8 - The services sector

Summary

The commercial revolution that arose from the opportunities of long-distance trade created in the two centuries before 1700 penetrated local markets throughout continental Europe over the next 170 years. In the process, the dominant form of employment in the services sector switched from local and household services required by largely self-sufficient households and villages, engaged primarily in agriculture and handicraft manufacturing, to specialized commercial, financial, and transportation services organized between specialized centers of production and commerce. Increased specialization led to continued advances in productivity, in services as well as in agriculture and industry. Services may, in fact, have been the most dynamic sector in the European economy throughout this period. While the Industrial Revolution occurred in Great Britain, industrialization did not dominate the economies in the rest of Europe until after 1870. In contrast, the earlier British innovations in providing services in finance, shipping, and wholesale distribution were more readily adopted in the rest of Europe and their diffusion led to continued dynamic growth of the services sector throughout Europe.

The importance of productivity advances in services for growth in the general economy was not recognized as clearly in the eighteenth century as it is now. Only in recent decades, after stunning improvements in information and communications technology, have economists begun to identify the importance of advances in finance for overall economic growth, as well as for continued trade in goods and services among diverse regions.