Developed countries are on the verge of transforming into service economies as the market share of the tertiary industry employment and activities continue to be on the rise. For example, in the United States, the service industry has witnessed a great surge in services that were traditionally in-house but now transformed into business services. Similarly, services that were traditionally rendered at the house level have now been outsourced, with the healthcare services being an example. The employment in social welfare and medical has been expanding in response to the greying economy and the rising need for nursing care. In Japan, for example, the rise in the dominance of service industry has made the market share of the manufacturing sector to be on the downward trend, hence the loss of the Japanese tradition of manufacturing. But the growth of service industry in United State has realized deep routed interdependence between manufacturing and service industry. The manufacturing sector as well has been focusing on the provision of services, resource management, sales and after-sales services. Therefore, there exists no trade-off relationship between the service and manufacturing industry. The sustainable economic growth has been witnessed from the service industry owing to the liberation of the economy, technological development, and removal of regulations that have proved to be bottlenecks towards the realization of smooth trading activity. This essay focus on the evaluation of the extent to which the tertiary industry contributes to the economy of developed countries. Specifically, the study will evaluate what underlying factors have been the drives towards the realization of optimal gain from the service industry. The paper also analyses and compares the latest trends of statistics with regards to the contribution or service industries in both developing and developed countries. Service industry plays a crucial role in driving the economy of developed countries. Through the provision of job opportunities, vital inputs to the rest of the economy and public service, tertiary industry has contributed immensely to the economy developed by countries.
In any given economy, whether developed or developing the economy, the growth of the economy depends on the evolution and growth of three primary sectors. In the developed countries, however, the service sector has played a significant role in sustaining their economic growth. The industry has led to increased output, increased employment rates, and increased income per capita.
According to the Oversee Development Institute, service sector contributes to the economy through the following ways: directly by affecting the employment and national income; directly through its effects on the range and quality of social services offered through health and education. The tertiary industry has also contributed indirectly to economic growth through enhancement of investment climate by providing robust transport system, energy services, and communication systems. These factors are less developed in the low-income counties as opposed to their counterparts in more developed countries the report by World Bank, illustrates that there are fewer impediments and barriers to doing business in developed countries, hence making them reap optimally from the contributions of the tertiary industry. The service industry has also lead to the diversification of the economy (Cali, 2008).
The key sectors making up the tertiary industry of any economy can be grouped into four distinct services. The first group consists of hotels, restaurants, and trade. The second group is the transport, communication, and storage. Transport, in this case, includes airways, railways, water transport, and road transport. The third group consists of the financial institutions, real estate, banking and insurance, and the business services. The final group consists of the social, community, and personal services.
The financial sectors of the developed economies are strong and have immensely contributed to the success and sustainability of these economies. According to Banerjee, Duflo, and Qian (2012, pp. 5-6), finance describes the monetary resourced needed for business and individual purposes by individuals, governments, and enterprises. The households in the developed countries not only need financial services for their household spending but also for entrepreneurship which has an effect on the economy. The financial sector in these economies, therefore, has contributed to the entrepreneurship culture among individuals and enterprises thereby improving the economic outputs and GDP. Campbell and Tham (2014, pp. 16-17) illustrate that the financial service sectors, as part of the wider tertiary sector, provides employment and income of people in the developed countries.
Trade as a form of the service sector is an important aspect of economic development. Businesses, both domestic and foreign, expedite the exchange of services and goods between the consumers and the producers. The domestic trade, for example, which refers to the exchange of goods and services among people from a given country, provides both employment and income to the citizens who engage in such activities. Through this process, the levels of unemployment significantly reduce, and this is good for economic growth. The foreign trade involves the exchange of goods and services between parties from different national boundaries. According to Enderwick and Enderwick (2013, p. 18), foreign trade significantly contributes to the economic growth of developed countries because it allows such companies to access efficient products such as machinery needed for production and value addition. Additionally, the imported products create new capacities for production and enlarging the economy.
Global Trends that have accelerated the growth of Tertiary Sector in developed countries
The global trends describe the global factors that have made it easy to service sector growth in the developed countries. The growth in the service sector has also encouraged the development of another sector through the provision of vital services to them. Ready transportation, health, education, insurance, financial, and I.C.T have acted as catalysts to the spur great development in developed countries. However, it is important to highlight the factors which have made it possible for these countries to record the higher development trend (Dzhain, 2012, pp. 15-16)
Transformation to Liberal economy
As stated by Robinson (2004), capitalism existed throughout the history and has remained highly adaptable in cases it finds an opportunity to thrive. Nowadays the different types of capitalism are coordinated through market economies (CME) and liberal market economies (LMEs). Based on the business culture of an organization, an entity can be perceived to be loyal, voice or exit.
