We will not consider whether the individual ‘peculiarities’ noted above are valid or not, or to what kind of service activities they apply. What we will say in this section of economic properties of services will be suggestive, rather than definite. If
characteristics like these are relevant for activities within the tertiary sectors of the economy, they will evidently have consequences for
• the economic character and market structures of service products and
36 Property rights, or (future) rights to use, relates to the institutional framework of economic transactions, and not to inherent properties of the economic goods (though they may of course have implications for the design and conditions of implementing property rights).
• the conditions for implementing changes in service industries.
and the way we conceptualise these structures and changes. Furthermore, these characteristics reinforce the consideration of heterogeneity; the necessity to treat different services differently, to distinguish different service production process, and to distinguish between service ‘delivery systems’ and service provision. One way of approaching this is suggested by the framework of Silvestrou & al 1992, which also to some extent distinguishes between standardised - or standardisable - and
customised services. The higher standardisation of mass services implies the possibility of a commodity character of some services, with quite general exchange properties, whereas customised services could in principle participate in barter trade, but are difficult to envisage as commodities.
We suggest as a hypothesis that the most substantial difficulties in developing an
‘economic theory of services’ are related to ‘professional services’, especially to knowledge- or information-generating services. The character of these services imply a serious information problem, with a weak role for prices as information carriers, and a stronger localised character, through co-terminality and co-spatiality, of service activities. This will have dramatic effects on market structures, such as through possibilities of creating local monopolies (Petit 1986). On the other hand features such as weaker appropriation regimes, smaller scale, footlooseness and information intensity indicate lower entry barriers, and hence the possibility of even more intense local competition.
Distinguishing between services for final consumption and intermediate services, a focus which goes back to classical economics and the distinction between productive and unproductive labour and consumption, is relevant. There are good reasons to believe that particularly knowledge-intensive services with a strong element of
‘customisation’ are primarily of relevance as intermediate inputs, that is, they are dominantly knowledge-intensive producer, or business, services.
We may conclude that there are significant reasons for questioning the usual assertion of stagnancy of services’ productivity development. We will substantiate this further in the next chapters when we will discuss issues relating to innovation in services. As the main instigators of innovation processes are competitive pressures of cost-efficiency and product differentiation - viz. the technological competition
complementing the price competition of neoclassical markets - the presence of innovation activities in service sectors does not only lead us to expect a resulting productivity growth in these sectors, but it also proves that the actors themselves perceive scope for future productivity change and for making this an objective for company strategy.
But the concept of productivity is difficult to operationalise in service (as well as in some manufacturing) activities and industries (Griliches 1992), particularly in activities experiencing rapid qualitative change, with a large degree of
‘customisation’ or with a strong producer-user integration. These aspects of economic activities emphasise to varying degrees the difficulties in distinguishing between traditional ‘throughput’ measures of productivity on the one hand and
‘service bundles’ or consumer utility on the other. This is a point to bear in mind when considering various productivity measures.
Nevertheless there is no doubt that service firms are exposed to similar competitive pressures to manufacturing firms, that is, to economise on the use of various factor inputs by designing ‘production processes’ in a cost-efficient way that at least keeps in step with the general development of major competitors. Now there are various ways service and manufacturing firms may choose to do this, depending on factors as varied as design features, structure and competitiveness of markets and regulation, and structural characteristics, both at firm- and industry-level, capital structures, and scopes and opportunities for improving these. The prospects for strategy choices are shaped by internal features through the firm’s ability to learn, its receptiveness towards the environment. This points to the importance of two interrelated concepts in innovation literature, the firm’s ‘absorptive capacities’ (Cohen and Levinthal 1989), its ability to adopt, mould and develop innovations, and the attentive availability and augmentation of complementary assets (Teece 1986).
At the same time, elements of customisation should not be overstated. In significant service markets there is still considerable standardisation in product portfolios, particularly, but not solely, in terms of services provided for final consumption. An example in case might be retail banking, where household consumption of services is largely restricted to a limited set of standardised bank services. Thus in sectors like these, the character of competitive pressures should resemble those in other
industries in ‘standardised’ markets, though the qualities of service products may lead to other kinds of innovation strategies.
The consequence of this is that we would expect to see broadly similar development patterns of employment in service industries dominated by standardised product portfolios as in comparable manufacturing industries. The similarity is most notable in terms of the relation between resp. capital-widening or capital-deepening invest-ment and innovation strategies on the one hand and enhancing or labour-saving productivity strategies (cf. discussion in following section). In manufacturing sectors this is often presented in the context of a description of a ‘product cycle’
(Abernathy and Utterback 1978), describing the industry running through phases from initial dynamic growth based on radical product innovations and significant capital widening investment constituting new industries to incremental process innovations, contingent with capital-deepening investments in mature industries37. As we shall see later there have been attempts to develop a similar cycle concept for service industries, cf. section 6.2 (Barras 1986, 1990). The striking feature of this proposal of a service cycle is that it runs the Abernathy-Utterback cycle backwards, which would immediately predict a different cycle pattern over time in these sectors’
employment trends and industrial structures.38
37 For this reason the cycle would have been better termed an industry cycle than a product cycle.
38 In fact Barras presents his ideas as the general pattern of development in industries that are users of externally developed technology; industries where technology import forms the basis for incremental process innovations. Hence the Barras cycle may be reconciliated with the
There is of course, also a role for demand patterns in this. It is likely that the consumer perception of material and immaterial goods differ, and that this in itself affect demand patterns, even when the service/utility provided by the product is fully substitutable across the material/immaterial interface. This would imply that service and commodity demand would evolve differently, imparting a difference in terms of the development of industrial production. It has been claimed that one of the
principal differences between European and US consumption patterns is the US consumer’s propensity to prefer the possibiity of exerting ownership over a piece of good39. If this is so, the evolution of demand patterns would presumably be different.