Services_in_Society_and_Academic_Thought

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Unformatted text preview: Services in Society and Academic Thought: An Historical Analysis Stephen L. Vargo and Fred W. Morgan This article traces the development of economic activity and the sociopolitical, philosophical, and scientific agenda from which the present goods-centered paradigm of marketing emanated. The authors suggest that the services—centered model of exchange, abandoned during this development, is more appropriate for the advancement of the understanding of exchange relationships. Keywords: service marketing; marketing history; economic history; service—dominant logic The science of marketing focuses on exchange relation- ships (Hunt 1991) is based on explanatory concepts inherited from economics more than a century ago. Classical and neo‘ classical economics look at relationships among supply, demand, and value of tangible goods, especially manufac- tured goods. This limited focus, in turn, is rooted in the philo- sophical and scientific thought that preceded the development of economic science as well as in the intentional limited purposes of its early scholars. The focus of marketing has shifted from tangible goods and activities associated with their delivery to include the exchange of activities (i.e., service provision). The growing interest in services has been attributed in part to the existence of a structural shift in mature economies from production— dominant toward services-dominant economic activity, labeled the “post—industrial society” (see, e.g., Bell 1953; Noyelle 1983) and the “services economy” (e.g., Giarini and Stahel 1989; Riddle 1986). Others posit that the shift is related to practitioners’ interest in human relations aspects of “prod- uct differentiation” (Berry and Parasuraman 1993) and the View that “goods” do not characterize all of exchange (Shostack 1977). Given marketing’s foundation in economic science, this shift has given rise to a dichotomy in the way we think about what is exchanged. That is, since marketing is grounded in the inherited notion that the unit of exchange is goods, services must be a different type of good or “intangible product.” Ser- vices thus became defined residually——services are what 42 agriculture, extracted, and manufactured commodities are not. Therefore, early research on services focused on the explication of these differences (e.g., Zeithaml, Parasuraman, and Berry 1985). This dichotomy has led to the creation of a subdiscipline of services marketing. We argue that this dichotomy limits our fully understand— ing exchange processes (Shostack 1977; Vargo and Lusch 2004a). Service is more than merely what goods are not. Ser— vice represents activities that provide benefits for another party, and these activities are primarily what are exchanged in markets. Some of these activities result in goods, or appli- ances, that derive their value through service provision. Thus the purposes of this article are to reexamine eco- nomic activity, the role of service, and the goods versus ser~ vice question from a historical and a service perspective. We suggest that the present dichotomy is an artifact of the govern- ing paradigm rather than the result of empirical or rational analysis. From this perspective, we conclude that service activities emerge as essential ingredients of the economic interdependence that we call civilization (Bastiat [1848] 1964; Riddle 1986). We argue that service, rather than goods, is the common denominator in exchange. The historical per— spective presented herein1 0 indicates the essential role of service in societal development; - traces the inextricably intertwined philosophical, socio— political, and scientific developments that have resulted in the static, goods-driven economic model from which service has inherited its subservient role; and 0 suggests a reformulation that may be necessary before the role of service can be appropriately advanced. FORMAL ECONOMEC THOUGHT Foundations of Formal Economic Thought Every history has its own history, usually a series of con verging histories. The history of the development of civiliza- tion is more a history of mutual service than of things: a Journal of Macromarketing, Vol. 25 No. 1, June 2005 42-53 DOI: 10.1177/0276146705275294 © 2005 Sage Publications history of the development of the specialization of labor, both mental and physical, and the exchange that necessarily accompanies this specialization. The View that exchange can be understood in terms of innate properties of tangible things, which only sometimes are used as vehicles for exchange, is a recent paradigmatic development. It is attributable to the con— vergence of the philosophical, sociopolitical, and scientific thought that dominated the Industrial Revolution and is a direct result of intellectual choice associated with the devel~ opment of formal “economic science” that emerged during this period. For most scholars, the temporal line of demarcation for both