Growth of service sectors inhibit real development



The world generally seems to be in a bit of a mess these days. Violence, terrorism, poverty, starvation, disease. The Four Horsemen of the Apocalypse seem to be doing quite well. Such a major change from the 1970’s and 80’s when everything seemed to be a lot more harmonious than it is these days, or perhaps those of us in the more advanced economies just didn’t pay too much attention to what was going on elsewhere.

The Internet and social media bring all sorts of world events right into people’s faces. To check out how friends are doing on their travels or to keep in touch with distant relations by, say, Facebook also gets you articles and pictures, whether you like it or not, of dead bodies, bombings and grossly malnourished Africans. Difficult to avoid seeing the reality of the world’s less savoury events.

Also, 40 odd years back people had much greater access to productive and useful jobs. Jobs were relatively easy to find and those with skills had choice. Lots of things were manufactured. A combination of neo liberal economics and the opening of China to foreign investment sucked away so many manufacturing jobs from the rest of the world. The capitalists wanted to maximize profits by minimizing production costs, China needed jobs and investment and could manufacture cheaper than anybody else, leaving much of the rest of the world to create work in other areas. The service sector grows to create the missing jobs regardless of the real fundamental economic value of such jobs.

In the UK manufacturing accounted for 30 percent of GDP in 1970. In 2010, it accounted for about 12 percent, employing 8 percent of the labour force. Today services account for over 80 percent of UK GDP. The trend is the same throughout Europe and the USA. The lowest European service percentage is in Germany at 70 percent of GDP. The growth and maintenance of the service sector relies on having enough national wealth to support it, or getting income from other nations that do have enough national wealth—people who have no money do not need expensive advice on how to invest, for example.

The service sector includes government, health, education, entertainment, financial services and many other areas. Therefore, there needs to be a lot of service sector work in order to provide jobs for ever growing numbers of workers when so few are available in manufacturing [or agriculture].

The Philippines has pole vaulted from an agricultural economy straight to a service economy missing out the industrialisation phase. The service sector in the Philippines accounts for about 60 percent of GDP and employs 53 percent of the labour force. Clearly the Philippines does not have the national wealth to support a service based economy hence the importance of the business process outsourcing, gambling and tourism sectors which support, by the use of other nations wealth, the local service sector.

Meanwhile, back in Europe, and to a lesser extent the USA, sustaining the services sector at a level of 70 percent to 80 percent of GDP means that lots of work needs to be created to avoid high unemployment. There are limits to the creativity needed to go on inventing more and more jobs. Governments can always grow, of course; but that is contrary to neo liberal economic ideals where the private sector should do just about everything. Service sector jobs have already become a major inhibitor to more meaningful economic progress in areas such as infrastructure and manufacturing. The need to maintain enough people in work in the service sector has the effect of increasing the need for the production of rules and the need to audit conformance to those rules. You may think that the rules in the Philippines are a big inhibitor to development; but the rules in Europe become ever more nightmarish, particularly in the environmental area. The level of detailed justification required in order to prove conformance in the face of audit is often quite staggering, but it does provide jobs for the auditors and rule makers at the expense of the developers and consequent real economic progress.

Because of all this we hear political platforms based on bringing jobs back home—“jobs for Americans in America.” This is justifiable. Work has been “globalized out” in order to fuel profits which then are not distributed in anything approaching an egalitarian sort of way. Government seeks to limit private sector profits in order to stimulate industrial manufacturing at home providing jobs and incomes for the nationals. But this will not work to any significant degree in the Philippines as the industrialisation phase of development has been avoided. If the services provided by the Philippines to the advanced economies reduce in order to provide jobs for those nations at “home”, then the Philippines, it would seem, has little option but to albeit belatedly industrialise for domestic consumption and export and get the agricultural sector into full productive operation. Otherwise there really will be a massive dearth of jobs.

Mike can be contacted at


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