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 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 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 global economy. Our appetite for services, especially innovative ones, is it seems, insatiable.
But according to the Commission, the rise of service economies reflects 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.
The Commission believes international studies of the service sector raise productivity issues that may be relevant to New Zealand. Service industries provide many services, including for example, financial services. The impact of failing to provide the right regulatory environment for that sector in New Zealand led, in large measure, to the collapse of our finance companies.
There is, therefore, public interest argument for more and better service sector regulation where the market fails to deliver efficient or quality services. This might include natural monopolies, externalities, secrecy and failure to take account of wider social objectives. On the other hand, there is risk that regulation ends up serving the interests of well-organised groups (including service providers) rather than the public. Regulation may – intentionally or not – constrain innovation, competition or adaptation to changing circumstances.
The Commission must identify “concrete policy recommendations that maximise the impact on New Zealand’s overall productivity performance”. The Commission wants to understand how existing regulation affects the country’s service industries and identify “opportunities for improvement”.
The inquiry will ask, among other questions, how generic regualtion impacts service industries. It will also try to identify what service industries are impacted by industry-specific regulation; what the consequences of that are and, source opportunities for improvement.
The Government wants our service sector to export more. New Zealand seems to be an under-achieving services exporter. The Commission wants to find out if that’s because of internal or external barriers to exporting our services.
The Commission’s joint study with its Australian equivalent last year found more impediments to trans-Tasman trade in services than in goods, particularly when it came to flows of capital, labour and establishing commercial presence in the other country.
“The service sector now dominates our economy, our career choices and our organisational management and leadership strategies,” says NZIM chief executive Kevin Gaunt. “This inquiry will deepen our understanding of this important global transformation.”
The New Zealand Institute of Management had, he says, been adapting programmes to fit the needs of managers operating in the evolving new post-industrial era. “But the more we know about the factors influencing the evolution of the service sector the better we can tailor programmes to develop the competencies managers need to really succeed in tomorrow’s service-driven world.
“We want to better understand the nature of the service sector in terms of employment opportunities, contributions to economic stability and sources of economic leadership. Higher education and continuous learning are now essential for personal career success. And this is the world in which NZIM operates.”
The major part of our GDP will, in future, be generated by information chains and not supply chains according to international service industry experts. Most managers will, therefore, be employed in information sectors. “We want to comprehensively understand what that means and identify the opportunities it presents,” says Gaunt. “The Commission’s inquiry is both timely and important. And we will encourage as many of our service industry members as possible to contribute to the information gathering process.” M
Reg Birchfield Life FNZIM is writer on leadership, governance and management. [email protected]
