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The three sectors of the economy

The Three Sectors of the Economy

Factors of production comprise four categories: land, labor, capital, and entrepreneurship.

Land - includes everything contained in the earth or found in the seas.

Labo r - refers to all the people who work. Labor includes full- and part-time workers, managers, and professional people in both the private and public sectors.

Capital - includes money to start and oper­ate a business. It also includes the goods used in the production process. Factories, office buildings, computers, and tools are all consid­ered capital resources. Raw materials that have been processed into a more useful form (such as lumber or steel) are also considered capital. Capital includes infrastructure, which is the physical development of a coun­try. This includes its roads, ports, sanitation facilities, and utilities, especially telecommu­nications. These things are necessary for the production and distribution of goods and services in an economy.

Entrepreneurship - refers to the skills of people who are willing to invest their time and money to run a business. Entrepreneurs orga­nize factors of production to create the goods and services that are part of an economy. They are the employers of a population.

Information – exchange of knowledge, intangible.

Economics is a social science studying economy. Economics tries to find laws or principles by building models. Economics as a science consists of two disciplines that is of microeconomics and macroeconomics. Microeconomics is the branch of economics that studies individual producers, consumers, or markets. Microeconomics also studies how government activities such as regulations and taxes affect individual markets. Besides microeconomics tries to under­stand what factors affect the prices, wages and earnings. Macroeconomics is the branch of economics that studies the economy as a whole. It tries to understand the picture as a whole rather than small parts of it. In particular, it studies the overall values of output, of unemployment and of inflation.

The economy is the realized social system of production, exchange, distribution and consumption of goods and services of a country or other area. An economy can mean the economy of a city (local economy), a country (national economy) or the world as a whole (international economy), provided that it is involved in the production of goods and services.

Economic infrastructure is:

1) the basic physical and organizational structures and facilities (e.g., buildings, roads, and power supplies) needed for the operation of a society or enterprise.

2) the stock of fixed capital equipment in a country, including factories, roads, schools, etc., considered as a determinant of economic growth.

The economy may also be classified into subdivisions called sectors.

Based on ownership, the economy may be subdivided into:

• Public sector

• Private sector

• Voluntary sector

The public sector is the part of economic and administrative life that deals with the delivery of goods and services by and for the government, whether national, regional or local/municipal . Examples of public sector activity range from delivering social security, administering urban planning and organising national defenses . The organization of the public sector (public ownership ) can take several forms, including:

• Direct administration funded through taxation ; the delivering organization generally has no specific requirement to meet commercial success criteria, and production decisions are determined by government.

· Publicly owned corporations (in some contexts, "state-owned enterprises "); which differ from direct administration in that they have greater commercial freedoms and are expected to operate according to commercial criteria, and production decisions are not generally taken by government (although goals may be set for them by government).

•Partial outsourcing (of the scale many businesses do, e.g. for IT services), is considered a public sector model.

In spite of their name, public companies are not part of the public sector; they are a particular kind of private sector company that can offer their shares for sale to the general public.

In economics, the private sector is that part of the economy which is both run for private profit and is not controlled by the state. By contrast, enterprises that are part of the state are part of the public sector ; private, non-profit organizations are regarded as part of the voluntary sector .

Legal status: A variety of legal structures exist for private sector business organizations, depending on the jurisdiction in which they have their legal domicile. Individuals can conduct business without necessarily being part of any organization. In countries where the private sector is regulated or even forbidden, some types of private business continue to operate within them. The private sector focuses on the needs of the shareholders and owners.

The voluntary sector (also non-profit sector) is the sphere of social activity undertaken by organizations that are non-profit and non-governmental . This sector is also called the third sector, in reference to the public sector and the private sector . Civic sector is another term for the sector, emphasizing the sector's relationship to civil society . What constitutes the voluntary sector may be interpreted widely or narrowly, and may include such diverse groups as advocacy/interest groups, think tanks, social movements, political parties, charitable organizations, volunteer community organisations, and religious organizations. The voluntary sector may be said to comprise organizations with a social purpose, although usually not including those with a primary focus on social enterprise or social entrepreneurship activities.

