NZIM: At Your Service; New Zealand, like Most OECD Countries, Is Now a Service-Based Economy. the Services Sector Accounts for around 70 Percent of Our Gross Domestic Product and Employs 76 Percent of Our Workforce. What's Driving This Dramatic Economic and Social Transformation and What Does It Mean for Managers? Reg Birchfield Reports

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Byline: Reg Birchfield

The Government has asked the Productivity Commission to recommend ways to boost our service sector's productivity. It considers the sector critical to the economy and to New Zealanders' personal "wellbeing".

The inquiry will start by looking at the sector's performance, its productivity record across different service industries, the sector's impact on the economy as a whole and then compare it with that of other countries. The Commission will then look at selected issues or parts of the sector in more depth and suggest some specific policy and regulatory setting changes.

The inquiry will focus on market, not government, services. The Government is, it says, already working on improving state sector performance. The Commission will invite "interested parties" to contribute to its study.

The migration from agriculture and manufacturing-based economies to services has been dramatic. It's driven the greatest labour migration since the industrial revolution. And if the transition has been virtually invisible, its scope and scale is global. Business, new technologies, global communication, growth, urbanisation and cheap labour are the change drivers. Service industries lead every industrialised nation, creating new jobs that dominate national economies. Potentially, services enhance our quality of life.

They are also highly diverse. They include transportation and communication, wholesale and retail trade and financial, business, scientific and technical services. There is no widely accepted definition of services which, the Commission suggests, reflects the diversity of the sector. It suggests characterising it as "those things you can buy or sell but can't carry".

Despite the fact some international studies categorise them as services, the Commission won't examine the construction, electricity, gas, water and waste services in its inquiry, because Statistics New Zealand classifies them as "goods producing industries".

And it won't include the bulk of educationand training, health care and social assistance and public administration and safety. They are, says the Commission, important but are to a significant extent provided by government and outside the inquiry's terms of reference. After excluding these industries, the remaining 'market services' account for around 54 percent of GDP.

Services are now integral to society and sit at the heart of all developed and developing economies. They epitomise the post-industrial society and are the force that has turned the world into a global economy. Our appetite for services, especially innovative ones, is it seems, insatiable.

But according to the Commission, the rise of service economies reflects a number of important marketplace forces at work. For example, with the higher incomes generated by service-driven economies, people get more value from consuming more services rather than more goods.

Other outcomes include:

* Higher productivity growth in goods production, relative to services, means fewer resources are needed in goods production and more in services.

* Increasing international trade and specialisation has led to more goods production in lower-income economies and serviced production in higher-income economies.

* Services traditionally produced at home (eg, cooking) and within good-producing businesses (eg, accounting and IT services) are increasingly bought and sold in the market and get counted in GDP as services.

The inquiry will study these trends and their implications for economic performance and policy settings. …