Themes > Features
19.03.2002
OECD: Development through Services
An often noted but relatively ignored feature of the global economy, is
the rapid change in structural composition away from commodity production
and in favour of services. This tendency has continued through the 1990s,
despite the fact that the share of services in gross value added in some
industrial countries was already extremely high at the end of the 1980s
(Table 1).
An examination of the relative ranks in terms of services share in national income of a selected group of OECD countries shows that it is indeed influenced by relative levels of income, with the United States at the top of the table. Yet there are exceptions, as suggested by the position of a relatively less developed economy like Mexico, where the composition of economic activity has changed dramatically, even though income still lags. In fact, the experience across the developing world does suggest that liberalisation, which allows market signals to direct investment and reduces restrictions on the entry and nature of activity of foreign investors, encourages 'premature' diversification into services.
The relation between the level of development and the degree of diversification of economic activity in favour of services is much clearer when we examine figures on the share of services employment in total employment (Table 2). Here, not only do countries like the US and UK head the league table, with similar shares of income and employment being generated by services, but Mexico with a 66 per cent share of services in income drops way down in the league table with just 54 percent of employment being in the services sector.
A more long term analysis (Table 3) of changes in the structural composition of output in the US, which has recorded the highest degree of diversification into services, reflects a continuing and persistent setback to commodity production and a burgeoning of services. This process has, however, quickened in recent years. Between 1980 and 2000, for example, the share of private services producing industries in the National Income of the US rose by close to 14 percentage points, from 50.8 to 64.3 per cent, while the increase over the more than three decades between 1948 and 1980 was just 7.4 percentage points.
This growth in services has been primarily at the expense of the share of manufacturing in national income and not the result of the shrinkage of the private agricultural sector, whose share in private sector income stood at less than 5 percent even by 1960 (Table 4). However, the share of manufacturing income from private industries, that fell by little over 5 percentage points between 1948 and 1980, collapsed by a further 10.2 percentage points between 1980 and 2000.
Till some time back, this trend would have been considered an infirmity, since barring a few productive services, the strength of an economy was seen to be reflected by the expansion of and productivity increase in the commodity producing sectors. This was partly because the services sector was conventionally considered to be one in which there are substantial barriers to productivity increases. There are, however, two arguments that seek to counter the "productivity pessimism" that the evidence on the importance of services generates. First, there is reason to believe that the available evidence exaggerates the expansion of services. Precisely during the years when the new economy has allegedly emerged, a part of the rise in the share of services appears more statistical rather than real. It is not just that during these years the growth of manufacturing industries' GDP lagged behind that of services, resulting in a fall in manufacturing's share of GDP from 24 percent to 18 percent. Within manufacturing, while the share of intermediate transactions or costs paid out by individual activities remained constant at 43 per cent of industry gross output, the share of manufacturing intermediates declined from 22 per cent to 17 per cent and that of services rose from 21 per cent to 27 per cent (Jiemin and Planting 2000).
This growing services-intensity of manufacturing can be interpreted in two ways. On the one hand, it can be taken to reflect the growing productive role of services activity in the US economy. On the other, it can be seen to be a reflection of a growing trend towards outsourcing of services by US corporations. "Surveys conducted in the United States by the Outsourcing Institute show that companies with over USD 80 million in annual revenues increased outsourcing by 26% in 1997 to USD 85 billion. IT was the fastest growing activity being outsourced, accounting for 30% of total outsourcing expenditures. Human resources was the second largest (16%), followed by marketing/sales (14%) and finance (11%). Manufacturers accounted for nearly two-thirds of the outsourcing, with information and professional services each accounting for 13% of the total." (OECD 2000). If the latter were true, it would imply that the rise in the share of services and decline in that of manufacturing is in part a statistical rather than a real phenomenon, reflecting the splicing out of services that were earlier part of the value of manufacturing output. In France, for example, the combined contribution of manufacturing and industry-related services has increased only marginally from 27 to 29 per cent between the 1980s and 1990s, indicating that restructuring rather than expansion accounts for the growing share of services (OECD 2000).
