New Paradigm in the Service Economy The Search of Economics for Scientific Credibility: In between Hard and Soft Sciences

4.5 The New Entrepreneur in the Service Economy
Managers and entrepreneurs in the service economy must be able to take a broad view of risk, one which embraces both forms (the entrepreneurial and the pure) of the phenomenon. Even the most advanced management schools today are often lagging behind in this respect, whereas the reality of pure risk has long since begun to impose enormous burdens on managers.

Risks have to be understood at all levels and controlled as to their level of manageability. Vulnerabilities can, and must be diminished and checked. Only then can a strategic vision be developed and new challenges discovered.

Should their vision of the real world be partial or inadequate, both the entrepreneur and the public at large will be beset by the feeling of being overwhelmed by the risks and vulnerabilities of modern life. Yet that sense of powerlessness, of inadequacy, is rather the result of our cultural inability to identify, adjust to and accept the realities of our contemporary world. Thus, it is very much a question of attitude. This inability to adjust leads to pessimism and fatalistic paralysis, like the sailor who, instead of using the winds to steer his boat, allows them to determine the direction in which his boat is pushed. It is crucial that we be able to identify these new winds blowing within the Service Economy, and that we recognize the challenges posed by the new risks, and by our increased concern for product quality and utilization value, for what they really are: opportunities for defining new directions, for stimulating renewed activity in our quest for real economic and social growth.

4.6 Tradability and Homogeneity of Services
Much of the literature on the Service Economy quotes two specific issues which reflect current difficulties in defining its characteristics. In most cases these difficulties stem from an underlying psychological attitude which views services or more precisely the Service Economy, as a kind of new “product” manufactured by a new type of “industry”.

Our difficulties in clearly stating the problem once again stem from the cultural or theoretical frame of reference used for analysis rather than from the problem itself. A particular point in case is the notion of tradability and homogeneity of services. It is often said that an analysis of the Service Economy is almost impossible because services refer to such disparate entities as haircuts, telecommunications or maintenance and health activities. But the same can be said of products; there is little homogeneity between a pullover, an airplane, orange juice and a watch. In fact all “industrial products” are homogeneous only insofar as they are viewed from the standpoint of the production system, i.e. the manufacturing methods of production developed and improved by the Industrial Revolution. If one looks at services with an “industrial” mentality one will inevitably discover that some of them can easily be assimilated to an industrial product while others cannot. However, the exercise is pointless since it tries to fit empirical evidence into an obsolete frame of reference.

The real difference between the industrial and Service Economies, upon which homogeneous theoretical references can be built, is economic value. During the Industrial Revolution economic value was linked to a product’s existence and to improvements in productivity that derived essentially from improvements in the manufacturing process. Economic value in the Service Economy, on the other hand, is derived from the functioning of a system, the productivity of which can only be measured in terms of improved and increased performance as related to the costs in the entire cycle from raw material to waste. The reference is not to the “product” but to its “utilization”, i.e. its proper and useful functioning process.

Increases in productivity in the Industrial Economy are measured by the costs of the inputs used for producing a tool or a product. In the Service Economy, measuring the same costs of inputs without reference to specific performance (not necessarily products) is very close to nonsense. The productivity of a health system is in “producing” healthy people. In both cases measurement of the result has to inevitably integrate qualitative “stock” parameters. This can be achieved fairly easily with common sense and a minimum of consensus. Measuring the performance of educational systems must inevitably be linked to an evaluation of the quality of the trained student in relation to the purpose of his or her learning. No indicator of the salaries of the teachers or investment in school buildings will ever suffice to properly measure educational productivity.

Living and working in a Service Economy also means looking at industrial products from a service point of view, i.e. looking at the function of tools, at how well such tools are used in practice, and at the results achieved with them.