the Industrial Revolution and the beginning of modern economic thought is the publication of The Wealth of Nations by Adam Smith ([1776] 1904). Smith neither invented eco- nomics nor did he cause the Industrial Revolution. He did, however, explicate and integrate the dominant “world views” that served as the foundations of both. Among these were (see Bell 1953; Delaunay and Gadrey 1992; Schumpeter 1954) 0 the Aristotelian view of social virtue being defined in terms of the degree to which an individual’s service contribution—- especially the conceptual contributions of government—pro~ vided for the common benefit of society, modified by the more recent Christian precept of the virtue of labor; 0 the mercantilist idea that what was good for society was the production of surplus tangible commodities that could be ex- ported in exchange for precious metals; 0 the philosophy that social exchange and civilization were governed by natural law and that the normative laws of soci‘ ety should be derived from the laws of nature; and 0 the related View that while the laws of nature could not be changed, humans, through scientific discovery and rational- ity, could master them. The model for this mastery of nature by science was Newtonian mechanics, a model of things (matter) having innate properties and relationships to other things that could be manipulated by human effort. Smith ([1776] 1904) integrated these views into a model of normative economics. He transformed Aristotelian virtue into the View of what was “productive,” which he defined in terms of the contribution to national wealth. He held to the mercantilist idea that natural wealth was created through pro- duction of tangible surplus for export but insisted that this process was governed by the “invisible hand” of natural law rather than the restrictive laws of man. To the land and agri- cultural labor foundations of productivity proposed by the physiocrats, he added the labor of industry and capital, the embodiment of past labor. Value was a property of tangible things, derived from the rent of land, capital, and labor that created tangible objects. “Productive” and “Unproductive” Services Like most scholarly pursuit at the time, the formal devel— opment of economic thought generally developed within the confines of the university. Though the Church had lost its JOURNAL OF MACROMARKETING 43 dominant grip on these institutions, the structure that ema- nated from its influence had not. Economic thought developed from moral philosophy. Its focus was as much a normative concern for what was right and good for society as a positive concern for how economic activity functioned. Those scholars who provided the services of formal inquiry were “political economists.” Not all economic philosophers agreed with mercantilist thought. For instance, Hume (1752; see also Marshall 2000) recognized the necessity of the merchant not only in external trade but also in the internal creation of industry. Hume docun mented the fallacy of the imbalance of trade, which he saw as driving up the cost of capital and prices. He favored free and extensive trade but felt that a nation could be economically powerful without it. Francois Quesnay (1694—1774), a natural law philoso— pher, founded the “physiocratic” school, as much a political movement as an economic philosophy. Quesnay (1962; see also Bell 1953) regarded land and agriculture as the driving forces underlying a nation’s economy. He recognized that production (agricultural services) resulted in a monetary sur- plus that would circulate through society and eventually return to agriculture to reproduce the surplus. He defined all other services, except those engaged in agriculture, as “ster- ile.” While extractive, manufacturing, and merchant services were necessary, they transformed and moved resources but did not create them. Only agriculture services produced the surplus that supported the rest of society. Like Quesnay, an acquaintance, and Hume, a friend, Adam Smith (1723~l790) was a natural law philosopher. He derived his political economic views from the essential prop- osition of the efficiency of the “division of labor,” resulting in the necessity of “exchange.” For Smith, ([1776] 1904, l), labor was the “fund which originally supplies (the nation) with all the necessities and conveniences of life which it annually consumes.” Thus, labor, the application of mental and physical skills (i.e., services), served as the foundation for exchange. Though laying the foundation for the explanation of exchange and value, Smith ([1776] 1904) was not concerned with all of exchange. He was a moral philosopher seeking the normative explanation for how some services (types of labor) could contribute to national well-being through the produc— tion of surplus commodities that could be exported for trade. In effect, Smith’s theme was an updated version of Aristotle’s treatment of virtuous services. To Quesnay’s agriculture, Smith added the tangible products of the increasingly devel- oping