Mainstream WeeklyIn developing India, Brazil and South Africa, services such as IT, health care and marketing have emerged significant sectors making with predominance of services in GDP over manufacturing. Apart from a revenue of billions of dollars from exports they are also major employer. A characteristic feature of twenty first century neoliberal capitalist development. Service sector, IT industry in particular, often is commoditised with huge investments of capital and labour. Robust software and algorithms such as AI have helped to rise Productivity several folds bringing huge profits. Despite these innovations, embedded value of human labour remained the very source of enormous profits and redefined the surplus value. Compared to industrial labor service labor is considered unproductive as it does not generate surplus value. However, with dominance of services over manufacturing in economy, the former has sharply impacted relations between capital and labour. In this scenario it is necessary study, compare and analyse the differences in value of labour, wages received, profits and surplus value (if generated) in service and IT sectors. An attempt was made to examine the place of capital invested in service sector, circuit of capital in context of IT and other knowledge services employing Marxist methods.
Despite infusion of AI and other algorithmic innovations in Knowledge economy or services, the value of final products did not originate from thin air but the invested human labor. Contemporary AI systems now reorganise production in ways that displace some direct labour at the point of production while increasing profitability through optimisation, prediction, and coordination. Regardless of whether they are labouring coding online developing robust algorithms or advanced AI and other computational tools, they are all well based on previous human knowledge and labour activity invested in goods production. The argument that algorithms themselves create new value is a point inconsistent with Marx’s labour theory of value. Understand their role as intensifying the conditions under which human labour power remains the ultimate source of surplus.
Labor value in Services
Many developing nations soon after decolonization opted to manufacturing, however in later decades, witnessed a gradual dominance of services over manufacturing. In 2025 alone, service sector employed approximately 30% of India’s total workforce (non agricultural) driving over 55% of the country’s Gross Value Added (GVA). While a large chunk of capital is being invested (in some instances running in to trillions of dollars) changing the relations between capital and labor. Hence, it is curious to examine if surplus value is generated at any stage of the service activity. Today a handful of knowledge based information sectors such as Information technology, commercial health care, education, transport, marketing and other services are actively reshaping economies today and have emerged major providers of employment in many third world nations. In financial year 2025-26 the top six major global tech and IT companies (Amazon, Apple, Alphabet, Microsoft, Meta, and NVIDIA) generated a combined revenue of $2.15 trillions. While the combined revenue for the top Indian IT companies (FY25) exceeded $72 billion (Tata Consultancy Services, Infosys, Wipro, and HCL Tech). These high revenues are significantly driven by artificial intelligence, cloud infrastructure, and enterprise digitization.
Emergence of Service sector, a major player in economy demands a conceptual analysis of its components- capital, labour and value creation. Beginning with Adam Smith, Karl Marx to current times discussions are continuing on types of labour, productivity and value creation in service sector. In political economy, services in contrast to manufactured physical goods are defined as activity, intangible, mobile which disappears soon after consumption. There is a clear distinction between labour embedded in services and goods production based on- a). Service labour and material labour b). Productive labour of capital and its created value c). Materiality of service labour and other tertiary activities in value creation.
In this rapidly changing scenario, a question arises: should the products of services be equated on par with manufactured physical products in the true sense of political economy. Authors differ in definition, categorization of labour in in service sector value creation. For example in IT industry, specific content of knowledge and labour play decisive roles in creating use value while objectifying a commodity. According to Karl Marx labour in services can not be treated productive, as the activity is not capital based, sans commodity production and so does not create surplus value. Eventually questions arise to revaluate the roles of service labour, capital accumulation and their place in circuit of labor.
Productive and unproductive Labour
Beginning with Adam Smith and later Karl Marx discussions are still continuing to date among political economists on services and labour associated with it. Adam Smith characterized labour in terms of invested capital and wealth creation. Adam Smith discriminates between productive and non productive labour (Chapter3, Book 2 of ‘The Wealth of Nations’). According to Smith productive labour is one that produces goods and there by wealth, while services embed unproductive labour, temporary and cease to exist soon after consumption. He further notes that while productive labour brings profits and increases capital, non productive labour only promotes revenues. In society Smith lived, role of services was minimal and supplemented to value creation of physical goods produced and wealth accumulation.
