The image shows the shape of the UK’s money economy in 1950 (left) and 2015 (right).

Production has certainly declined. Taken together, manufacturing, agriculture, utilities and construction were 50% of the value of the paid economy in 1950. Now they are 20%, as shown in the area of the darker green blocks. 

Health, social care and education have risen from 4% to 14% of total paid activity. This is shown in the light green blocks. People’s expectations of what healthcare and education can do to improve the quality of their lives have increased, so there is a social willingness to put more effort into these areas.

Core services, however, have not increased. Wholesale, retail, transport, hospitality, communications, government (including the police and armed services) and basic financial services such as retail banking have held fairly steady, as the yellow blocks show. 

Most of the action is with the pink blocks, which show other financial and business services and the property market (measured as rentals on homes). The property market’s share of the economy has more than tripled, while financial and business services have increased ten times, from 2% of the economy to over 20%.

This is a big change. Roughly a quarter of the economy, which was once manufacturing, is now devoted to financial and business management and the charging of rents. Here is  commercial and property law, accounting, insurance, estate agency, property speculation, management consultancy, advertising, sales, PR, HR management, financial trading, investment banking, chief executive officers, directors, business managers, data processing, call centres and many others.

What does this mean for the distinction that economists make between services and production? Shaping a lump of clay into a bowl, or a bag of flour into a loaf of bread, or growing wheat to make that flour, are clearly production, since something new and useful is created. This is something of absolute value that contributes to the total of real wealth..

Cutting hair, teaching a class, composing a piece of music and carrying out a heart bypass operation, which are classed as services, are also productive in exactly the same sense. Most of the unpaid work that we do in our homes is productive in this way, too, even though it is generally “service” work. 

How does that compare to the work of an accountant or a commercial lawyer, or any other activity in financial and business management and the charging of rents? Rather than producing something new of value, this type of work consists of counting and allocating existing value that is produced by others. It may (or may not) support the productive process, but to exist at all it relies upon taking value away from somewhere else.

What the image really reveals, therefore, is a major transition from creation to transaction in economic activity, and with it the emergence of a new fault line in the way we think about how the economy works. How can we get richer in a meaningful way if we devote more and more energy to pushing existing wealth around the system, and less and less to creating  new value? It is a fair question, and it goes to the heart of the UK’s current economic malaise.

Data sources:

The data comes from the Bank of England dataset A millennium of macroeconomic data, tab A16. The calculations used to create the image are in a spreadsheet here.