The three-sector hypothesis is an economic theory which divides economies into three sectors of activity: extraction of raw materials (primary), manufacturing (secondary), and services (tertiary). It was developed by Colin Clark and Jean Fourastié.
According to the theory the main focus of an economy's activity shifts from the primary, through the secondary and finally to the tertiary sector. Fourastié saw the process as essentially positive, and in The Great Hope of the Twentieth Century he writes of the increase in quality of life, social security, blossoming of education and culture, higher level of qualifications, humanisation of work, and avoidance of unemployment.
Countries with a low per capita income are in an early state of development; the main part of their national income is achieved through production in the primary sector. Countries in a more advanced state of development, with a medium national income, generate their income mostly in the secondary sector. In highly developed countries with a high income, the tertiary sector dominates the total output of the economy.
The distribution of the workforce among the three sectors progresses through different stages as follows, according to Fourastié:
This phase represents a society which is scientifically not yet very developed, with a negligible use of machinery. The state of development corresponds to that of European countries in the early Middle Ages, or that of a modern-day developing country.
More machinery is deployed in the primary sector, which reduces the number of workers needed. As a result the demand for machinery production in the second sector increases. The transitional phase begins with an event which can be identified with industrialisation: far-reaching mechanisation (and therefore automation) of manufacture, such as the use of conveyor belts.
The tertiary sector begins to develop, as do the financial sector and the power of the state.
The primary and secondary sectors are increasingly dominated by automation, and the demand for workforce numbers falls in these sectors. It is replaced by the growing demands of the tertiary sector. The situation now corresponds to modern-day industrial societies and the society of the future, the service or post-industrial society. Today the tertiary sector has grown to such an enormous size that it is sometimes further divided into an information-based quaternary sector (see above), and even a quinary sector based on non-profit services.
These kinds of activities are named sectors. The theory speaks about the primary, secondary, and tertiary sector. The theory was developed by Alan Fisher, Colin Clark and Jean Fourastié in the 1930s. Clark used a speech given by Sir William Petty, in 1690. For this reason the theory is also known as Petty's Law.
The theory also says that the main focus of the economy of a country will change, from the primary to the secondary, and from the secondary to the tertiary sector, as the country's economy develops.