Is it possible for an economy to be entirely based on services?
While it is possible for an economy to depend largely on the service sector, it is not possible for an economy to depend entirely on it. The service sector has been a very important driver in many economies in both developed and developing countries (Desmet et al., 2003). The recent global economic recession has in fact created a greater reliance on the services sector than on manufacturing as was previously the case. According to Ranscombe, (2011), the United Kingdom’s economic recovery is being driven by the service sector which includes: information technology; accountancy; and legal advice. In the UK, the services sector is accredited as having become a more significant economic driver than the manufacturing sector. In fact, it has also been accredited as having generated approximately 38% of the economic growth and almost two million jobs since 1970. In the USA, the economy has also shifted to the service sector after the World War II. The services sector in the US also accounts for a larger number of workers than the production sector with figures from the year 2000 which estimate that the services sector to have 107 million workers compared to the 24 million in the production sector (Ranscombe, 2011). Despite the ever increasing role of the service sector in these major economies, the production sector continues to remain a significant component of their economies (Gemmel et al., 1969).
Is it a sign of weakness when a national economy manufactures few of the goods that it consumes?
It is indeed a sign of weakness when an economy manufactures a few goods that it consumes. This is because many economies are able to generate income from exports which are mainly products of the manufacturing industry. The economies of many nations in both developing and developed nations depend on the income generated from exports despite ever increasing reliance on the service sector (Lecture on Services, 2011). A noteworthy example is Australia, which in 2009, registered China as its biggest market for its exports (Economy Watch, 2011). Australia mainly exports iron ore to China among many other products which has led to the increase in investment by Chinese companies in Australia, which has contributed to a corresponding increase in Australia’s economy between 2007 and 2010 (Economy Watch, 2011). Not only do exports generate income for the exporting country, it also provides jobs for the natives of the nation. The availability of jobs is a major issue in many countries especially since unemployment rates have been soaring globally. In the example given of Australia, the service sector is recognized as the backbone of the economy, comprising 71% of the GDP. The industrial and agricultural sector comprises approximately 29% of GDP. Despite the vibrant services sector, there is a high unemployment rate of 5.2% which implies that without the production sector these rates will rise to higher levels (Economy Watch, 2011).
Consider quick-service restaurants such as KFC, McDonalds or even Starbucks coffee shops. Would you classify them as a good or a service? Why?
Quick-service restaurants like McDonald’s and Starbucks should be classified as a service. This is because while some may argue that they provide tangible goods, a service can have a certain degree of intangibility. According to Gemmel et al, (1969) a service should also be able to give solutions to problems faced by clients, which the quick-service shops address. In this case, the quick services shops provide several intangible services (Desmet et al, 2003).
First, they offer the service of convenience foods which are cheap and fast to consume and their clients are able to get meals which are cheap and therefore economical. They also provide the service of being time saving because they are able to serve busy people who often have no time to cook. A service should also have the characteristic of simultaneity which demands that the provider and client interact and both participate in the realization of service (Lecture on services, 2011). This occurs in these shops because the provider must provide a meal while a client must eat so that a service can be said to have been provided.
Desmet S., B. van Looy and van Dierdonck R., 2003. Services management: The nature of Services. Essex: Finacial Times Prentice Hall.
Economy Watch. 2011. Australia economy. Available at http://www.economywatch.com/world_economy/australia/
Gemmel P., B. van Looy, and van Ossel G., 1969. Defining the service concept. Commonwealth of Australia
Lecture on Services. 2011. Service Businesses: Sport and Hospitality.
Ranscombe P., 2011. UK economy dependent on service sector. Available at http://business.scotsman.com/business/UK-economy-dependent-on-business.6765454.jp