Service Industries

A Geographical Appraisal

Peter W. Daniels

• Publisher: Routledge
• Year: 1985
• Print ISBN: 9781138867222
• eBook ISBN: 9781135836238
• Edition: 1
• Topic: Physical Sciences
• Subtopic: Geography
• Index: Geography

The first major synthesis of an emerging geography which is undoubtedly changing the way in which academics, planners and policy-makers identify and interpret the spatial development of cities and regions in the 1980s.

CHAPTER 1

Service industries: identity and delimitation

THE DEFINITION OF SERVICES

A distinctive feature of service activities is their heterogeneity; a characteristic which has undoubtedly dogged attempts at systematic analysis. Perhaps one should, therefore, begin by trying to define a ‘service’? It is probably most easily expressed as the exchange of a commodity, which may either be marketable or provided by public agencies, and which often does not have a tangible form. Services seem to ‘pass out of existence in the same instant as they come into it’ (Greenfield, 1966, 7), or the term ‘service’ itself ‘implies the existence of two parties, those rendering the service and those to which the service is rendered’ (OECD, 1978a, 8). In other words, the industries which provide material and tangible commodities are agriculture or manufacturing or construction, while a bar, say, which stocks beer and lager under conditions designed to ensure that they are served at the right temperature to the paying customer or prepares ‘bar snacks’ at lunchtime is providing a service. Equally the preparation of an advertising portfolio for the lager manufacturer wishing to promote a new brand is a service but—and this is a constant source of confusion when trying to identify services—the firm that assembles the brewing vats and related equipment required to produce the new lager is classed as a secondary industry. Note that such a firm does not create the finished product which it assembles, that task may be performed by an engineering company.

Contrary to the popular view, service activities have always had a place in economic systems, although their attributes and significance for the operation and spatial organization of those systems have been subject to considerable change. Services have underpinned economic and urban development for the last 200 years; the exchange of raw materials between producers in the New World and consumers in Europe, the development of nationwide postal systems, improvements in urban health and mortality rates through better sanitation and cleaner water supplies, the production and distribution of coal gas for domestic/ industrial lighting and heating, the distribution and consumption of durable and non-durable consumer goods, the collection and redistribution of taxes by various central or local government agencies and the exchange of legal documents permitting the purchase of a house or factory have all promoted more efficient operation of the economic and social system, or contributed to improvements in the quality of life. In this way services can be said to be pervasive in both developed and developing economies and, in common with the variety of political, religious, cultural and administrative systems which comprise these economies, there are spatial variations in the distribution, structure, productivity, or growth of service activities.

Such variations are facilitated by one very obvious difference between a manufacturing and service establishment: the former fabricates raw materials or components into products which are sold to many users, while the latter is often engaged in the sale of (or provision of) skill and knowledge over a period of time, the systems analyst in a computer/data processing firm or a consultant in a marketing or advertising agency. There may be limited scope for applying the use of time to solving or advising on identical problems but by and large the essence of many service industries is selling the time and talents of highly trained and experienced individuals. The implications for the location of service industries in which these aspects are important will be considered in Chapter 7.

In retrospect it is perhaps inevitable that industrialization, accompanied as it was by an exodus of population from rural to urban areas, would be conducive to the creation of an environment in which a legitimate concern for the production of goods would need to be supported by activities which sustained the competitiveness of enterprises, on the one hand, and enhanced the quality of life, especially in urban areas, on the other. In essence, this is the role which service industries performed in earlier periods and continue to perform in the contemporary world; the main difference now is that they are much more diversified and specialized than ever before. Symptomatic of this diversity is the way in which the production of services has become increasingly difficult to separate from the production of goods. Transport and distribution services exist in large part because there are goods to carry and sell; many research and development (R&D) services are concerned with identifying/producing new products for manufacturing firms; and advertising agencies assist with the sales promotion of manufactured goods, or financial services such as merchant banks with providing finance for investment in goods producing plant and machinery. Thus it has been shown that about 50 per cent of the employment in services in the United Kingdom (in both 1961 and 1971) is goods related (Gershuny, 1978; see also Gershuny and Miles, 1983). Why, then, should service industries be examined independently? The principal reason is that although many may well be goods related, this does not mean that they are geographically linked, so that by concentrating on the geography of manufacturing we cannot adequately explain the geography of services.

CLASSIFICATION OF SERVICE ACTIVITIES

Such is the diversity of service industries that it is also virtually impossible to make generalizations about the spatial patterns which they reveal without resorting at an early stage to an attempt to identify subgroups of activities most like one another but different from other groups. Such classifications provide the foundation upon which subsequent analysis can be based. But the task is a difficult one, as demonstrated by a range of possible alternative classifications (Table 1.1). These alternatives are not discussed in detail here since we are not concerned with the classification of service industries as an end in itself. For the interested reader some further points relating to the classification of service activities are provided in Appendix 1.

