Chapter 6: Towards the Service Economy

In the rococo shelter of Leopoldskron Castle in Salzburg in Austria, I heard somebody talk about the post-industrial society and economy. In that summer of 1959, Daniel Bell gave his first conference on the subject during an American studies seminar, part of a series that has continued into our time.

Being a sociologist, he did not venture more specifically into economic arguments but concentrated on the fact that the majority of the population by that time were working in the service field. This observation led him to think that the “working classes” were less than what the Marxist theories had described and taken as their reference point. As a result, factory workers could no longer constitute, if they ever had, the basis for the great social revolution.
I noted these observations while thinking that in human history any political structure ran the risk of deteriorating, thus giving rise to forms of oppression, whatever its original basic ideology. The observation concerning the relative decline in factory manufacturing work was important – I will come back to it more and more often later, especially after describing my experience in industry and at the Battelle Institute.
I published my first book in 1968 on Europe and Space*, which was followed a few years later by a contribution to a second book on Europe and the Oceans.** From 1971, I began to hold a course on Politics of Science and Technology and European Integration at the University Institute of European Studies in Geneva. It was the beginning of a university teaching career that lasted twenty eight years (from 1971 till 1999).***
In 1985, I was duly appointed “Prof” at last. For over ten years I had given lessons without pay, for two or three hours a week. One had to do something for Europe plus learn to put one’s ideas and experiences in order.
Those courses taught me a great deal. Actually I’m not like those teachers who first learn to specialise in a subject from books and then pour their knowledge into their students. I am fundamentally a researcher: first I understand from practical experience where the most advanced edge of a discipline is to be found and then I investigate beyond that edge, while at the same time making use of books. My references have been experiences from industry, technological research and finally my experience of institutions relating to risk management and insurance.

