The other day I went out to dinner with my family and a family friend, and we all had a bit of a conversation about the economy. The friend put forth a couple of myths which are quite common, so I'm going to try to debunk them in the next couple of posts. First up:
The primary (agricultural/ mining) and secondary (manufacturing) sectors of the economy are the only sectors where real value is created. The tertiary (services) sector is essentially sponging off the other sectors.
This statement has been refuted by people who are smarter and better at writing than your humble blogger. A quick google, for example, brought up this article http://www.economist.com/blogs/buttonwood/2011/08/wealth-creation-and-macroeconomics. There'd be plenty more out there for those who are interested.
A little bit of (economic) history here. For most of the history of humankind, most of our time was spent making sure we had enough to eat. Advances in technology - the plough, crop rotation, fertiliser etc meant that humans could get by without all having to work in the fields, which enabled the growth of the secondary sector. Cue the Industrial Revolution, and the rapid rise of cities.
The services sector was always around to some extent - people often say that prostitution was the world's oldest profession, although I am therefore quite confused about how anyone else was able to pay for it - but really came into its own in the last century, or maybe a bit longer.
It's also worth pointing out that modern life is possible because of the tertiary sector. It created the technological advances which revolutionised the other sectors, it gave us modern medicine and longer lifetimes, and it's how most of us earn a crust too.
Today, the tertiary sector takes centre stage in most (all?) developed countries. NZ is unusual in having such a large proportion of our economy in agriculture, and it could probably be argued that this is holding us back - there are limits to how much we can increase our agricultural output. Whereas, at the risk of sounding cheesy, the tertiary sector is only limited by the power of our imagination.
Besides, even NZ's economy is mainly driven by the tertiary sector. For the year to March 2010, the primary sector made up 10% of GDP, the secondary made up 22%, and the tertiary sector made up the remaining 68% (source: Infoshare, nominal GDP tables). If you looked at nearly any other developed economy, you'd see less in primary, you might see more in secondary, and it might be either more or less in tertiary but I'd be surprised if it was less than 50%.
It's also worth pointing out that GDP gets criticised as a measure of economic activity, in part because it doesn't include all the valuable work which people do but which isn't paid for by anyone. Think: volunteering, assisting older family members, mowing your lawns, washing your car, etc. Most of this "invisible" economic activity would form part of the tertiary sector, so it's even more important than the figures suggest.
Doctors, the opticians that help correct our vision so that we can work more productively, scientists, engineers, accountants, lawyers, economists, architects, IT professionals, teachers, lecturers, the retailers who provide a conduit for the distribution of goods - all part of the tertiary sector.
The primary sector is more important when it comes to exports, but even these are only given so much weight because NZ is a small, open economy that sends a lot of money, stuff and services in and out of the country. But NZ has a persistent current account deficit, i.e. our exports are consistently less than our imports, and the primary sector alone won't save us.