In economic terms the Industrial Economy is about the evaluation of production of wealth in terms of added exchange value, while the Service Economy is all about the measurement of utilization value. If, therefore, the notion of homogeneity, or its absence, is used in our analysis of both the Industrial and Service Economies, such notions reveal maladjustment of the conceptual framework. It might of course be quite legitimate to choose one or the other. But it all depends on how efficient one evaluation system or the other is and in which direction the empirical evidence is moving. When we look hard at services as functions and performing systems within the Service Economy we find great variety in the activities pursued (and this is as typical of the Service Economy as it was with a wide range of goods of the Industrial Economy), but not necessarily absence of homogeneity. In the Service Economy, a restaurant performs the function of providing food for clients, a function which is, of course, very different from that of teaching or entertaining. But whatever its nature, the function always aims at achieving certain results that in each case can be readily identified.

The same problem arises with tradability. Many service functions are tested or considered in a way which assumes they can be fitted into the analytical framework developed for analyzing trade in industrial products.

Since the Service Economy is about producing results where the customer or user happens to be, it is clear that the notion of trade when applied to this context must alter radically. We can no longer distinguish between trade in services and the movement of production factors or investment as was the case in “industrial” economic theory. In many cases trade in the Service Economy inevitably combines and confounds the two. For many companies, and especially for those in traditional “service sectors”, the equivalent of local or international trade in products is the organization of delivery systems where the customer is located.

While a traditional producer of a machine will export a “product” to any place in the world, the exporter of a service will have to rely much more upon an established office or point of distribution at the place of use. In both cases a transition from a classical industrial to a Service Economy occurs when, for example, the sport of a machine must be accompanied by so much software that what was formerly the simple “physical” transfer of a product now becomes an on-site investment operation in order to guarantee the proper functioning of a product at the place of its use.

The question of trade in services and their tradability is representative of a more general movement which has characterized the development of society and the economy over the last few centuries: from locally closed and largely autonomous production units with small markets to ever greater interpenetration in a world market. During the Industrial Revolution the explosion in trade essentially concerned hardware (products). What we are now witnessing as the spread of service-performing systems is an entirely new chapter in the annals of trade, involving not only the movement of physical tools and products but also of the ways and means of their use and co-production.

At first sight then, inherent in this spread of the World Service Economy is a mechanism for more balanced world development, based more and more on increased trade and investment.

4.7 Material and Immaterial Values in the Service Economy
Numerous books and articles on the Service Economy (as well as on the “information” economy), have suggested that in the present economic system we are increasingly faced with so-called “immaterial” goods and values.

This notion of “immaterial” comes from the observation that during the classical Industrial Revolution the production process had mainly to do with material (hardware goods and tools). In our present service information society, however, goods are very often “immaterial” (software), as for instance an item of information or a computer programme (the support or transmission system remains “material”).

Whether merely implied or explicitly stated, contained within this approach is the claim that the Service Economy is less “materialistic”, more open to “immaterial” values: Similarly the word “quality” is used as an analogy for “immaterial” and is frequently related to the notion that a higher degree of education is an essential prerequisite of proper production. All these analyses in fact maintain a dichotomy between tools and their utilization. Today, the notion of “knowledge society” has become fashionable. It has been forgotten that the civilization process has always been based (since the Stone Age) on more “knowledge”. What is new, in fact, is the acceleration of this process.

At the risk of repetition it should be emphasized that in the Service Economy priority is given to functions, the primary concern being with result-producing systems. However it is equally obvious that these systems (even if they produce abstract artifacts like communications) are heavily dependent on material tools.

A function or a “system” is immaterial per se, just as a machine tool is “material” per se. Industrialization required a different level of investment in knowledge than traditional agriculture, but knowledge per se is nothing new. Even the man who invented the bow and arrow was an “intellectual”.

Once this becomes clear we are more likely to describe current higher and increasing levels of education not as something new, but simply as something more appropriate to present economic development.

The notion of “immaterial” values stems basically from the sense that values are produced, and go beyond what is normally measured by current (industrial) economics. If in some cases we can identify “deducted values” (the example of the economic system overestimating the real increase in wealth), there are also many cases in which the results, in terms of the real wealth of modern technology, are underestimated.9

This takes us back to the problem of measuring the results against the costs (monetarized costs) of production, and of the absolute necessity of measuring value by some accepted indicators of personal and national wealth.

9. Orio Giarini and Henri Louberge, The Diminishing Returns of Technology (Oxford: Pergamon Press, 1978).

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