This possibility notwithstanding, there are sound grounds to argue that the evidence does reflect an actual tendency on the ground, even if it exaggerates the growth in the share of services. But this is where the second challenge to "productivity scepticism" comes in. Advocates of that challenge suggest that, in the new technological and economic environment, service sector growth is as good as growth in the commodity producing sectors. A report prepared on the basis of a Business and Industry Policy Forum organized by the OECD summarized the position as follows: "The relative importance of manufacturing and services to economies, and the inter-relationship between the two have been the subject of much discussion through the years. Some have argued that the decline in manufacturing and the corresponding shift to services is unsupportable in the long run, since services depend critically on manufacturing for their existence. In the absence of manufacturing, service sectors are seen as collapsing. On the other hand, a forceful case was made at the Forum that services have become a major driving force in economic growth. Rather than services following and supporting manufacturing, manufacturing is seen as flowing to those countries and areas where the services infrastructure is efficient and well developed." (OECD 2000).
This position that service sector expansion drives economic growth stems from a reinterpretation of the nature and role of services in modern economies. It requires making a distinction between services as they prevailed in the earlier decades of post-war capitalist expansion and their nature and role in more recent times. Services, it is being argued are increasingly resembling commodities. The conventional idea that services differ from commodities because they cannot be stored, that they have to be consumed at the point of production and that their consumption requires the direct interaction of service providers and consumers is no more true of a range of services, the argument goes.
To quote the OECD study referred to earlier: "Copies of movies and most other performances can be recorded and mass-produced for future consumption, like manufactured products. Software is developed and boxed like any other manufactured product, and is considered, for all intents and purposes, a good - albeit with a high service-related content. In these instances services have, in a sense, taken on the characteristics of commodities - one provider is mass-producing a common product for many people." (OECD 2000)
Technology, in particular the revolution in information and communication technologies (ICT), is seen to play a crucial role here, providing a material link between the new economy argument and the evidence on the growth of services. The ICT revolution, it is argued, helps transform a service produced for a single or few consumers, to one that is produced for mass consumption. This allows the service 'industry' to exploit economies of scale just as manufacturing has been doing ever since the industrial revolution. A service, such as an online database for example, produced and placed on the internet, can be accessed by a large number of consumers. The revolution in ICT also changes the relationship between providers and consumers, with the latter being able to access services like health, banking and financial services and entertainment without personal onsite contact with the provider. Easier access, which implies easier delivery, also allows for growing differentiation and rapid diversification of the services 'products' offered to consumer, as has indeed been true.
The blurring of the distinction between goods and services is seen to be true in the financial services area as well. To quote the OECD study referred to above: "There was a time when a bank would lend to a business or provide a mortgage, would take the asset and put it on their books much the way a museum would place a piece of art on the wall or under glass - to be admired and valued for its security and constant return. Times have changed. Banks now take those assets, structure them into pools, and sell securities based on those pools to institutional investors and portfolio managers. In effect, they use their balance sheets not as museums, but as parking lots - temporary holding spaces to bundle up assets and sell them to those investors who have a far greater interest in holding those assets for the long term. The bank has thus gone from being a museum where it acquired only the finest assets and held and exhibited them in perpetuity into a manufacturing plant which provides a product for the secondary market. Just as Henry Ford did 80 years ago, banks today are focusing on producing a standardised product at a predictable rate, under standard norms of quality, and are teaching their workforces to produce that product as quickly and as efficiently as possible." The implicit premise here is that the fact that there is no production process, does not make a difference to the productive nature of the operation. The principal argument is that the 'industry of origin' of GDP matters less today. If commodity production recedes and service activities burgeon, that is just one more reflection of the new capitalism.
Is this argument supported by the changing structure of the services sector itself? Table 5 presents the shares of the principal service sector activities in the gross product of the service sector as a whole in the US. What emerges is that conventional service sector activities like Transportation, Communication and Public Utilities, the Wholesale Trade and Retail Trade have shrunk in relative terms, with their relative decline being particularly sharp after 1970. The two sectors that have gained have been Financial and Real Estate Services and 'Other Services', with the increase in share being particularly marked in the latter.
Tables 6 and 7 provide a picture of trends in the share of different services in total full-time equivalent employment and self-employment respectively in the US. Here again the picture is quite clear, though slightly in variance with the trends in distribution of gross product. Conventional services have tended to decline in relative terms. In the case of full-time equivalent employment, the gainers are the Retail Trade (which includes the all important automobile services), Finance and other general services. In the case of Self-employment only the financial and general services sectors are gainers. The last of these has recorded a remarkable 14.6 percentage points in relative share in full-time equivalent employment and 10.7 percentage points in relative share in self-employment.
