The Cambridge Economic History of Modern Britain

INTRODUCTION

Until recently, the service sector has been rather neglected by economic historians, who have lavished much more attention on agriculture and industry. This is particularly the case when dealing with topics such as economic growth and productivity performance. Whereas it may just about make sense to evaluate Britain's nineteenth century economic performance with a focus on industry and agriculture, which between them made up around two thirds of economic activity, this makes absolutely no sense in the twenty-first century, when services account for more than three quarters of economic activity. However, this relative neglect of services by economic historians of the twentieth century means that the literature on this topic is much less well developed than the literatures on industry and agriculture.

This chapter begins by outlining the growth of the service sector within a national accounting framework. Services have seen a dramatic increase in their share of economic activity in all developed countries in recent decades, and Britain has shared in this trend. There are a number of reasons for this rise of the service sector at the expense of industry, but the most important is simply that as people get richer, they spend a growing share of their incomes on services. A similar change in the relative importance of industry and agriculture occurred earlier in history and provoked similar concerns about the sustainability of incomes if too many people worked in what were then perceived as unproductive activities. Just as today the policy proposals of the physiocrats to protect agriculture on strategic grounds seem at best quixotic, the concerns of those now urging a rebalancing of the economy to counter de-industrialisation will in the fullness of time seem misplaced. Being a rich economy today requires above all else high productivity in services.

Having established the growing importance of services over time, the chapter then assesses the performance of Britain's market services sector, drawing on a framework established in a recent book by Broadberry (2006).