Introduction

This chapter provides the basic analytical framework for understanding the patterns of comparative productivity performance outlined in Part I. The key development has been the ‘industrialisation’ of services. This involved the transition from a world of customised, low-volume, high-margin business organised on the basis of networks to a world of standardised, high-volume, low-margin business with hierarchical management. This shift from the ‘counting house’ to the ‘modern office’ required technologies to improve communications and information processing as well as major organisational change from networks to hierarchies. These developments occurred initially in transport and communications in the United States and spread more slowly into distribution and finance. The transformation occurred more slowly in Britain, because of lower levels of education and stronger labour force resistance to the intensification of the labour process that the efficient utilisation of the new technologies required. Developments were initially even slower in Germany, as a result of the smaller market for services, squeezed by the protection of agriculture and industry.

After examining Britain's success in services during the nineteenth century on the basis of external economies of scale, this chapter proceeds to an analysis of the industrialisation of services in the United States. This is followed by sections on the response of British and German services to US developments. A model of technology, organisation and economic performance in services is then provided to set out more explicitly the economic argument.