2
Reality and Challenges of Service

2.1. Economy and service: from data to discourse

Service dominates the economies of developed countries and plays a major role in development. While economic analysis strongly emphasizes the weight of service in our economies, interpretations of this reality are far from consensual.

2.1.1. The economic weight of service

2.1.1.1. Service in general

The work of the British economist Colin Clark in the 1940s, taken up by the Frenchman Jean Fourastié, proposed classifying the economy into three sectors: the primary sector, the secondary sector and the tertiary sector1. This classification is the basis for our national accounts and INSEE today. But it must be recognized that service activities cannot be confined to the tertiary sector alone. If we look more closely at the activities of companies belonging to the first two economic sectors, we find two other types of service activities:

• - internally deployed services such as research and development or the corporate university;
• - services that the company combines with its products in order to position itself more advantageously in its markets or to benefit from additional financial income. The car manufacturer has long offered financing and after-sales services. The winegrower is increasingly interested in new activities such as wine tasting, cellar tours and the creation of an art center.

Without even including this tertiarization of the primary and secondary sectors, the tertiary sector has a major weight in all economies, and particularly in developed economies like France. In terms of value added, the tertiary sector accounts for 79.2% of the French economy and 56.8% if only the market services sector is taken into account. The primary and secondary sectors represent only 1.8% and 19%, respectively. In terms of employment, the hierarchy of sectors is the same; the tertiary sector accounts for 80% of total domestic employment, the secondary sector for 17% and the primary sector for 3% (INSEE 2019a).

2.1.1.2. The B2B service

Looking at the diversity of the tertiary sector, we see the vitality of a specific set of services, that of business services. This vast group of heterogeneous activities, which share the common denominator of offering services to companies rather than to households or consumers, represents a particularly dynamic field in the French economy. In the INSEE nomenclature, business services are not explicit, but they correspond broadly to scientific and technical activities and administrative and support services (see Box 2.1).

In its July 2019 note (INSEE 2019b), INSEE does not hesitate to describe business services as the main driver of growth, emphasizing the particular vitality of specialized scientific and technical activities.

This dynamism can be seen from the main economic indicators listed in Box 2.2.

Box 2.1. Business services according to INSEE2

The new nomenclature introduced in 2008 by INSEE does not define an explicit category for services rendered to businesses. INSEE considers that these activities correspond broadly to sections M and N of its nomenclature.

Section M includes scientific and technical activities:

• - legal, accounting, management, architecture, engineering, control and technical analysis activities;
• - scientific research and development;
• - other scientific and technical activities (advertising and market research, veterinary activities, other specialized activities - design, photography, translation and interpretation).

Section N includes administrative and support services:

• - rental and leasing activities;
• - job-related activities;
• - travel agencies, tour operators, reservation services and related activities;
• - investigations and security;
• - building and landscaping services;
• - administrative and other support activities (including call centers, trade show and convention organization, etc.).

Box 2.2. Dynamism of business services

• - Number of companies: nearly one in four service companies is a company that caters to the B2B market; 18% of companies in France are B2B service companies (INSEE 2018a).
• - Business creation: the INSEE considers the business services sector to be the most dynamic in terms of business creation, ahead of trade. A quarter of the businesses created in France are in the field of business services (INSEE 2018b).
• - Number of jobs: 10% of jobs are in the business services industry and they account for 13% of service jobs (INSEE 2018c).
• - Job creation: in its target scenario for job growth in France over the period 2012-2022, France-Stratégie-DARES considers the business services sector to be the largest contributor to net job creation (France Stratégie-DARES 2015). The business services sector has the largest number of job creations (INSEE 2019a).
• - Value added: business services concentrate half of the value added of market services (47%) (INSEE 2018d).

2.1.2. Discourses on service

While the economic data are unambiguous and show a reality dominated by services, the interpretations can diverge and confront us with a multiplicity of discourses, often contradictory, on the contribution of services to the economy. Should we be enthusiastic or worried about this quasi-monopoly of services?

Analysts of the macroeconomic evolution of societies have established two opposing theses3: the post-industrial thesis and the neo-industrial thesis.

2.1.2.1. Post-industrial thesis

The proponents of the post-industrial thesis identify the growth of services as the major feature of contemporary economic history and support the reality of the transition from an economy dominated by the industrial sector to one dominated by services. Daniel Bell in the United States, Alain Touraine in France and, before them, Jean Fourastié have been the founders of this post-industrial society (Fourastié 1949; Touraine 1969; Bell 1973). The research studies of Engel and Baumol provide the main foundations of this thesis. Engel's law postulates that the increase in purchasing power leads to a shift in household demand from basic necessities (especially food) to mainly industrial goods and then to "higher" goods (health, education, leisure), which are essentially services. Baumol's work has established that productivity growth is on average faster in the industrial sector than in the service sector, justifying the irreversible decline in industrial jobs4. Today, major market trends, such as the aging of the population and the preference of younger generations for use rather than possession, only amplify household demand for services. The behavior of companies, by outsourcing a growing number of activities, from the simplest (maintenance of green spaces) to the most complex (human resources management), also contributes to the dynamism of the services market.

In a complementary way, the industrial company feeds into this reality by backing an ever greater share of its added value with service activities. The "servuction" or tertiarization of industry are the terms commonly used today to indicate the potential of services to enhance and differentiate the industrial company's offer. The growing technical complexity of products naturally leads to the launch of specific services to support their marketing, distribution, consumption and recycling. This is one of the challenges of Industry 4.0, which relies on the Internet of Things and data to offer innovative services that generate new sources of profit.

Finally, at the very heart of development economics thinking, while industry has long been considered indispensable for growth, the idea is now also defended that a country can develop from its service activities without necessarily relying on a solid industrial sector. India illustrates this new path of economic development, with growth based in particular on the export of advanced services, rooted in new technologies (Kucera and Roncolato 2016).

2.1.2.2. Neo-industrial thesis

However, in the 1970s, and more recently during the 2008 crisis, given the slowdown in growth, an opposing trend emerged that attempted to re-evaluate the importance of industry. The "neo-industrial" thesis attributes a driving role in the economy to the industrial sector. According to this thesis, the tertiary sector cannot develop without maintaining a dynamic in the industrial sector. In the face of deindustrialization, the neo-industrial thesis displays the will - some would say the utopia - of reindustrialization. Reindustrialization seems to be a powerful political argument, since it is regularly used by actors from all sides of the political spectrum, up to and including Bruno Le Maire's recent statement that "France has not chosen to be a service economy"5.

The neo-industrial thesis probably contributes to a certain distrust of service. In a 2013 book, Augustin Landier and David Thesmar denounced three preconceived notions that they believe are sinking France, to use the title of their book (Landier and...