Table 1.1 Service industries: some alternative classifications

The problem is not just about how to devise an ‘internal’ grouping of services, but also in specifying the boundary between service and non-service activities. This is more difficult than it might seem because the location of the boundary— and the implications for statements about, for example, the size of the service sector—depends on the direction from which the task is approached. All the major studies of the service sector preface their analyses with statements about classification, and Stigler (1956, 47) is clear about the fact that there ‘exists no authoritative consensus on either the boundaries or the classification of the service industries’; by 1978 the OECD could still only comment that ‘it is accepted that there is no completely satisfactory delimitation’. Three kinds of classification are used throughout the remainder of this book and these will now be outlined in more detail.

Classification by industry sector

One of the most frequently used methods of classifying economic activities as a whole is by industry sector (Table 1.2). While it makes for a neat division into primary, secondary and tertiary sectors, the method has several limitations. Each major sector is subdivided into a number of industry orders (some examples are given in Table 1.2, n. 2). Essentially these orders are derived from a classification based either on the kind of raw materials which are used, such as non-ferrous metals or oil for the petroleum industry, or by reference to the nature of the final product, such as electrical goods, or cars, vans and lorries in the case of the vehicle industry. Such an approach is not very helpful when applied to services; many require a personal input for example, domestic or office cleaning, or a medical/legal practice, and this does not lead to any material output other than a cleaner home or office, or advice from the medical practitioner or legal adviser about how to resolve a problem or to complete a house purchase. There is, therefore, little to be gained by classifying services with reference to output in the way possible for primary and secondary (manufacturing) activities.

Table 1.2 Sectoral classification of industry orders

When a list of industry orders has been agreed—and there is now some, although far from complete, uniformity between national censuses—it remains to decide which orders should be included in the service sector. Inevitably, perhaps, there is no internationally agreed definition although both the European Economic Community through its Nomenclature des Activités Économiques dans les Communautées Européennes (NACE) (see Statistical Office of the European Communities, 1970) and the United Nations (1948) through its International Standard Industrial Classification (ISIC) have endeavoured to encourage a standardized definition in the interests of more effective comparative analyses (see Table 1.2). Perhaps the definition of the service sector should vary according to the purpose of individual studies, but this only obviates the necessity to delimit it in a consistent way.

However, the UK for example has for some time deviated from these two schemes. The first Standard Industrial Classification (SIC) for the UK was issued in 1948, with subsequent revisions in 1958 and 1968 (Department of Employment, 1983). The most recent revision (1980) not only takes into account the changing structure of British industry, but brings the classification closer into line with NACE and ISIC. There are substantial differences between the 1980 SIC and its predecessors both in the structure of the classification and the numbering system used. Most notable is the use of a four-tier structure with a hierarchical decimal numbering system rather than the twenty-seven orders in the 1968 SIC divided into minimum list headings (MLHs) with numbers unrelated to the roman numerals by which orders are identified. The 1980 SIC is divided into 10 divisions, 60 classes, 222 groups and 334 activity headings and a broad comparison, as it relates to service industries, is given in Table 1.3 (see also Central Statistical Office, 1979). As far as possible this new scheme distinguishes between agents and principals—i.e. between dealers who buy or sell on behalf of others and those who own the goods or carry the risks. Such a distinction is especially apposite to distributive and financial services and should lead to more homogeneous data for the headings concerned.

Table 1.3 General comparison of service industry classification using SIC 1980 and SIC 1968

Some of the early studies by economists such as Fisher (1935) and Clark (1940) referred to services as the tertiary sector. There was no serious effort to define this sector, however, and this provoked those who thought that it simply encompassed all those economic activities which could not be conveniently grouped in the primary or secondary sectors to in fact use it that way. Once attempts were made to be more precise (see, for example, Kuznets, 1957), the debate revolved around inclusion or exclusion of particular industry orders. Most of the disagreements centre on construction, the utilities (gas, electricity and water), and transport and communication. Because the latter uses a large volume of physical capital, Fuchs (1965) proposed that it should be included with manufacturing. Similarly, the production processes used by the utilities have more in common with goods production, and construction also involves substantial physical capital. But both industries provide for the needs of other industry orders (e.g. office or factory premises, energy for goods production) as well as for ‘social needs’ in the form of housing, hospitals, schools and domestic heating, light and water.

Comparison of the industry-based definitions used in service industry studies over the last twenty years indicates that construction is invariably excluded but the other two ‘marginal’ industries may be subsumed into services. There seem to be no hard-and-fast rules; for the purposes of the analysis presented here, whenever it is necessary to present material in industry terms the service sector will, therefore, be taken to include: transport and communication; distribution (wholesale and retail trade); finance, insurance, real estate and business services; community, social and personal services (including hotels, entertainment, restaurants, recreation); and public administration and defence.

