Some might think that the industry is becoming less important because it has been losing share in the total GDP; we are living in a post-industrial era and governments diminish attention to the service industry; and that the country will progress in the service economy, and that is where the standard of living will increase.
The service industry is much more complex than that.
The scope of this article does not allow deep analysis, but you can make some notes. Note that you have not cut any service, but only products and the service industry. This is the first point: the population does not live without consuming industrial products; if the country does not produce, you have to import them.
The service economy grows and industrial products will be imported. Why, then somewhere in the world they will have to be produced. Moreover, to make imports, a country needs foreign currency – which, in the long run can only be achieved by exporting revenues. In almost all situations the services are not exportable; soon, the country needs to sell abroad commodities and industrial products in order to maintain itself doing great economically wise.
Service industry understanding it.
The service generally depends on the producer and the consumer. So it is with medical care, hair cutting, Psychological consultation, and automobile repair it, the janitor service, a film screening, education of your child and so on. A country can – and should – expand these sectors. However, it cannot export such services for the dollars needed for imports of the things we eat for breakfast.
The second point is that the industry is losing relative share in GDP primarily because of the increase of its “productivity” in the service industry. The relative prices of manufactured goods have fallen due to the technology and increasing productivity in the industry. 20 years ago, the price of a notebook equivalent to ten tons of soybeans. Today, with the value of two tons of soybeans buy yourself a good personal computer. The percentage of industrial output in the economy is given in monetary expression. Thus, the relative weight of industry in GDP may still fall there is increase in the quantities produced.
Service sector issue.
But the service sector does not have the same capacity to increase productivity (output divided by hours worked). A psychologist attends to a patient per hour, and you cannot meet the four patients and say that increased productivity. Another example: you do not go back to her hairdresser if he warn that will cut your hair in five minutes because you need to increase productivity.
The third point has to do with outsourcing or world occurred in recent decades. If an industry retains its restaurant, it is a center of manufacturing cost. If outsource, the amounts paid to the supplier company are accounted for as a product of the service sector. It is an accounting change that “swells” GDP in the service sector at the expense of decrease in industry GDP.
The bottom line.
Neglecting the expansion and modernization of the service industry is the same as to believe that agriculture and services are sufficient to develop the country is a mistake that can be costly to the population.
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