Service Sectors and the Subsistence Factor

Even in a modern day economy, time based services still involve forms of scarcity subsistence which have macroeconomic effects. No matter the level of skill involved, when economic time value is the main component of final product, it lacks productivity in the sense of full augmentation via physical capital and technology. When providers of time based product generate revenue, if their organizational capacity is expressed as high cost quality environs, the lack of traditional output scale means taxpayers and many others will shoulder the revenue shortfalls. This lack of full resource reciprocity at the outset, has already created future generational burdens.

These long term societal obligations only become more evident, if and when any nation's GDP revenue is dominated by service sector activity. Since high skill services also require local tradable sector wealth in the same environs, it has become more difficult to utilize and disperse valuable knowledge in any place which lacks sufficient tradable sector wealth.

However, these organizational limits for well compensated time based product are partially obscured, given the productive economic complexity of prosperous nations. Not only have knowledge providers benefited from the ability of these nations to utilize national debt for services generation, but also the Baumol effect which accrues to these same prosperous regions -  particularly the wealth spillovers of local tradable sector activity.

Once service sector activity dominates GDP revenue for extended periods, the lack of further market potential on similar terms, starts to become evident. The reason this matters is twofold: not only are service markets far from saturated, what high skill services do exist are creating uncertainties regarding future consumption at all income levels. Closely held knowledge use rights impose limits on productive agglomeration as a whole, as has become increasingly evident in rising real estate values.

Time based product needs to break free of its present dependent market status, in order to become a more direct source of wealth creation. Otherwise the scarcity of high skill time based product can only be augmented in value by extensive human capital investment. Yet this approach is proving too costly, for the knowledge which can still be dispersed for the gain of any society. Time is the best source of human capital investment we have. As such, not only does it need a stronger organizational role, but also a valid economic designation. Otherwise, it will remain difficult to generate the internal reciprocity which time based services could utilize as a source of wealth creation.

Likewise, the revenue limits of dependent service sector markets are responsible for the fact that today's productive agglomeration is increasingly situated in limited regions. Ken Rogoff expresses concerns re these limits in a Project Syndicate article about the rise of megacities. Part of what interested me about his article was a reference to the Lewis development curve in his Project Syndicate article. A Wikipedia article further explains the model:

The dual-sector model is a model in development economics. It is commonly known as the Lewis model after its inventor W. Arthur Lewis. It explains the growth of a developing economy in terms of a labour transition between the two sectors, the capitalist sector and the subsistence sector. 

While the Lewis dual-sector model was representative of historical mid fifties circumstance, some things haven't changed. Time based product, even with extensive human capital investment, faces scarcity restraints which affect the output potential of all nations, whatever their level of economic complexity happens to be. The best way to make time value really count, is to contribute as much skill potential to marketplace capacity as is humanly possible, without resorting to either redistribution or debt to do so.

The labour abundance which Arthur Lewis previously observed, has reemerged albeit in different form. Previously, tradable sector wealth meant that more time value could be augmented with the real wage gains of scale via manufactured product. Yet today, labour abundance has developed in a global capacity, as the labour of all nations is now correlated with tradable sector activity as a less dominant part of GDP revenue. When tradable sector activity requires smaller pools of labour, services are the obvious option. That said, if nations don't take care to generate scale in terms of human potential and aggregate knowledge gains, the subsistence factor of services could ultimately become as much a problem at high levels of skill, as it has posed for lower skill levels all along.