industry to the equation of national wealth determination. Smith’s ([1776] 1904) narrowed focus can be seen in his discussion of “productive” and “unproductive” services—— a discussion on which he is frequently misquoted. He is cred- ited with the View that services are not valuable. This 44 JUNE 2005 attribution is usually grounded in some portion of Smith’s statement that the labor of some of the most respectable orders in society is . . . unproductive of any value, and does not fix or realize itself in any permanent subject, or venerable commodity which endures after that labor is past, and for which an equal quantity of labor could afterwards be produced. The severe eign, for example . , . produces nothing for which an equal quantity of service can be afterwards procured. (P. 314) To this unproductive group, Smith ([1776] 1904, 314) added “churchman, lawyers, physicians, men of letters of all kinds, players, buffoons, musicians, and opera singers.” Smith did not argue that services were not useful or unneces' sary for individual well-being, just that some services were unproductive in terms of his national wealth standard. He noted that services such as those of physicians and lawyers were “useful” and “respectful” and “deserving of higher wages,” but they were not productive in the contribution to surplus commodities. He did identify “those who undertake the improvement or cultivation of lands, mines, and fisher— ies,” “manufacturers,” “wholesale merchants,” and “retail— ers,” in that order, as examples of services that were both use- ful and productive since they were necessary for the production and trade of commodities. Smith ([1776] 1904, 30—31) identified “real value” as the quantity of labor that was required to afford the “necessities, conveniences, and amusements of human life” through the labor of others. But Smith’s focus was not on all exchange, just on the exchange of commodities that could contribute to national wealth. So having established that the exchange of labor, or services, was the fundamental source of real value, he partially abandoned this discussion and shifted his atten- tion to “nominal value”—the price paid in the marketplace. Smith felt that people could more easily think in terms of quantities of things rather than quantities of labor, and his concern was with the former. This refocusing eased Smith’s normative task of explaining how trade contributed to national wealth. However, he now faced the paradox of two standards of value, one based on consumption—value in use—and the other based on trade—value in exchange. And as noted by many of the economic scholars who followed him, it also limited the generalizability of the economic phi- losophy and economic science that developed from his work. Jean Baptist Say (1767—1832) disagreed with Smith’s treatment of services. For Say (1821), production was the cre. ation of “utility,” not matter. He defined services as those activities that are “consumed at the time of production itself” and described them as “immaterial products.” Say’s most notable contribution to economic thought was what became known as Say’s law, the contention that production would generate an equivalent demand that would in turn generate employment in production. John Stuart Mill’s (1806—1873) treatise Principles of Political Economy (1848) was the most successful text on the subject in the second half of the nineteenth century (Schumpeter 1954). However, his treatment of services can be characterized as an exercise in reluctant resolve. Mill ([1885] 1929, 44) took exception to the practice of political economists of classifying labor as unproductive unless it resulted in some material object capable of being transferred: “production not being the sole end of human existence, the term unproductive does not necessarily imply any stigma.” He recognized that since “no human being can produce one particle of matter” (p. 45), production of objects only repre— sented the rearrangement of matter. He believed, like Say, that the value of production was not in the objects themselves, but in their usefulness. Therefore, labor was “not creative of objects, but of utilities” (pp. 45—46). Consequently, he asked, “Why should not all labor which produces utility be accounted productive,” including labor that creates “utilities not fixed or embodied in any object, but consisting of a mere service rendered?” Having established his case for all labor being viewed in terms of services resulting in utilities, Mill had difficulty rec- onciling this notion with the “received meaning” of “wealth” and acquiesced to the more popular understanding of wealth as “only what is called material wealth, and productive labor only those kinds of exertion which produces utilities embod— ied in material objects” (pp. 4546). However, Mill ([1885] 1929, 48) asserted that this reluctant acceptance did not restrict “labor which yields no material product as its direct result, provided that an increase of material products is its ultimate