming soon

Next week from McKinsey Quarterly, explore essays by Japanese executives on the mind-set changes that Japan must embrace to regain global leadership. These articles, along with scores of other essays on Japan’s economy, business, and cultural opportunities and challenges, are included in the new book Reimagining Japan: The Quest for a Future That Works, which will be published in July.

http://e.mckinseyquarter...aaaatxqdntslqpf5eyaaaaa

=======================

I know this lot are management consultants but sometimes even they say interesting things.

engineertony

Good and bad services, good and bad manufactures are what I am referring to with my references to an education that encourages sound morality as well as taste and judgement.

Casting librarians with the "useless services" is a bit harsh. Did you never use the library at Liverpool University?

The taxi driver might be saving lives and money if he carries home a bunch of drunks who could otherwise drive into a bus queue.

The insurer, for his fee, provides certainty that a shopkeeper can pay up if his sign falls on the head of a passer-by (public liability insurance), that a business can survive a fire or flood. The alternative to insurance is either beggary for the victims and persons at fault or compensation from the state. War damage claims from the Blitz were still being argued about (by the state) in the 1970's! Swanky offices and fat cat bosses are separate issues.

Yes somebody needs to provide the material basis of the arts, sport, entertainment and so on. Rest and recreation are essential to everyone including manual workers. Entertainment, relaxation, luxuries are what make life bearable and remind us that we work to live and do not live to work.

I agree with you about being better and more advanced in everything than is the rest of the world. If we can.

Engineertony

A couple of observations, firstly banks do not in most cases borrow from the BoE and certainly not at Base Rate. This rate is the indicated return that the BoE PAYS to banks on their deposits. This is how it is used to control inflation, if the rate is raised, it becomes more attractive for banks to hold deposits with BoE, and reduces the amount they have available to lend to us, slowing spending a reducing demand led pressure on prices. Banks borrow if required, from each other at a rate referred to as LIBOR which is just under 0.9% at time of writing.
Secondly, 15% is not a particularly accurate reflection of lending rates either, secured loans such as mortgages are in the region of 3-4% with unsecured rates going up to 8-9%. The difference between these rates and LIBOR reflects an allowance for a proportion of non-payment across the loan book, costs of administration and a profit margin. Its a competitive market, the profits of ordinary lending are not as high as you'd imagine. Punitive Credit Card rates for going above pre-agreed lending limits whilst immoral are not reflective of rates as a whole.

Given your preference for examples, how about this a bank free economy. We return to using physical money for all transactions so at the of the month you receive your salary as a bundle of notes and some coins. You must immediately find a way to give a proportion of that money to the companies that provide your power and water but we'll come back to that. With what's left you decide to go out, stopping to fill the car up on the way. £10 in petrol, plus a newspaper and a can of coke, and you hand over your £12 to the Shell cashier. He adds this to the huge pile of other coins and notes that he receives on a daily basis. Later G4S (the biggest corporation in the country) arrive in a secure HGV (now the most common vehicle on the roads) to collect the money, and take it to Shell, where they have to apportion out a share to their refinery, a share to their drilling operation, a share back to the cashier at the petrol station, and then £1 each to DMGT for the paper and Coca Cola. G4S come back and take the bags of money to their respective locations. Meanwhile you go to your local supermarket and buy the weekly shop including some aspirin for your aching shoulder from carrying all the cash around. This time, Tesco, who spend a lot of time working with G4S, have to divy up the cash to the various suppliers, growers and transporters of the goods including Glaxo getting the £1 for the aspirin. At Glaxo a lab tech thinks he's found a cure for cancer, but it requires a lot more costly research and so Glaxo have to wait for enough £1's to arrive to create a surplus over and above their costs to fund the required research. The same is happening at Shell where they think they have found a much more efficient refinery process but need to save up before exploring it. This situation is repeated across the economy. Farmers cannot buy seed to plant for next years harvest until all of the previous crop has been sold and proceeds received. You have to send your children to school each day with £10 in cash to cover the cost of their schooling. Petty crime is rife as everyone has to carry freely transferable money all the time. Companies that make safes are among the most profitable.

This situation is how the country used to be, it was called the Dark Ages, where physical money and bartering drove trade. There was little if any engineering in this environment other than perhaps hovel building and blacksmithing. Then banking developed, the fractional reserve model allowed for the free flow of capital, allowed for borrowing in a structured, syndicated and risk managed fashion, giving Stephenson the resources the build the Rocket, Brunel the GWR and his big ships, etc. Without banking complex engineering would never have existed, and quite rightly as you point out our modern service industry would not have grown up to provide the comforts of our lives.

Banks provide secure money transfer, secure forms of payment (CC fraud cost billions last year, an expense paid by the issuers, banks but better than being regularly mugged), risk management, project financing, trade financing, payroll administration, and a wide array of invisible functions that make our lives "civilised". They also employ tens of thousands of people, who then have money to spend on holidays (supporting demand for RR engines), FMCG, and a whole host of outputs from manufacturing firms that otherwise would see lower demand for their products. Absolutely they contribute to our society.