Within the economy there are different sectors that encompass various activities. The primary sector transforms natural resources into raw materials for the secondary sector, which is industry. There, raw materials are transformed into consumer products. But what is the tertiary sector? This is related to all those activities that have to do with transforming services of material or non-producing goods. In other words: Sand is in charge of the generation of services whose purpose is to satisfy the needs of the population in any part of the world.
It is a fundamental production sector in the current system. It includes other subsectors such as commerce, tourism, finance, telecommunications and even some public services. Paul Krugman, an award-winning economist, believes that the decline in productivity in the service sector and the difficulty of improving it is the main cause of the stagnation of many countries in terms of their standards of living. If you want to know more about the tertiary sector, its functions and its composition, do not hesitate to continue reading.
Functions of the tertiary sector
Among the three sectors, the tertiary sector is the one that organizes, facilitates and directs the productive activity of the other two (primary sector and secondary / industrial sector). Because of this, it is considered the production sector. Nevertheless, within economic activity, its main functions are distribution and consumption.
When this sector predominates over the other two, a process of outsourcing takes place in the more developed economies. It is a social and economic transformation that increases the activities of services, or that comes to be the same: of the tertiary sector. It is important to note that this sector is the one that occupies the highest percentage of the active population and the one that contributes a greater percentage to the GDP of the respective country. Furthermore, the process of outsourcing implies not only the growth of services, but also the diffusion of the way of working in the tertiary sector to other sectors.
Composition of the tertiary sector
To answer the question of what the tertiary sector is, we must keep in mind all the subsectors that make up services. At the moment, the largest percentage of the workforce belongs to services. Below we will see a list of the subsectors involved that together make up the tertiary sector:
- Leisure activities, culture, sports and shows. These include the audiovisual industries (music, film, videogames). In contrast, the publishing industry and graphic arts are part of the secondary sector.
- Financial activities: This is where banking, the stock market, insurance and other stock markets come in.
- ICT applications (information and communication technologies): Internet, computing.
- Commerce: This involves franchises, wholesale and retail.
- Public function / public administration: These are activities related to community services, political representation, defense and security (police, firefighters, army, civil protection, etc.) and justice (notaries, lawyers, judges, etc.).
- Hotels and tourism.
- Media: Basically they are the press, television and radio.
- Company Services: Management and administration of companies, advertising, consulting, economic advice, legal service, investment, technological service, etc.
- Personal services: Are those services related to the welfare state (education, dependency care, health, public services, hairdressers, etc.)
- Telecommunications: These are personal means such as telephony.
- Transport and communication
Public service companies
Generally, when the infrastructure of a public service company is created it is part of the secondary sector or of the industry. However, when they offer services to people they are considered part of the tertiary sector. The same business can be included in both without any problem. As a general rule, economies develop in a progression to a structure that is fundamentally based on service. The first was the United Kingdom, which went from an agricultural economy to an industrial one until it reached services as a base. Other economies, also called post-industrial economies, have already surpassed that of the English.
Service economy
When all possible economic activity is treated as a service, we speak of a service economy. To better understand this concept, let's give an example: IBM (International Business Machines Corporation) is a famous multinational company that manufactures and markets software and hardware. This company treats its business as if it were a service business. Despite the fact that the computers it produces are still high-performance, it regards physical goods as a small part of the business solutions sector.
Many companies have found that the elasticity of demand for business solutions is considerably lower than for hardware. An equivalent change can be found in regards to the subscription pricing model. Due, manufacturers have a steady income due to contracts in force, as opposed to receiving a one-time payment from the equipment manufactured.
Generally, industry is generally more open to competition and international trade than the tertiary sector. The effect produced by this is the increase in the competitive attacks suffered by the first industrial economies by the countries that have begun to industrialize later. This is because production costs, especially labor costs, are considerably lower in the new industrial economies. Manufacturing contraction in major economies could be one reason why they rely so much on the service sector.
There are some economists who warn that services have certain special difficulties. One of them is one of the winners of the Bank of Sweden Prize in Economic Sciences in memory of Alfred Nobel, the American Paul Krugman. He points out that there are services that are not exportable and that many economic goods in the tertiary sector obtain modest gains in productivity due to the difference in industrial manufacturing.