consequence” from being considered productive. Mill had tried to “break free” from the emerging goods— centered paradigm but found it too compelling. As Kuhn (1962) later pointed out, paradigms are both per— ceptually potent and normativer prescriptive. To be a “politi- cal economist” was to accept the moral prerequisite of the vir- tue of national wealth, and as Mill noted, national wealth had come to mean tangible production. Mill, like many of the eco* nomic philosophers of his time, was forced to reel himself in from a more positive analysis of the way economic activity works. Equally important was the more generalized paradigm from which Mill did not retreat. The paradigm was evident in Mill’s language. His statement that “labor . . . is always and solely employed in putting objects in motion; the properties of matter, the laws of nature do the rest” (Mill [1885] 1929, 25) clearly reflects the influence of the dominant Newtonian worldview. For Mill, as for Say, one of these properties of matter was utility. This notion of utility gave the economists a quantifiable unit of economic mass that not only allowed them to proceed with the development of positive science (Keita 1992) but also partially relieved them of the necessity to defend the tangibility requirement of productive labor. Frederic Bastiat: The First Services Scholar? Frederic Bastiat (1801~1850) did not ascribe to the accepted wisdom. He was critical of the political economists” position necessitating value being tied to tangible objects. For Bastiat (1860, 40), individuals who have “wants” and seek “satisfactions” were the foundation of economics. These sat- isfactions could be appeased by utilities of two kinds: (1) “gratuitous utilities” that were provided by Providence and (2) “onerous utilities” that must be purchased with effort. A want and its satisfaction were seen as specific to a single indi- vidual, while the effort required for the associated onerous utility was seen to often reside in other individuals. For Bastiat (1860, 43), “It is in fact to this faculty . . . to work the one for the other; it is this transmission of efforts, this exchange of services, with all the infinite and involved com— binations to which it gives rise, through time and through space, it is THIS precisely which constitutes Economic Sci~ ence, points out its origin, and determines its limits.” Value was therefore seen as the “comparative appreciation of recip- rocal services” exchanged to obtain utility. Like Mill ([1885] 1929), he recognized that humans could not create matter; rather, they transform it, through service, into a state that could provide satisfaction. Since the value of this matter resided in the service, and since material things that required no effort to provide utility (gratuitous) could not have value, it followed that material things cannot possess value. Bastiat ([1848] 1964, 162) summarized his View as follows: The great economic law is this: Services are exchanged for services. . . . It is trivial, very commonplace; it is, nonetheless, the beginning, the middle, and the end of economic sci- ence. . . . Once this axiom is clearly understood, what becomes of such subtle distinctions as use-value, and exchange-value, material products and immaterial products, productive classes and unproductive classes? Manufactures, lawyers, doctors, civil servants, bankers, merchants, sailors, soldiers, artists, workers, all of use, such as we are, except for the exploiters, render services. Now since these reciprocal services alone are commensurate with one another, it is in them alone that value resides, and not the gratuitous raw materials and in the gratuitous natural resources that they put to work. Fellow economists criticized Bastiat’s views as not being economic theory (Schumpeter 1954). He had not accepted the dominant paradigm. The Science of Economics Say’s concept of utility had been firmly implanted into economics by the middle of the nineteenth century. Utility could be treated as an embedded property of matter. With util- ity as an economic unit of analysis, the issue of use value could be ignored; value in use had been transformed to an JOURNAL OF MACROMARKETING 45 embodied property, essentially equivalent to value in exchange. The stage was set for turning economic philosophy into economic “science,” in the Newtonian tradition. Leon Walras ([1894] 1954) saw the function of pure eco- nomics as the theoretical determination of price. He felt that all things, material or immaterial, on which a price can be set because they are scarce (i.e., both useful and limited in quan- tity), constitute social wealth. Hence pure economics is also the theory of social wealth. (P. 40) Walras reasoned that the failure of most economists to include immaterial services of capital goods precluded the development of a pure science. He broke down the “services of capital goods” into “consumers’ services” that have direct utility and “producer services” that...
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