Table 8 disaggregates the distribution of full-time equivalent employment in the general "Services" category covered by the data. The results are striking indeed. Services employment in the private household sector has collapsed. Health and Social Services that expanded during the first two to three decades after 1950, has since been on the decline in terms of their relative share in employment. So has the personal services sector. The two major gainers that in relative share in employment have been Business Services and Miscellaneous Services. Thus the evidence points to a growing corporatisation of service sector employment, with a market shift in favour of business services of the kind discussed above.
However, the evidence suggests that this second-tier diversification within services in favour of business services is not as "productive" as it is often made out to be. The little evidence that exists points to a slowdown in productivity growth in services after 1973. To quote a recent study by economists at the Brookings Institution (Triplett and Bosworth 1999): "From 1949 to 1973, the Bureau of Labor Statistics (BLS) estimates that U.S. non-farm multifactor productivity grew at 1.9% per year. After 1973, multifactor productivity grew only 0.2% per year. Despite a 20-year intensive research effort to find the cause, no convincing explanation of the post-1973 productivity slowdown exists.
Whatever the ultimate cause, circumstantial evidence suggests that services industries play some important role in the slowdown. In the first place, the aggregate numbers indicate that the productivity slowdown is greater in the non-goods producing portions of the economy. While no official estimate of productivity in services is published by the Bureau of Labour Statistics, nonfarm multifactor productivity slowed by 1.7 percentage points (from 1.9% per year to 0.2%), and manufacturing productivity fell by 0.6 percentage points (from 1.5% per year to 0.9%). Because manufacturing accounts for about 22% of non-farm business, this implies a two-percentage point slowdown in the non-manufacturing sector.
Thus, the evolution of the services sector in the developed industrial countries points in a number of directions. First, the share of services in gross product and employment in the developed countries has and is increasing quite substantially. Second, this dependence on services has been accompanied by signs of growing reliance on a few types of services, in particular business services, to sustain the boom, while a whole range of other services including communication, health and educational services are tending to lag. Third, there are clear signs of the "corporatisation" of service activity, making its performance crucial from the point of view of business profitability. Finally, the evidence suggests that this dependence on services has not been accompanied by increases in the productivity of services, as new economy theorists have tended to argue.
The lack of evidence of productivity growth implies that firms would be dependent on extensive rather than intensive growth in the services areas. Extensive growth is important for two other reasons. Many areas of services, where "intangibles" are a crucial component of added value, are characterised by substantial sunk cots in development of the service, but relatively low costs in the reproduction of the service. Software, whether business or entertainment software, is an obvious example. Once developed, such software can be reproduced on any scale at extremely low cost. Thi makes the volume of profits directly dependent on the size of the market.
Further, many areas of services such as communications, finance and software development are characterised by substantial "network externalities". The larger the network, or the number of users, the greater is the possibility of expansion, since joining the network provides substantially more benefits to marginal users. Expansion then becomes a prerequisite for faster growth.
These features of segments of the business services sector generate a drive for expansion. Since they are accompanied by pressure to find new markets for lagging services like communication and utilities, a wide range of service providers are in search of emerging markets. This encourages them into foreign markets that are serviced either by exploiting the benefits of digital technology or by establishing a commercial presence through mergers and acquisitions or greenfield investments in new markets. According to UNCTAD over 60 per cent of global mergers and acquisitions (M&A) and as much as 90 per cent in the developing countries were in the services sector.
Services also account for a significant share of the international trade of the United States. In 2000, U.S. exports of private services exceeded U.S. import of private services; U.S. exports were $278.6 billion, while U.S. imports were $200.6 billion. U.S. exports also exceeded U.S. imports in 1999; exports were $256.0 billion and imports were $173.0 billion. For services sold through majority-owned foreign and U.S. affiliates of multinational companies, U.S. sales exceeded U.S. purchases in 1999 - the most recent year for which data are available. Sales of services abroad through foreign affiliates of U.S. companies were $338.4 billion, while sales of services in the United States through U.S. affiliates of foreign companies were $289.3 billion. The U.S. surplus on trade in private services stood at $78.0 billion in 2000 when the U.S. deficit on trade in goods amounted to $452.2 billion.
This growing importance of services in production, employment, trade and business profit in the US must influence its position on trade in services. This is why besides cross-border supply (such as in postal services), consumption abroad (tourism) and presence of natural persons (nursing), the GATS agreement covers services provided "by a service supplier of one member, through commercial presence in the territory of another member." The OECD seeks to ensure that GATS facilitates and encourages such investment, that is increasingly crucial for whatever dynamism the developed industrial countries display.