1. Dialogue with the Economists

The University Institute of European Studies was founded in 1963 by Denis de Rougemont, Director of the European Centre for Culture in Geneva, in order to arrange for a base for education in the Centre’s programmes and also to consolidate its financial structure. In 1975 my course became an “Introduction to the Economics of Risk and Uncertainty” and from 1983 it was titled “The Foundations of the Service Economy – Europe’s problems and prospects”.
In this research-teaching work of course an important number of basic works had to be included. I always read Adam Smith, Marx, John Stuart Mill, Marshall, Schumpeter, Hicks and others, only after having raised, in various ways, numerous questions concerning them: references, observations, suggestions, recommendations, citations. Rather than reading them, I entered into dialogue with them. A necessary dialogue if one has to understand the motivations, experiences and historical references of these authors. A method that perhaps does not meet the normal academic requirements, but which, according to me, is useful, if one is to get to know how to obtain the greatest advantage from a daily observation of the “real” economy.
I must also confess that many of my ideas came to me while I was in search of a synthesis as I was talking in front of my students. It was very interesting to reflect, after a lesson, on what I had said during the course. Centimetre after centimetre, I was able to advance a few metres every year, or at least have increasingly better structured ideas. After twisting my ideas in every direction I leave it to others to test if they are false or useless. It is pleasing to proceed even when one discovers that an idea or a hypothesis is wrong. These days it makes one shudder when, for example in the physics field, it appears that certain particles such as Higgs, considered fundamental by current dominant theories on the formation of the universe, don’t actually exist in reality. But the essential thing is to seek.
Other opportunities to teach and to learn were given to me by the Agnelli Foundation in Turin between 1970 and 1975 and by the IRI education Institute in Rome from 1976 till 1979, for a total of about seventy conferences/debates with an audience who were essentially public and private entrepreneurs. At the Agnelli Foundation I had a very special experience working with a group of psycho-sociologists recruited by Giorgio Demarchi, an old Trieste schoolmate. I was part of a group of experts (including Luigi Frey, a key man in Italy in labour economics, and Ettore Massacesi who was to become managing director of Alfa Romeo before it was taken over by FIAT).
Naturally, I presented my theme on technology and economic development and the psychologists, with questions but also with silences, pressed those present to be aware of the “group dynamic” and how this interfered with the understanding of the argument under discussion. One of them (a figure of authority appointed by the group) immediately agreed with me. Others protested, in order to assert their own area of independence. Still others spoke in order to obtain the maximum approval of the group members. It was interesting and informative to witness how the whole discussion, on a pretty concrete subject, was filtered through psychology, individual and social strategy. Apparently, rational language became what the “psychs” call “metalanguage”, through which transmitted signals or words become the indirect means of establishing one’s presence and role in the group.
One day, I asked everyone to close their eyes and list aloud what was there in the conference hall. Later, after they had opened their eyes a comparison was able to show that more than half of the objects in the hall had escaped the attention of each one. However, the objects noted depended more and more on the character of the specific work of each one. A furniture maker had noticed the kinds of chairs, tables or armchairs, while an amateur painter had especially observed the pictures on the walls. In a word, when it comes to the sea of information that surrounds us, each of us makes use of an “input selector”, a very personal selection system. The moral, if there is one, is to understand that we inevitably make choices from among the items of information that surround us. It would be impossible and absolute­­ly intolerable to try to capture this completely, but we have to do our best to be aware of this process in order to improve the opportunities that we have to understand reality and the quality of our judgement, which can improve but cannot become either perfect or definitive.
In my “education-teaching” there is another essential element to be noted: the contribution. Sometimes subconscious, of some people who open doors in your mind, saying a sentence or a word that leaves imprints way beyond their basic meaning. One day, at the Battelle Institute, Emilio Fontela, then head of the economics department, speaking of service businesses told me: “It’s clear that services represent not only a specific economic sector, but they are very important in the industrial sector too.”
This observation was decisive for me and I spent years studying it in depth. It is one of the principal keys to the reading of contemporary economics. For Emilio Fontela it was about an empirical observation that had no particular effect on him. His main area of research involved simulation models for which the definition of service activity was rather vague. I thank you anyway, Emilio, for the inspiration.
In the following paragraphs I will describe a certain number of points that I consider important, indeed essential, for developing economic research and for reinforcing its capaci­­ty for acquiring new data relating to the great changes in society, and to the discoveries and innovations in science and technology.
I invite the reader, particularly if he/she is not an economist, not to be discouraged: at the risk of appearing superficial, I am convinced that every truly clear idea – especially in those disciplines called the social sciences – can be easily illustrated and expressed in very simple language.
One day at the Battelle Institute, Maurice Poull, while explaining the development process of new textile machines, told me, “Every machine and every process is based on a key principle: for example, men first learned to light a fire by rubbing two pieces of wood together. They then improved this principle creating different types of matches, and then, for the same use, they invented other implements that, in the presence of gas, produce a spark thus enabling the lighting of fire − in the kitchen or for a pipe – in a very effective way. The same thing happens with textile machines that produce threads and fabrics following process­­es and principles unchanged over millennia. The quality of the raw materials (cotton, wool) used has improved and, thanks to improvements in metals, that of the material and of the machines used is also better. These work more precisely and quickly, and do not break. On the other hand, historians date the beginning of the Industrial Revolution to the moment when looms and textile machines underwent important innovations. These consisted in the use of water heated in a tightly closed container (like today’s pressure cooker): The water, becom­ing hot and turning into steam increases in volume by about 1,700 times, producing in turn great pressure and hence energy that can be used to move some of the loom’s levers, in place of the force used by a human arm. In the case of the cooker this must be dispersed through a valve on the lid to avoid an explosion. Just like with the pressure cooker so it is with the loom; the metal must be well produced, solid and without flaws so as to avoid it break­ing, or even worse, exploding. At the beginning of the Industrial Revolution it was not easy to produce containers capable of resisting strong pressure. As a result there were a number of accidents (which can happen even today), and the birth of a specific insurance sector (against the explosions of containers or tanks under pressure).”
Even without being engineers it is easy to follow the progress made in innovation and technology. The great development of the railways starting from the middle of the 19th century (almost a century after the Industrial Revolution), is linked to the same idea of heating water in a tank, placing it horizontally however, so that the pressure of the steam pushes the wheels of the train through the use of pistons. Thus was born the locomotive. It is thus easy to imagine how much work engineers put into research, development of materials and the possibilities for assembling them.
Maurice Poull went on: “On the one hand, therefore it was possible to use the mechanical energy (produced by water pressure) and on the other there was the invention of the so-called flying shuttle”. This is simply a spool around which the fabric thread is wound. It is pushed with a sharp blow from one side of the loom to the other, a blow struck by an arm or a kind of hammer activated by steam energy. Obviously the spool has to start from the correct direction, but to achieve this it is only necessary to make a guide or use a piece of wood or metal to stop it from going where it should not go.
It is soon imagined how with this system the speed of the machine, and hence of production, can be constantly improved. Productivity increases in the traditional sense of the term as used by economists.
Once this starting point concerning the improvement in a procedure that uses a known technology is clear one also understands that there can be constant improvements in the kinds of machines, both physically and in terms of performance, in materials used in building machinery and in the textiles used.
Why then did our weaving machine become the symbol of the Industrial Revolution? Because the energy used allowed the fuelling of several machines at a time and from that derives the interest in bringing many machines together in one place. It was to be the birth of the “factory”, by now necessary for man to take the fullest advantage of the possibilities offered to him by this new phase in technological development. Previously, textile production had been linked to agricultural activity. Work on the farm was done by hand, on one or two ma­­chines, when there was time, bearing in mind the need for field work. What happened, starting from the second half of the 18th century, has been defined as a real technological and social Revolution. The peasant who worked in textiles became a labourer. He could no longer work at home. The working class was born.
Now let us take a step forward. Maurice Poull explained to me: “One can develop a system over the long term. There always comes the moment, however, in which the possible improvements become less – what economists call diminishing returns. One must therefore change both the logic and the system”. So, Poull tried to develop a spinning system aimed at improving the speed of producing textile threads consequently, based on a new principle. This involved using static energy (the kind that attracts dust to some furniture and surfaces) to place the fibres parallel and, after twisting, to create a textile thread. I have already mentioned that this principle, which had at first produced good results, was not a success. At that time another system gained advantage. This used centrifugal force (the same force that allows salad to be drained in a basket that spins fast and to squeeze laundry in a washing machine).
Here therefore we have two fundamental elements relating to technological development: improvement of existing principles and tools until they arrive at the point where they show a diminishing of returns which increasingly limits innovation efforts in relation to the results, plus the need to consider completely new principles and systems.