Most of the capitalist economies are perceived to be liberal market economies, but some countries such as China, Japan, Germany, and South Korea are in the coordinated market economies. These are hard to develop because they are coordinated by complementary institutions such as labor unions. The liberal market economies support the development of private sector. This, in turn, has a positive impact on the economic growth of a country.
Presently, most capitalistic economies such as the United States are in the liberal market. The liberal economies have more flexibility in its development than the coordinated market economies. However, going by the latest trends, they are transforming to the liberal economy through the financial sector hence the service or tertiary sector.
In the LME economy encourages to embrace the privatization of industries, including crucial services industries. Australia was a CME in the post-war time, with many of the service industries such as water, telecommunications, transport, electricity, and post were state-owned, the government also had a stake in all the major banks. Similarly, Australian companies that were family owned had the focused on long-term development as opposed to short-term profit maximization. In that way, they remained sustainable. In this respect, it discourages the shareholders from relieving their money but rather stay put to witness the long-term goal of growing the company to greater heights. Though LME encourages the liberalization in the business, it encourages the shareholders to offload their shares when they feel the company is not performing to expectation. Generally, liberal economies encourage the development of the private sector that forms the main engine driving the tertiary industry.
Deregulation
Deregulation is the process of removing or simplifying the government rules and regulations constraining the operation of market forces (Campbell and Tham, 2014, pp. 13-15). The process eliminates or reduces government control of businesses. In the 1970s, the US began deregulating its major industries, with the idea spreading to the United Kingdom and other European countries.
The deregulation of the financial sector during Ronald Reagan years led to the decline of American manufacturing industry. The 2008 world financial crisis is partially a result of expanding the tertiary economy, with the financial sector dominating. The government intervention and shift away from the neoliberal policies started by the US president Reagan and the British Prime Minister Margaret Thatcher led to the financial crisis. This included removal of interest rate ceilings, direct lending, and high reserve requests, and creating market incentives and improving competitiveness among domestic banks through bank restructuring (Shin, 2012, p. 64). Despite the increase of the size of the service sector, deregulation has made the economy very volatile since it has created barriers to entry in trade and professional services to many countries. Without the provision of the regulatory framework from the government in which firms operate, capitalism ceases to function, and social unrests caused as was in the case of Soviet Union which collapsed (Dzhain, 2012, pp. 9-10). Moreover, the rapid growth of technology, specifically telecommunications sector, has led to deregulation in advanced countries and liberalization in the developing countries. Thus, to make it easier for foreign firms to enter the market, liberalizing trade in services usually involve some degree of deregulation (Dzhain, 2012, pp. 12-13)
Technological advancement
In Organization for Economic Co-operation and Development (OECD) economies, the services sector accounts for over 70% of total employment and value addition (Dunning and Lundan, 2008, p. 122). Rapid technological change is one of the challenges facing policymakers from these countries. When discussing the future growth of the tertiary sector, it is crucial to consider the trends of technological developments leading to unemployment. Considering buying machinery to replace labor and save costs can increase a firm's profit. However, there will be a reduction in aggregate demand due to higher unemployment rates as people will lack enough income to purchase products. The two components, unemployment, and productivity must have a positive correlation (Canova et al., 2013, pp. 522-524). Due to the lower income in developed countries, the technological development and outsourcing jobs abroad will reduce the aggregate demand. There is a high dependency rate of developing countries such as China on their exports to industrious countries. A drop in the demand for imports affects manufacturing in developing countries (David et al., 2013, pp. 2244-2246).
Conclusion
The tertiary sector has significantly contributed to the economic growth of developed countries over the past decades. The economic growth is primarily relayed through the different types of service sectors including the financial and banking institutions, the hotels, restaurant, and tourism services, trade and international business, health services, and human and social services. The services provide immense amounts of job opportunities thereby reducing unemployment rates in the developed economies. Additionally, the services increase entrepreneurship which is important for the growth of the economy by ensuring that people have enough disposable income to undertake other activities such as accessing health services and getting premium and high-level education.
References
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