6 - Investment in physical and human capital

Summary

Introduction

The industrialisation of services was accompanied by investments in physical and human capital, which are documented and analysed in this chapter. Sectoral data on physical capital are available for services to only a very limited extent before World War II, and there are significant problems of international comparability even after World War II. The available data nevertheless suggest a limited contribution of international differences in capital intensity to explaining international differences in labour productivity in services. However, a large part of overall capital in services consists of buildings, with at best an indirect link to labour productivity. It is therefore also useful to focus more narrowly on office machinery, which suggests a more significant role for investment in physical capital.

In human capital formation, it is important to consider both education and vocational training, and to distinguish between higher (university degree equivalent) and intermediate (between school leaving and degree equivalent) levels of vocational training (Prais, 1995: 17). Adding together the different types of human capital formation, Britain suffered little human capital disadvantage relative to either Germany or the United States before World War II, particularly in services. However, after World War II any higher-level advantage that Britain had enjoyed over the United States in services from the large number of qualified members of professional associations was offset by the spread of mass higher education in the United States.