When we hear the term economy, it is usually in the context of how the economy “is doing”: Is inflation soaring or under control? Is the economy growing or shrinking? Is unemployment rising, declining, or remaining stable? Are new college graduates finding jobs easily or not? All these questions concern the economy, but sociologists define economy more broadly as the social institution that organizes the production, distribution, and consumption of a society’s goods and services. Defined in this way, the economy touches us all.

The economy is composed of three sectors. The primary sector is the part of the economy that takes and uses raw materials directly from the natural environment. Its activities include agriculture, fishing, forestry, and mining. The secondary sector of the economy transforms raw materials into finished products and is essentially the manufacturing industry. Finally, the tertiary sector is the part of the economy that provides services rather than products; its activities include clerical work, health care, teaching, and information technology services.

Clerical work and other occupations that provide services rather than products constitute the tertiary sector in the economy. Image by David Mark from Pixabay.

Societies differ in many ways, but they all have to produce, distribute, and consume goods and services. How this happens depends on which sectors of the economy are most important. This latter variable in turn depends heavily on the level of a society’s development. Generally speaking, the less developed a society’s economy, the more important its primary sector; the more developed a society’s economy, the more important its tertiary sector. As societies developed economically over the centuries, the primary sector became less important and the tertiary sector became more important. Let’s see how this happened.

Pre-Industrial Societies

The earliest were foraging societies in which people eked out a meager existence by hunting animals and gathering plants to feed themselves. Most of their waking hours were devoted to these two tasks. The horticultural and pastoral societies that next developed saw people in these societies raising animals and/or growing crops. They were better off than their foraging counterparts, but similarly, these tasks were done within the family unit and monopolized most of their time. In these forms of society, a separate institution for the production and distribution of goods and services, in the sense that we know it today, did not exist.

This separate institution—the economy—finally did appear with the advent of agricultural societies about 5,000 years ago. These societies were able to produce food surpluses thanks to the invention of the plow and the wheel and other technological advances. These surpluses led to extensive trade within the societies themselves and also with other societies. The rise of trade marked the first appearance of a separate economy. People also had to make the plows and wheels and repair them when they broke, and new crafts jobs arose to perform these functions. These jobs, too, marked the development of a separate economy. Despite this development, most people’s work still took place in or very near their homes, with the exception of craftspeople and merchants.

Industrialization and the Division of Labor

Work and home finally began to separate in the 1700s and 1800s as machines and factories became the primary means of production with the emergence of industrial societies. For the first time, massive numbers of people worked in locations separate from their families, and they worked not for themselves and their families but for an employer. Whole industries developed to make the machines and build the factories and to use the machines and factories to manufacture household goods, clothing, and many other products. As should be clear, the secondary sector of the economy quickly became dominant. Perhaps inevitably it led to a growth in the tertiary (service) sector to respond to the demands of an industrial economy. For example, enterprises such as banks emerged to handle the money that industrialization brought not only to people with names like Carnegie and Rockefeller but also to a growing middle class of factory managers and the businesspeople that bought and sold the products that factories were producing.

One important consequence of industrialization was the specialization of work, more commonly called the division of labor. In agricultural societies, the craftspeople who made plows, wheels, and other objects would make the whole object, not just a part of it, and then sell it themselves to a buyer. With the advent of the division of labor under industrialization, this process became more specialized: some factory workers would make only one part of an object, other factory workers would make a second part, and so on; other workers would package and ship the item; and still other workers would sell it. This division of labor meant that workers became separated from the fruits of their labor, to paraphrase Karl Marx, who also worried that the type of work just described was much more repetitive and boring for workers than the craft work that characterized earlier societies. Because of these problems, Marx said, workers in industrial societies were alienated both from their work and by their work.

Information technology, such as the smartphone depicted here, are a hallmark of the postindustrial economy. Photo by mentatdgt from Pexels

Post-Industrial Societies

Today, much of the world has moved from an industrial economy to a postindustrial economy. This is the information age, in which smartphones, computers, tablets, and other high-tech equipment have begun to replace machines and factories as the major means of production and in which the tertiary sector has supplanted the secondary sector. Although the information age has brought with it jobs and careers unimaginable a generation ago, it has also meant that a college education has become increasingly important for stable and well-paid employment. Post-industrial economies, then, are leaving behind workers without college degrees, who used to fare well in the manufacturing industries.

In addition to the expansion of the tertiary or service sector, post-industrialization also brings dramatic expansion of globalization. Globalization refers to the process of integrating governments, cultures, and financial markets through international trade into a single world market. The Internet connects workers and industries across the world, and multinational corporations have plants in many countries that make products for consumers in other countries. Multinational corporations collect resources from a variety of different nations, conduct their business without regard to national borders and concentrate wealth in the hands of high-income nations and wealthy individuals. (OpenStax, Sociology 2e, Attribution International (CC BY 4.0); download for free at http://cnx.org/contents/02040312-72c8-441e-a685-20e9333f3e1d@10.1).

As a result of globalization and expansion of multinational corporations, we see the emergence of global assembly lines, where products are assembled over the course of several international transactions. For instance, Apple designs its next-generation Mac prototype in the United States, components are made in various low- and middle-income nations, such as China, they are then shipped to other low- or middle-income nations, such as Malaysia, for assembly, and tech support is outsourced to India. Another outcome of globalization relates to the fact that what happens economically in one part of the world can greatly affect what happens economically in other parts of the world. If the economies of Asia sour, their demand for U.S. products may decline, forcing a souring of the U.S. economy. A financial crisis in Greece and other parts of Europe during the spring of 2010 caused the stock markets in the United States to plunge. Other concerns associated with globalization relate to fears that multinational corporations can use their vast wealth and resources to control governments to act in their interest rather than that of the local population and that production in low- and middle-income nations, where there is limited regulation, negatively impacts the environment and local economies (Bakan, 2004). (OpenStax, Sociology 2e, Attribution International (CC BY 4.0); download for free at http://cnx.org/contents/02040312-72c8-441e-a685-20e9333f3e1d@10.1).

Key Terms

Division of Labor – The specialization of labor or division of the manufacturing process into specialized jobs, where each is worked by different individuals.

Economy –the social institution that organizes the production, distribution, and consumption of a society’s goods and services.

Globalization – the process of integrating governments, cultures, and financial markets through international trade into a single world market.

Global assembly lines – products assembled over the course of several international transactions.

Primary sector – the part of the economy that takes and uses raw materials directly from the natural environment, including agriculture, fishing, forestry, and mining.

Secondary sector – the part of the economy that transforms raw materials into finished products, such as in manufacturing.

Tertiary sector – the part of the economy that provides services rather than products, such as clerical work, health care, teaching, and information technology services.