Some economists dispute with Smith on nature of labour embedded in services, and its value (Say, 1864; Smith, 1977). ). Predominance of services in national economies prompted several economists to treat services on par with goods production (Gao and Watanabe, 2013;Bells, 1999). They argue that dynamic changes occurred in economy during the last five decades have resulted in a dramatic shift from manufacturing to services. The shift is a result, they say from enormous investments of capital and labour in services, and that enriched value of commodities. Further, they say the service labour is equally productive unlike propositions made by Adam Smith and Karl Marx. Today health care, education and Information Technology, software services and advertising are playing decisive roles in employment and value creation (Vijaybhaskar et al., 2021). These arguments necessitate a thorough examination of value of both capital and labour embedded in services so as to understand various connotations and socio-economic implications of service sector in context of Marx’s theory of capital.
Marx did not devote much attention to services as they occupied a very minor part in economy of his times. Personal and in-house services mostly accounted to typical non-capitalist in economic sense. The situation is very different today. However Marx’s conceptual analysis is still applicable to understand certain types of activities we have today in service sector. Karl Marx, while agreeing with Smith in categorizing labour, - “ labour which is not exchanged with capital, but directly with revenue (Marx and Engels, 1989) as non productive. Marx distinguishes services in capitalism as productive and unproductive on the basis of how a service contributes to the production of surplus value. If the service is paid out of variable capital then that labour contributes to surplus production, and the one that is paid out of the revenue earned is treated as unproductive labour. In ‘Theories of Surplus Value’, Part I of Capital, Marx discusses in detail how service can and cannot be a surplus producing activity. For example, the service of a doctor treating poor without expecting any compensation, though involves productive labour is only a human service, is not producing any surplus value. In contrast, labour of a doctor employed in a corporate hospital owned by a capitalist helps to earn profit with embedded surplus value and is productive. In summary, material nature of production and its use value do not actually determine whether a human activity is productive or unproductive, but depends on how the invested labour helps capital to grow.
Coming back to labour part in Information services, some studies suggest that software production and allied services are generally productive (Fulzenz et al., 2024; Vijaybhaskar et al., 2021) because coding engineers labourer and work more than they are being paid for and produce surplus-value (Fuchs, 2022). They further dispute that extended reproduction of capital, described in Marx’s second volume on accumulation money Capital but not output (Davis and Stack, 1992; Gough, 1973). However, they do not see that value is an end in itself, and there are multiple layers of productive labour associated with it and capital accumulation is only possible with reproduction.
Services and Use Value
In services, labour, provides a particular use-value. Service activity, however is not equal to a machine (Marx, 1963). In service direct exchange of money for labour takes place without later producing capital and the use value provided by labour is like any other commodity. However, it does not render service in the form of a thing, but an activity, unlike a machine. It is not a productive labour as the direct exchange of money for labour takes place without production of capital. Hence rendered “unproductive”. According to Marx, for they are not productive labour, they produce not ‘commodities’ but immediate ‘use values’ (Marx and Engels, 1989).
Knowledge work, Surplus Value
In ‘ A Critique of Political Economy, Volume 1’ (Capital), K. Marx notes the basic structure of surplus value is clearly divided into constant capital and variable capital: “The capital ‘C’ is made up of two components, one the sum of money c laid out on means of production, and the other the sum of money ’v’ expended on labour-power. ‘c’ represents the portion of value which has been turned into constant capital, ‘v’ that turned into variable capital” (Marx, 1976, p. 320). Marx also noted, Surplus-value is purely the result of an alteration in the value of ‘v’, of that part of the capital which was converted into labour-power” (p.322, Production of absolute value, Capital 1, K. Marx). This indicates that surplus value stems from the difference between the new value created in production and the value of labour-power paid as wages. In recent years, the role of AI in value creation has become increasingly prominent. Regarding whether algorithms can generate surplus value needs to be analysed.
Coming back to digital products created on-line, in context of labour productivity and wages paid, let us examine the case of a software programmer working for a IT firm, who receives wages from the capitalist for the code he or she writes to develop a product. In India (March, 2026), the average base pay for revenue-focused roles is approximately ₹ 9–₹20L ($10 K- 21K per year (senior or operations roles often exceeding ₹29L). While in goods manufacturing industry (automobiles, pharmaceuticals and others) average annual salaries are lower, often around ₹ 2.5 to 4.8L ($0.25 K- 0.5 K). The IT companies generate significant Revenue per employee (RPE), with top tech firms reaching over ₹42 million (443, 000 US $) per employee.