Based on the type of product produced, the economy may be subdivided into :

• Agricultural sector

• Industrial sector

• Service sector

The three-sector hypothesis is an economic theory which classifies modern economies based on the stage in the production chain into three major broad sectors of activity: extraction of raw materials (primary), manufacturing (secondary), and services (tertiary). It was developed by Colin Clark and Jean Fourastié.

· Primary sector of the economy: Involves the extraction and production of raw materials and basic tools, such as corn, coal, wood and iron. The primary sector of the economy extracts or harvests products from the earth. Activities associated with the primary sector include agriculture (both subsistence and commercial), mining, forestry, farming, grazing, hunting and gathering, fishing, and quarrying. The packaging and processing of the raw material associated with this sector is also considered to be part of this sector. In developed and developing countries, a decreasing proportion of workers are involved m the primary sector.

· Secondary sector of the economy: Involves the transformation of raw or intermediate materials into goods e.g. manufacturing steel into cars, or textiles into clothing. The secondary sector of the economy manufactures finished goods. All of manufacturing, processing, and construction lies within the secondary sector. Activities associated with the secondary sector include metal working and smelting, automobile production, textile production, chemical and engineering industries, aerospace manufacturing, energy utilities, engineering, breweries and bottlers, construction, and shipbuilding.

· Tertiary sector of the economy: Involves the provision of services to general population (consumers) and to businesses, such as baby-sitting, cinema and banking. The tertiary sector of the economy is the service industry. Activities associated with this sector include retail and wholesale sales, transportation and distribution, entertainment (movies, television, radio, music, theater, etc.), restaurants, clerical services, media, tourism, insurance, banking, healthcare, and law. In most developed and developing countries, a growing proportion of workers are devoted to the tertiary sector. In the U.S., more than 80% of the labor force are tertiary workers.

The distribution of the workforce among the three sectors progresses through different stages as fallows, according to Fourastié:

First phase: Traditional civilizations

Workforce quotas:

· Primary sector: 70%

· Secondary sector: 20%

· Tertiary sector: 10%

Second phase: Transitional period → advanced industrialised countries

Workforce quotas:

· Primary sector: 20%

· Secondary sector: 50%

· Tertiary sector: 30%

Third phase: Tertiary civilization

Workforce quotas:

· Primary sector: 10%o

· Secondary sector: 20%

· Tertiary sector: 70%

Though various empirical studies appear to support the three-sector hypothesis, four inaccurate predictions can be identified in Fourastié’s The Great Hope of the Twentieth Century :

1. According to Fourastié, the transition from the secondary to the tertiary sector should eliminate unemployment, since in his view the tertiary sector is unlimited in size. But unemployment was increasing.

2. Fourastié believed that there would be no states in which the secondary sector remained strongly represented even after a highly developed third phase had been reached.

3. Fourastié believed that the tertiary sector would always require an extremely high level of education of the workforce. However this is not the case.

4. Fourastié believed that workers’ wages would be harmonised at a high level in tertiary economies, but this has not happened. In fact the change has been in the opposite direction: the wage gap is continually increasing in most OECD countries. (Organisation for Economic Cooperation and Development)

According to other viewpoints there are some more sectors of economic activity.

Quaternary sector of the economy: Involves, the research and development needed to produce products from natural resources. (A logging company might research ways to use partially burnt wood to be processed so that the undamaged portions of it can be made into pulp for paper.) Note that education is sometimes included in this sector.The quaternary sector of the economy consists of intellectual activities. Activities associated with this sector include government, culture, libraries, scientific research, education, and information technology.

Quinary Sector: Some consider there to be a branch of the quaternary sector called the quinary sector, which includes the highest levels of decision making in a society or economy. This sector would include the top executives or officials in such fields as government, science, universities, nonprofit, healthcare, culture, and the media.

Modern tendencies in manufacturing process. Opinions concerning advanced industrialized countries and post-industrial countries.

Two hundred years ago, the vast majority of the population of virtually every country lived in the countryside and worked in agriculture. Today, in what many people call ‘the advanced industrialized countries’, only 2-3 % of the population earn their living from agriculture. But some people already talk about ‘ the post – industrial countries’, because of the growth of service industries, and the decline of manufacturing, which is moving to ‘ the developing countries’.

Well known Canadian economist John Kenneth Galbraith think that it is not possible to stop the declining of manufacturing, because this process is inevitable.