Consumer and producer services

Frequent reference will be made to services classified by industry but the exploration of location theory, empirical evidence about location, or the urban and regional development problems arising from the location behaviour of services (see Chapters 4–9) is structured around a useful distinction between consumer and producer services (Greenfield, 1966). This arises from a taxonomy of commodities originally proposed by Kuznets (1938) in which commodities are divided into consumer and producer goods and which can, in turn, be subdivided into those with perishable, semi-durable, or durable attributes. Durability is a difficult concept to invoke in the context of a service, but consumer services such as attendance at a football match, a visit to the hairdresser, or the use of a launderette, which yield utility over a short time, can be considered perishable. Semi-durable consumer services include advice provided by lawyers, assistance from accountants with the completion of tax forms, a course of dental treatment, or an agreement for regular maintenance and repair (if necessary) of a central heating boiler. The length of time over which the service yields utility is clearly an important principle here, so that durable consumer services must be those with long term value and might include architectural advice and assistance with the design of a new family house, or financial advice and assistance with house purchase or educational training which provides a skill necessary for career development or promotion.

Producer services can be similarly categorized; perishable producer services include daily cleaning of office and commercial premises (often undertaken by companies specializing in such work), window cleaning, waste disposal, and rapid document collection and delivery services. A solicitor dealing with a divorce case or an advertising agency providing copy for the promotion of a product is providing a semi-durable producer service. Examples of durable producer services are provided by management and business consultants advising on the way in which organizations should diversify their activities over the next five years, by computer consultants assisting with system selection, where it should be used within an organization and how it should be introduced, or by financial analysts on issues such as locations for profitable new investment or the prospects for long-term borrowing strategies. If this schema can be accepted, ‘it is important to note the parallelism between goods and services, and that services can be analysed in terms which have heretofore been exclusively reserved for goods’ (Greenfield, 1966, 9).

Identifying producer and consumer services

There remains the vexed question of whether it is possible to distinguish between consumer and producer services in a way which is helpful and reliable. Unfortunately the answer must be negative because very few published statistics allocate employment or income on the basis of whether they arise from, or create output for, intermediate or final demand. Indeed most of the industries classed as services have to satisfy demand from a highly variable amalgam of other businesses, individual consumers, government and non-profit organizations. Invariably it is necessary to rely on estimates of the proportion of all employees, for example, in a particular service industry engaged in meeting intermediate demand or making use of input-output tables to establish the ratio of intermediate to other kinds of output.

A good example of the first approach is provided by Greenfield (1966). He used detailed data on the revenues of service industries in the USA to estimate the proportion of producer service employment but found that revenue data was not available in comparable form for all industries and had to incorporate evidence from other sources to arrive at his estimates. Some 75 per cent of the US employees in transportation were allocated to producer services, 50 per cent of the employees in communications, and 50 per cent in finance, insurance and real estate. Greenfield found an almost equal division between business loans and consumer loans, both major sources of revenue for banks, although the number of employees required to handle the consumer loans is probably greater than one-half of the total. In relation to output, input-output tables showed that over 55 per cent of insurance and finance output was sold to intermediate users compared with just 35 per cent of the output from real estate activities. The other proportions for producer services are: legal (50 per cent); engineering and architectural (90 per cent); accounting, auditing and bookkeeping (90 per cent); miscellaneous professional services (75...

Table of contents

• COVER PAGE
• TITLE PAGE
• COPYRIGHT PAGE
• LIST OF FIGURES
• LIST OF TABLES
• ACKNOWLEDGEMENTS
• PREFACE
• CHAPTER 1: SERVICE INDUSTRIES: IDENTITY AND DELIMITATION
• CHAPTER 2: SERVICE INDUSTRIES IN THE ECONOMY: SOME PRELIMINARY EMPIRICAL EVIDENCE
• CHAPTER 3: SOME CAUSES AND FURTHER CONSEQUENCES OF THE EMERGENCE OF SERVICES
• CHAPTER 4: SERVICE INDUSTRY LOCATION: THE CENTRAL PLACE MODEL
• CHAPTER 5: SERVICE INDUSTRY LOCATION: BEYOND THE CENTRAL PLACE MODEL
• CHAPTER 6: EQUITY AND ACCESS: PUBLIC AND PRIVATE CONSUMER SERVICES
• CHAPTER 7: INTER-SECTORAL DEPENDENCE, CENTRALIZATION AND PRODUCER SERVICES
• CHAPTER 8: LOCATIONAL DYNAMICS OF PRODUCER AND CONSUMER SERVICES: COMPETITION BETWEEN CBD AND SUBURBS
• CHAPTER 9: PUBLIC POLICIES, INSTITUTIONS AND THE LOCATION OF SERVICES
• CHAPTER 10: NEW TECHNOLOGY AND THE GEOGRAPHY OF SERVICES
• APPENDIX 1: ALTERNATIVE BASES FOR CLASSIFYING SERVICE INDUSTRIES
• APPENDIX 2: STRUCTURE OF THE LABOURFORCE, BY OCCUPATION STATUS AND RATIO OF FEMALE TO MALE EMPLOYEES IN EACH OCCUPATION GROUP, SELECTED COUNTRIES
• APPENDIX 3: SHIFT-SHARE ANALYSIS
• BIBLIOGRAPHY