"This is to inform you that I have already obtained all the investment funds that I need to launch my project. I thank you for doing all you have done for me. I am thrilled beyond measure. Apparently I have a better idea than even I knew."
Posted on September 26, 2017 @ 10:50:00 AM by Paul Meagher
How do economies develop over time?
A common approach to answering this question is to divide the economy into three sectors - primary (extraction), secondary (manufacturing), tertiary (services) - and track the relative number of people employed in these sectors over time. Wikipedia's entry on the three sector economy offers these statistics:
First phase: Traditional civilizations
Primary sector: 65%
Secondary sector: 20%
Tertiary sector: 15%
Second phase: Transitional period
Primary sector: 40%
Secondary sector: 40%
Tertiary sector: 20%
Third phase: Tertiary civilization
Primary sector: 10%
Secondary sector: 20%
Tertiary sector: 70%
The economist Colin Clark was an early theorist on economic development. He created a nice system dynamics diagram to illustrate how the size of each sector changed over time. He tracked 4 sectors in his diagram.
James Beringer in his book The Control Revolution (1986) proposes a 5 sector model of the economy based on the role each sector plays in controlling a significant dimension of the material economy.
As we might expect, an economy's major sectors, as delineated by Clark (1940), Hatt and Foote (1953), and Bell (1973), correspond
to major stages in the essential life process. The primary sector - agriculture, fishing, lumber, mining, oil and gas - represents
the extraction of matter from the environment to produce energy, including the calories to sustain individual organisms. The secondary
sector - processing primary goods, as in construction and manufacturing - represents the synthesis of matter and energy into more organized
forms (negentrophy). The tertiary sector, including transportation and utilities, represents the infrastructure for distributing matter
and energy about the system, while the quaternary sector - trade, finance, insurance, and real estate - constitutes a parallel infrastructure for the collection, processing, and distribution of information that is necessary in all living systems for the control of material flows. Finally,
the "highest" of all sectors in its remove from the physical environment is the quinary sector, including government, law, and education, representing the societal programming - socialization, education, law making - and collective or representative decision making to effect control. ~p. 179.
When thinking about how sectors evolve over time you should avoid thinking that growth in, say, the Secondary sector depends upon growth in the Primary Sector. Growth in the Secondary or Tertiary sectors can in fact drive growth in the Primary Sector. For example, where I come from the prices for blueberries per lb is so low that some growers are not harvesting this year. As an amateur winemaker I felt it was incumbent upon me to see if some greater value can be created by converting the blue berry juice to a cooler, a wine, or port style. Yesterday 40 gallons of blueberries were harvested and today there were crushed into pulp and juice to begin the maceration process. The juice is coming in at 8 to 9 Brix (percent sugar). I have 20 gallons of pulp and juice to work with. My role as a winemaker would be a job in the secondary sector of the economy (manufacturing) and if I was successful it might create more demand and higher prices in primary sector production. Just having an excellent product to sell locally would not be enough to move the needle on demand without also having a higher volume distribution network. Setting up a distribution network would involve working with people in the tertiary sector (transportation and utilities) and above to extend the distribution network.
So how many sectors are there? I don't think the question requires one answer. There are as many sectors as are required to adequately answer the types of questions you are asking. In alot of situations a 3 sector model might be useful (e.g., economic growth in the private sector) whereas trying to understand some finer details of how industrial economies evolve over time required 5 sectors in Beringer's model.
I'll end this blog with a tribute to primary sector workers in the Oil & Gas industry. I had an opportunity last friday to see the rock/blues/reggae band Big Sugar whose song accompanies this video showing some Well Testing work being done in Alberta, Canada.