2. Prometheus Unbound
It was at this point in 1971 that a book on economic history written by David Landes in 1969 fell into my hands. It was called The Unbound Prometheus – Technological Change and Industrial Development in Western Europe from 1750 to the Present.**** I have never read a book on economics, the analysis of which corresponded so closely to my own experience of work and daily research. It opened my eyes to another essential point which strangely seems to me to be still widely underrated in economic analyses.
Until the second half of the 19th century every technological innovation was of the empirical kind, that is they were developed on the basis of practical experience, with no fundamental research involved. The steam engine was invented at a time when it was not yet known that water was composed of hydrogen and oxygen; one simply began to assess empirically the dimension of its transformation into steam following its being heated. The same goes for coal, a fuel used for centuries, with no knowledge of its chemical structure. And so it was for many other materials.
In the 19th century the scientist (or the philosopher who studied “Nature”) was a very different being from the engineer (the latter even got his hands dirty). When Graham Bell was told this, thanks to his research the telephone could be produced, he became angry and took it as an affront. A true man of science – a scientist – is not to be confused with the common mortal who makes practical things.
The union between science and technology would come about gradually and stealthily, from the end of the 19th century. Complete integration would take place only during the Second World War – what was at stake was important and it was necessary to quickly abandon every cultural prejudice. Only after about 1930 did real professionalisation of re­­search and development begin and the Battelle Institute was one of the first and principal points of reference.

* “L’Europe et l’Espace”, Centre de Recherches Européennes, Lausanne, 1968
** “L’Europe et les Ressources de la Mer” Witwith the prH. Schwamm and H. Loubergé. edition Georgi, St. Saphorin (Switzerland), 1977
*** From 2006 I again held courses in English at the IUIES (International University Institute for European Studies ) at the Gorzia campus of Trieste University.
**** David Landes, “The Unbound Prometheus”, Cambridge university Press, 1969.

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