Low wages and high profits made in IT sector visibly indicates high levels of surplus value appropriated. How to consider this category of labour- productive or unproductive? Sometimes a piece of code or new software algorithm adds value and significantly improves the efficiency of a banking operation or machine. An algorithm developed improves efficiency of oil drilled by a MNC. Any new knowledge added while developing an algorithm that is linked to development of a commodity (a CD or pen drive with details of a workflow in an industry or computer game exchanged or marketed via internet) to produce a material product produces surplus value. Thus the embedded value increases use value of final product and brings profit to the capitalist. Only then the knowledge labour can be considered productive. Similarly a software programmer developing an algorithm helping to improve working of a non profit children library. Though this activity adds use value to the community yet, does not create surplus value and hence the embedded labour is treated unproductive.
Software is a type of coded knowledge that is produced by employing formalised rules and production algorithms. This is objectification of intellectual labour. In Information technology, embedded labour is often collective in nature with groups of personnel contributing with their individual codes to development a digital product. For instance Waterfall-Model (Royce 1970) is a participatory Systems Design process. The method employs collective labour to gather client requirements, specifications, code development and prototype testing for development of a digital product and surplus value creation. Consider case of a scientist working in a laboratory funded by a multinational pharmaceutical firm in sequencing a pathogen genome. The Intellectual activity involved in discovery of knowledge directly leads to development of a drug, a commodity. The labour embedded in development of a commodity, that produces surplus value and there by brings profits in market to a capitalist is considered productive. Marx writes that labour that materially contributes to capital and production of surplus value, a necessary condition of capitalist production (Marx 1861). That’s why labour associated with each type of manual and intellectual activity not necessarily produces surplus value. The argument that algorithms themselves create new value—a point inconsistent with Marx’s labour theory of value—to understand their role as intensifying the conditions under which human labour remains the ultimate source of surplus. The Gap between “pay” and “market worth” and purchase of labour power at its value (wages) and appropriating the unpaid portion of the value newly produced in the labour process is central to Marx’s analysis (Bellofiore, 2018; Marx, 1976). Since the industrial era, this conceptual architecture has proven invaluable for analysing exploitation, class struggle, and capital accumulation.
Services and Circuit of Capital
In the circuit – ‘Capital- Commodity- Money’, prime elements of goods production are capital and labour. The process of production begins with commodities, means of production and labour-power, ends with another commodity i.e. a product. In capitalist production, the worker produces surplus-value, and this enhances the use value of the produced final product. Thus in circuit of capital, labour’s value is greater than means of production and Capital. According to Marx, in capital circuit, place of labour is far superior to means of production and capital itself (Marx, Vol. 1, Capital).
Appropriation of surplus value is intrinsically linked with distribution of the produced surplus value during sale of products through services such as marketing, finance, storage, advertising and distribution. Exchange of embedded value that flows through circulation and finally reproduces capital in circuit of capital. However the above mentioned services are intrinsically capital intensive, but not surplus producing activities. They only create the precondition for reproduction of capital and generation of surplus value in circuit of capital. Individual labour embedded in post production activities such as storage, transport, advertising or marketing are cooperative and enhance use value in order to make profits. Although these activities are not secondary and do not produce surplus value, yet are equally important in the circuit of capital. In summary, any increase of surplus production can only be achieved with the existence of a material carrier. C’ is exchanged with M’ and M’ is fed back and becomes the starting point G of a new process of accumulation.
Conclusion
An attempt has been made to analyse the changing patterns of capital- labour relations and possible generation of surplus value in service sector with emphasis to knowledge industry in India. Labour embedded in services may not always be non-productive. In certain services such as software services or commercial health care, and sometimes produce material commodities, generate surplus value that in turn promotes capital’s accumulation and could be productive. Super profits earned by Big Tech are nothing but appropriation of surplus value created by workers in the software sector. Accordingly, algorithm generated value in Knowledge economy is not a break with Marx’s labour theory of value but as a digital-era intensification of relative surplus value. AI and powerful algorithms and created socially free time should be recognized as the common wealth of mankind rather than a private windfall.
Further studies are necessary to study the impact of dominance of service sector over manufacturing in view of phenomenal changes impacting capital accumulation pattern (with predominance of finance capital) and worsening workers rights.
(Author: Dr. Soma Marla, retired Principal Scientist& Head, Genomics & Bioinformatics division, ICAR, New Delhi: Formerly Associate Professor (Bioinformatics), Virginia State University, USA)