An examination of the relative ranks in terms of services share in national income of a selected group of OECD countries shows that it is indeed influenced by relative levels of income, with the United States at the top of the table. Yet there are exceptions, as suggested by the position of a relatively less developed economy like Mexico, where the composition of economic activity has changed dramatically, even though income still lags. In fact, the experience across the developing world does suggest that liberalisation, which allows market signals to direct investment and reduces restrictions on the entry and nature of activity of foreign investors, encourages 'premature' diversification into services.
The relation between the level of development and the degree of diversification of economic activity in favour of services is much clearer when we examine figures on the share of services employment in total employment (Table 2). Here, not only do countries like the US and UK head the league table, with similar shares of income and employment being generated by services, but Mexico with a 66 per cent share of services in income drops way down in the league table with just 54 percent of employment being in the services sector.
A more long term analysis (Table 3) of changes in the structural composition of output in the US, which has recorded the highest degree of diversification into services, reflects a continuing and persistent setback to commodity production and a burgeoning of services. This process has, however, quickened in recent years. Between 1980 and 2000, for example, the share of private services producing industries in the National Income of the US rose by close to 14 percentage points, from 50.8 to 64.3 per cent, while the increase over the more than three decades between 1948 and 1980 was just 7.4 percentage points.
This growth in services has been primarily at the expense of the share of manufacturing in national income and not the result of the shrinkage of the private agricultural sector, whose share in private sector income stood at less than 5 percent even by 1960 (Table 4). However, the share of manufacturing income from private industries, that fell by little over 5 percentage points between 1948 and 1980, collapsed by a further 10.2 percentage points between 1980 and 2000.
Till some time back, this trend would have been considered an infirmity, since barring a few productive services, the strength of an economy was seen to be reflected by the expansion of and productivity increase in the commodity producing sectors. This was partly because the services sector was conventionally considered to be one in which there are substantial barriers to productivity increases. There are, however, two arguments that seek to counter the "productivity pessimism" that the evidence on the importance of services generates. First, there is reason to believe that the available evidence exaggerates the expansion of services. Precisely during the years when the new economy has allegedly emerged, a part of the rise in the share of services appears more statistical rather than real. It is not just that during these years the growth of manufacturing industries' GDP lagged behind that of services, resulting in a fall in manufacturing's share of GDP from 24 percent to 18 percent. Within manufacturing, while the share of intermediate transactions or costs paid out by individual activities remained constant at 43 per cent of industry gross output, the share of manufacturing intermediates declined from 22 per cent to 17 per cent and that of services rose from 21 per cent to 27 per cent (Jiemin and Planting 2000).
This growing services-intensity of manufacturing can be interpreted in two ways. On the one hand, it can be taken to reflect the growing productive role of services activity in the US economy. On the other, it can be seen to be a reflection of a growing trend towards outsourcing of services by US corporations. "Surveys conducted in the United States by the Outsourcing Institute show that companies with over USD 80 million in annual revenues increased outsourcing by 26% in 1997 to USD 85 billion. IT was the fastest growing activity being outsourced, accounting for 30% of total outsourcing expenditures. Human resources was the second largest (16%), followed by marketing/sales (14%) and finance (11%). Manufacturers accounted for nearly two-thirds of the outsourcing, with information and professional services each accounting for 13% of the total." (OECD 2000). If the latter were true, it would imply that the rise in the share of services and decline in that of manufacturing is in part a statistical rather than a real phenomenon, reflecting the splicing out of services that were earlier part of the value of manufacturing output. In France, for example, the combined contribution of manufacturing and industry-related services has increased only marginally from 27 to 29 per cent between the 1980s and 1990s, indicating that restructuring rather than expansion accounts for the growing share of services (OECD 2000).
This possibility notwithstanding, there are sound grounds to argue that the evidence does reflect an actual tendency on the ground, even if it exaggerates the growth in the share of services. But this is where the second challenge to "productivity scepticism" comes in. Advocates of that challenge suggest that, in the new technological and economic environment, service sector growth is as good as growth in the commodity producing sectors. A report prepared on the basis of a Business and Industry Policy Forum organized by the OECD summarized the position as follows: "The relative importance of manufacturing and services to economies, and the inter-relationship between the two have been the subject of much discussion through the years. Some have argued that the decline in manufacturing and the corresponding shift to services is unsupportable in the long run, since services depend critically on manufacturing for their existence. In the absence of manufacturing, service sectors are seen as collapsing. On the other hand, a forceful case was made at the Forum that services have become a major driving force in economic growth. Rather than services following and supporting manufacturing, manufacturing is seen as flowing to those countries and areas where the services infrastructure is efficient and well developed." (OECD 2000).
