Image vs.
Reality (Essays in Frustration)
Let’s Hear It for
the Service Economy!
Every day, we read how
the new “service economy” is taking over the United States. Some
lament the passing of heavy manufacturing to Japan, Korea, and
points east, while others appreciate the chance to work in fast food
joints where the rest of us dine in splendor. Somehow or other, I
get the feeling that the general concept of the “service economy” is
even more misunderstood than, say, double-entry bookkeeping. What do
the gurus mean when the phrase “service economy” is bandied about?
Are they just talking about hamburger flippers? Or is it possible
that things like banks, insurance companies, law firms, doctors’
offices, military bases, jails and other familiar aspects of the
American landscape also provide services rather than manufactured
products? If such things are, indeed, services, most of them have
been around since the birth of the Republic; they certainly are
nothing new, and obviously many do not carry a menial connotation.
The healthcare business
is obviously a service industry, and it is easy enough to look down
on servers who do such dirty work as emptying bed pans and mopping
floors. But the haughty doctor who will charge an enormous fee for
sticking his head into the hospital room to ask how you feel is also
a server, although perhaps less useful.
What probably fools us
is the way many who render services manage to suggest that they are
condescending to do us a wonderful favor. Banks, for instance,
delight in making us stand in line: before they will cash a check,
they demand it be initialed by at least three bank officers, a line
of supplicants awaiting each. And when we want to use one of their
new automatic tellers, they require us to insert a 47 digit number
to help their computers figure out what is going on. Lawyers,
plumbers and pharmacists aren’t much better. They have complete
control, and they know it. It is hard to remember, after the first
twenty minutes of waiting patiently at the counter while the
required pills are moved to a different container with a
hand-prepared label, that we are being served. An experienced
waiter, too, can make us feel that we are serving his needs (and not
very well at that) rather than the other way around.
Other aspects of the
service economy that have been around for quite a long time are
radio and TV stations. They provide us with news, commercials,
entertainment, commercials, music, commercials, our principle
contact with the outside world, and commercials. All real services,
and certainly part of a service economy. A radio or TV station has a
sort of factory in the form of its transmitter. Here, it
manufactures the signal that comes to our homes. Cable TV has a much
more expensive “factory,” if you want to count its delivery
apparatus as the manufacturer of the product. Some might think that
movies, news programs, variety shows and the like are the product,
manufactured in Hollywood, but might we not say that entertainment
is also primarily a service industry? By analogy, is a newspaper, a
book or a new software package for a computer a manufactured product
or a service? Obviously printing presses or disk copying equipment
make the thing that is sold, but wasn’t the real work actually done
by the reporter, programmer or editor? And isn’t that work really a
service rather than a manufacturing job?
Clearly, there is a
certain amount of overlap between a service and a product. But very
often the service requires some form of manufacturing to make it
possible. Perhaps the classic example is the telephone business, the
way it used to be. You bought telephone service: telephone calls.
You did not buy hardware. You rented hardware, complete with
continuing maintenance included in the bill, and what you got was a
service, not a product. Yet Western Electric, in the good old days,
was known as a fairly large manufacturing company.
So perhaps we had better
rethink “service economy” vs. “manufacturing economy.” Maybe they
are NOT mutually exclusive after all. Maybe we just have to
visualize properly what is going on, and rustbelt industries can
bloom again. To explore how this might come about, let’s see what it
would take to convert that premier manufacturer of all
manufacturers, the automobile industry, to a service industry. If
this is possible, we should be able to make anything into a service.
Well, all we have to do
is pass the Goeller Law: Nobody can own less than 25 automobiles.
You can’t OWN a car; you have to rent it. When you go to the car
dealer to get a car, you are quoted a price of so much per month,
plus so much per mile beyond 1000 miles a month. But that price
includes all the gas, oil, maintenance, insurance, repair, etc. etc.
That is, you sign up for transportation service rather than the
purchase of a statue, possibly mobile, to put in your driveway.
The Goeller Law offers
customers new opportunities. In the first place, one might assume
the manufacturers would be forced into the rental business if they
were forbidden to sell to the customer. They could no longer laugh
as the car depreciated to half its value as it left the show room,
and they would have some incentive to make the car last longer since
they would lose money if they had to replace it. Because they would
be putting in the gas and oil, you can bet that fuel economy would
shoot up to heights presently advertised as impossible, and if they
had to do all the maintenance and repair, the air conditioner would
almost certainly be relocated so that two hours of a skilled
mechanic’s time would no longer be required to find the spark plugs.
Fenders would swing back to expose the engine, and any body part
would be easily replaceable at low cost when the customer can no
longer be ripped off. Manufacturers would not be the only ones who
could offer transportation service, however. Cars could be bought in
quantities of 25 or more so that a taxi company, if it thought it
could do maintenance better and cheaper, could buy a fleet.
Similarly, a sports car club could invest in a flock of different
cars for the use of its members, and existing rent-a-car companies
could continue to work pretty much as they do today.
But there would be one
difference. There would be no more used car market because nobody
could own fewer than 25 automobiles. As a result, cars would have to
be designed to last longer in the first place, and then to be
recycled economically at the end of their useful life. This would
change another basic approach to design: suddenly it would become
economically desirable to make the copper wiring come out easily and
other valuable materials to also be available for reuse. The
“incredible hulks” that presently litter the landscape, both rural
and urban, would thus have a good economic motive to cease to exist.
It should be obvious
that what I’ve done above is postulate the automobile industry
working the way the telephone company used to. And there is a lesson
here. It suggests that it is reasonable to sell service rather than
product, and that manufacturing hardware as part of the effort to
render a service is perfectly consistent with service itself. This
new service industry, however, is no “natural monopoly.” Any number
of companies can compete, and if we don’t like one, we can go to
another when our contract is up. But the difference is this: by
buying a service rather than a product, we can see up front what the
costs actually are, and we can make rational decisions about how we
want to spend our money. What we have done is change the ground
rules to increase the motivation of those who design, manufacture,
sell and maintain cars to maximize their profits by selling us a
SERVICE (which has to work or they don’t get paid), rather than by
selling us a PRODUCT and running off, laughing, to the bank, even
when the product bombs.
If we set up our system of
incentives to get people to do things right, maybe they will. But as
our present experience continues to show, nobody can be expected to
do things right if existing incentives punish them until they do
things wrong. The conversion of the telephone business from a
service industry to a market oriented product industry, just at a
time when the world is supposed to be going in the opposite
direction, may turn out to be a major disaster, at least from the
customer’s point of view. But maybe if we continue to think about
the possibilities of a true service economy rather than one based on
who takes out the loan to buy the products on which the service is
based, something interesting might happen. It seems unlikely that we
could do much worse than continuing on our present course where the
orient, with very modest improvements in products, can take over the
market.[
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