Seven Myths about Services
That for some time now the services sectors cover just about everything that counts in modern economy has been obscured by a number of pervasive myths. The seven most common myths are the subject of the attached paper.
- Services are non-productive – they don’t create wealth
- Essential services must remain public services
- The expansion of services in the economy is a result of reclassification, not substantive changes in our economy
- Service sector jobs are low skill and low wage
- The expansion of the service sector drives down productivity growth
- Service sector innovation investment is low
- Public sector innovation can’t be measured
Despite the myths it is increasingly understood that the 21st Century will reward those countries with the most dynamic, productive and internationally engaged services sectors; and a rush of countries in our region including India, China, Malaysia, Singapore and Korea are developing strategies reflecting that belief. Services now account for eighty per cent of Australia’s national economic activity making Australia one of the most services intensive major economies..
In recent years new and more accurate national account data and structures, endorsed by the UN and the OECD are being implemented in many countries including Australia. Analyses based on these new structures and data sets have provided insights into productivity that long puzzled economists, and provide a weight of evidence economic that that is slowly expelling the myths from the economic literature.
It is worth spending the time to understand how the myths came about, and how they continue to limit our thinking. In discussion over the past few years with leading economists, journalists and officials about services, we have found no one totally free of the myths.
If goods are demoted from a central role in the economy in favour of services, then it is a logical next step to recalibrate economic measures to better reflect people and services centric concepts such as wellbeing. This could help better construct services markets to achieve the outcomes that we want. Seen in this light efforts to improve GDP as a measure of national wealth and welfare are not a challenge to economics, but a necessary extension of economics to better account for services, There are active work programs at the OECD and in the US and the EU accounting for a new range of intangibles such as the value of innovation, impacts on the environment, societal conditions and dimensions of wellbeing including employment, equity, health, leisure, security and happiness.
The increased value of services in the global economy is of enormous potential benefit to Australia. We have long had sophisticated services sectors such as architecture, education and engineering. Leading practitioners from these sectors are known and respected internationally.
The tyranny of distance for services is less significant; Australia’s Asian time zone and regional people-to-people linkages are a real advantage. It is time to shake off the myths that are preventing us from seeing the opportunities for Australia as services leader in the Asian region and the global services economy.