This position that service sector expansion drives economic growth stems from a reinterpretation of the nature and role of services in modern economies. It requires making a distinction between services as they prevailed in the earlier decades of post-war capitalist expansion and their nature and role in more recent times. Services, it is being argued are increasingly resembling commodities. The conventional idea that services differ from commodities because they cannot be stored, that they have to be consumed at the point of production and that their consumption requires the direct interaction of service providers and consumers is no more true of a range of services, the argument goes.
To quote the OECD study referred to earlier: "Copies of movies and most other performances can be recorded and mass-produced for future consumption, like manufactured products. Software is developed and boxed like any other manufactured product, and is considered, for all intents and purposes, a good - albeit with a high service-related content. In these instances services have, in a sense, taken on the characteristics of commodities - one provider is mass-producing a common product for many people." (OECD 2000)
Technology, in particular the revolution in information and communication technologies (ICT), is seen to play a crucial role here, providing a material link between the new economy argument and the evidence on the growth of services. The ICT revolution, it is argued, helps transform a service produced for a single or few consumers, to one that is produced for mass consumption. This allows the service 'industry' to exploit economies of scale just as manufacturing has been doing ever since the industrial revolution. A service, such as an online database for example, produced and placed on the internet, can be accessed by a large number of consumers. The revolution in ICT also changes the relationship between providers and consumers, with the latter being able to access services like health, banking and financial services and entertainment without personal onsite contact with the provider. Easier access, which implies easier delivery, also allows for growing differentiation and rapid diversification of the services 'products' offered to consumer, as has indeed been true.
The blurring of the distinction between goods and services is seen to be true in the financial services area as well. To quote the OECD study referred to above: "There was a time when a bank would lend to a business or provide a mortgage, would take the asset and put it on their books much the way a museum would place a piece of art on the wall or under glass - to be admired and valued for its security and constant return. Times have changed. Banks now take those assets, structure them into pools, and sell securities based on those pools to institutional investors and portfolio managers. In effect, they use their balance sheets not as museums, but as parking lots - temporary holding spaces to bundle up assets and sell them to those investors who have a far greater interest in holding those assets for the long term. The bank has thus gone from being a museum where it acquired only the finest assets and held and exhibited them in perpetuity into a manufacturing plant which provides a product for the secondary market. Just as Henry Ford did 80 years ago, banks today are focusing on producing a standardised product at a predictable rate, under standard norms of quality, and are teaching their workforces to produce that product as quickly and as efficiently as possible." The implicit premise here is that the fact that there is no production process, does not make a difference to the productive nature of the operation. The principal argument is that the 'industry of origin' of GDP matters less today. If commodity production recedes and service activities burgeon, that is just one more reflection of the new capitalism.
Is this argument supported by the changing structure of the services sector itself? Table 5 presents the shares of the principal service sector activities in the gross product of the service sector as a whole in the US. What emerges is that conventional service sector activities like Transportation, Communication and Public Utilities, the Wholesale Trade and Retail Trade have shrunk in relative terms, with their relative decline being particularly sharp after 1970. The two sectors that have gained have been Financial and Real Estate Services and 'Other Services', with the increase in share being particularly marked in the latter.
Tables 6 and 7 provide a picture of trends in the share of different services in total full-time equivalent employment and self-employment respectively in the US. Here again the picture is quite clear, though slightly in variance with the trends in distribution of gross product. Conventional services have tended to decline in relative terms. In the case of full-time equivalent employment, the gainers are the Retail Trade (which includes the all important automobile services), Finance and other general services. In the case of Self-employment only the financial and general services sectors are gainers. The last of these has recorded a remarkable 14.6 percentage points in relative share in full-time equivalent employment and 10.7 percentage points in relative share in self-employment.
