Coevolving Innovations

The new economy: from products to services, and from material to information

Posted on January 19, 2008 by daviding

The “new economy” of the 21st century can be interpreted in many ways. One foreshadowing view appeared in 1973 with The Coming of Post-Industrial Society by Daniel Bell. It can take academics years to accumulate enough data as evidence of real societal change. I had seen some cool diagrams in a presentation by Uday Karmakar in April 2007, so I searched for some more background. On the Papers & Articles page at The Business and Information Technologies (BIT) Project, I found a June 2007 paper¹. The tables at the end of the publication say three things:

The distribution of GNP (in the U.S.) has shifted from delivery forms of products to services; and from end products of material to information.
The annual growth rates of value added are much higher in end products of information than material.
Services dominate employment, and information workers are better paid.

To make these ideas more digestible, I’ve reoriented and colour-coded the data.

Distribution of GNP

Read this chart in the following way: the trends (i.e. the direction in which the lines are moving) have been a shrinking brown box in the upper left, with an expanding green box in the lower right.

Products:
17% of Delivery Form

←

Services:
83% of Delivery Form

Material:
37% of End Product

11%
of GNP

(in 1997, ↓ from
19% of 1968 GNP)

←

27%
of GNP

(in 1997, ↓ from
35% of 1968 GNP)

Material:
37% of End Product

←

↑

←↑

↑

Information:
63% of End Product

7%
of GNP

(in 1997, ↓ from
11% of 1968 GNP)

←

56%
of GNP

(in 1997, ↑ from
36% of 1968 GNP)

Information:
63% of End Product

←

Products:
17% of Delivery Form

←

Services:
83% of Delivery Form

What do those four categories (i.e. coloured boxes) mean? The paper describes distinctions made between SIC codes. Here's an alternative sample view.

	Products	Services
Material	Machines, Chemical, Automotive, Fashion Goods, Consumer Products	Tourism, Retail, Transportation, Construction, Health Care
Information	Books, Magazines, Computers, PDAs, Film, Music, Software, Games	Financial Services, Radio, Tv, Telecommunications, Legal, Consulting

The management of business was largely developed in the industrial age of delivering materials in the form of products. Into the 21st century, management knowledge in the areas of services and information is underdeveloped .

Value Added

It shouldn't be a surprise to anyone who lived through the rise of personal computing in the 1980s, and the Internet in the 1990s, that growth rates were higher in end products of information, as compared to products.

	Products	Services
Material	2.76% CGR (between 1992-1997, ↑ from 1.31% CGR between 1967-1992)	1.60% CGR (between 1992-1997, ↓ from 2.59% CGR between 1967-1992)
Information	5.62% CGR (between 1992-1997, ↑ from 1.04% CGR between 1967-1992)	5.94% CGR (between 1992-1997, ↑ from 4.31% CGR between 1967-1992)

More interesting is that the growth in material-based services is the lowest, and slowing. This begs for a keener distinction between those segments considered traditional service businesses — e.g. retail, health care, transportation — and services that involve knowledge capital, e.g. financial services, consulting.

Employment and Wages

In 1999 statistics, 86% of U.S. workers were coded as delivering services rather than products. The information workers that delivered products were fewest in the four-way categorization, but got paid the most. These workers could be seen as members of the creative class, rather than just paper-pushers and number-crunchers.

	Products	Services	Total
Non-information workers	10% of workers $27,061/year average wage	45.1% of workers $26,039/year average wage	55.1%
Information workers	4% of workers $48,793/year average wage	40.9% of workers $36,629/year average wage	44.9%
Total	14.0% of workers	86.0% of workers	100%

The researchers were cautious not to project employment trends.

… we are presently analyzing the changes that have occurred since
1999. [....]

The GDP data for the US in 2002 will be available in mid-2007, and it will be interesting to see how much further the US has moved to becoming an information economy. [....] Our expectation is that the overall trend to information intensive jobs may continue, but we expect to see some short term variations due to the recessional period of 2000-2002.

As government statistics are released, the academics will develop lagging indicators of further advances into economies that are weighted heavily towards services and information. Until that time, the above analyses provide a helpful framework for thinking about ways in which 20th century mindsets may have become outmoded.

References

¹ Uday M. Apte, Uday S. Karmarkar and Hiranya K Nath, “Information Services in the US Economy: Value, Jobs and Management”, Business and Information Technologies (BIT) Project, Anderson School of Management at UCLA, June 2007

Category economics
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1 to “The new economy: from products to services, and from material to information”

Doug McDavid says:

January 20, 2008 at 8:03 am

This is a great service (so to speak!). Thanks for putting the work into updating and formatting this in such a nice intuitive way. I remember the Karmakar work, and it is great to have this posting to refer people to.