Table 8 disaggregates the distribution of full-time equivalent employment in the general "Services" category covered by the data. The results are striking indeed. Services employment in the private household sector has collapsed. Health and Social Services that expanded during the first two to three decades after 1950, has since been on the decline in terms of their relative share in employment. So has the personal services sector. The two major gainers that in relative share in employment have been Business Services and Miscellaneous Services. Thus the evidence points to a growing corporatisation of service sector employment, with a market shift in favour of business services of the kind discussed above.
However, the evidence suggests that this second-tier diversification within services in favour of business services is not as "productive" as it is often made out to be. The little evidence that exists points to a slowdown in productivity growth in services after 1973. To quote a recent study by economists at the Brookings Institution (Triplett and Bosworth 1999): "From 1949 to 1973, the Bureau of Labor Statistics (BLS) estimates that U.S. non-farm multifactor productivity grew at 1.9% per year. After 1973, multifactor productivity grew only 0.2% per year. Despite a 20-year intensive research effort to find the cause, no convincing explanation of the post-1973 productivity slowdown exists.
Whatever the ultimate cause, circumstantial evidence suggests that services industries play some important role in the slowdown. In the first place, the aggregate numbers indicate that the productivity slowdown is greater in the non-goods producing portions of the economy. While no official estimate of productivity in services is published by the Bureau of Labour Statistics, nonfarm multifactor productivity slowed by 1.7 percentage points (from 1.9% per year to 0.2%), and manufacturing productivity fell by 0.6 percentage points (from 1.5% per year to 0.9%). Because manufacturing accounts for about 22% of non-farm business, this implies a two-percentage point slowdown in the non-manufacturing sector.
Thus, the evolution of the services sector in the developed industrial countries points in a number of directions. First, the share of services in gross product and employment in the developed countries has and is increasing quite substantially. Second, this dependence on services has been accompanied by signs of growing reliance on a few types of services, in particular business services, to sustain the boom, while a whole range of other services including communication, health and educational services are tending to lag. Third, there are clear signs of the "corporatisation" of service activity, making its performance crucial from the point of view of business profitability. Finally, the evidence suggests that this dependence on services has not been accompanied by increases in the productivity of services, as new economy theorists have tended to argue.
The lack of evidence of productivity growth implies that firms would be dependent on extensive rather than intensive growth in the services areas. Extensive growth is important for two other reasons. Many areas of services, where "intangibles" are a crucial component of added value, are characterised by substantial sunk cots in development of the service, but relatively low costs in the reproduction of the service. Software, whether business or entertainment software, is an obvious example. Once developed, such software can be reproduced on any scale at extremely low cost. Thi makes the volume of profits directly dependent on the size of the market.
Further, many areas of services such as communications, finance and software development are characterised by substantial "network externalities". The larger the network, or the number of users, the greater is the possibility of expansion, since joining the network provides substantially more benefits to marginal users. Expansion then becomes a prerequisite for faster growth.
These features of segments of the business services sector generate a drive for expansion. Since they are accompanied by pressure to find new markets for lagging services like communication and utilities, a wide range of service providers are in search of emerging markets. This encourages them into foreign markets that are serviced either by exploiting the benefits of digital technology or by establishing a commercial presence through mergers and acquisitions or greenfield investments in new markets. According to UNCTAD over 60 per cent of global mergers and acquisitions (M&A) and as much as 90 per cent in the developing countries were in the services sector.
Services also account for a significant share of the international trade of the United States. In 2000, U.S. exports of private services exceeded U.S. import of private services; U.S. exports were $278.6 billion, while U.S. imports were $200.6 billion. U.S. exports also exceeded U.S. imports in 1999; exports were $256.0 billion and imports were $173.0 billion. For services sold through majority-owned foreign and U.S. affiliates of multinational companies, U.S. sales exceeded U.S. purchases in 1999 - the most recent year for which data are available. Sales of services abroad through foreign affiliates of U.S. companies were $338.4 billion, while sales of services in the United States through U.S. affiliates of foreign companies were $289.3 billion. The U.S. surplus on trade in private services stood at $78.0 billion in 2000 when the U.S. deficit on trade in goods amounted to $452.2 billion.
This growing importance of services in production, employment, trade and business profit in the US must influence its position on trade in services. This is why besides cross-border supply (such as in postal services), consumption abroad (tourism) and presence of natural persons (nursing), the GATS agreement covers services provided "by a service supplier of one member, through commercial presence in the territory of another member." The OECD seeks to ensure that GATS facilitates and encourages such investment, that is increasingly crucial for whatever dynamism the developed industrial countries display.
© MACROSCAN 2002