ENHANCING SERVICES SECTOR PERFORMANCE
- Fostering Employment, Productivity and Innovation -
Main Messages from the OECD Services Project
RIETI BBL Seminar,
Tokyo, April 4th 2005
Director for Science, Technology and Industry
OECD
Nobuo TANAKA
nobuo.tanaka@oecd.org
1 1
Source: OECD’s Growth Report, “The New Economy: Beyond the hype” 2001.
2 2
Pick-up in MFP growth and increase in ICT use
C hange in PC intensity per 100 inhabitants,
1992-99
50
U nited States
40
Sw eden
N orw ay
D enm ark
A ustralia
30
N etherlands
C anada
N ew Zealand
U nited K ingdom
20
Japan
France
G erm any
B elgium
Finland
Ireland
10
Italy
Spain
0
-2
-1.5
-1
-0.5
0
0.5
1
1.5
C hange in M FP grow th corrected for hours w orked
Note: Change in multi-factor productivity growth corrected for hours worked, average 1990s minus
average 1980s.
Source: OECD
3 3
GDP per capita levels and growth rates:
Gap vis-à-vis the United States
Going for Growth – Economic Policy Reforms (2005), OECD
4 4
Labour Productivity growth
Change in average growth rates between 1985-1993 and 1994-2003
Winners
Ireland
Sweden
US
UK
Australia
Canada
Losers
Japan
Germany
Italy
NDL
Spain
Economic Policy Reform; Going for Growth 2005
5 5
OECD Horizontal Project on Services
“Enhancing the Performance of the Service Economy”
Q
Q
Proposed by Japan (Hiranuma) at MCM 2003
DSTI, ECO, TRADE work together
– Section 1: Analysis of recent and prospective trends
– Section 2: Economy-wide factors that encourage services
– Section 3: Role of S&T, innovation policies, ICTs, and IPRs
Q
Will be reported to Ministers at MCM 2005
– Short summary brochure
– Compendium of background papers
Q
Tokyo seminar on 14-15 July
6 6
Introduction: The Policy Challenge
Q
Services are of growing importance for economic growth,
employment and productivity.
– Accounting for over 70% of total employment and value added
Q
Some services sectors have experienced rapid growth, in
particular in some OECD countries.
– Such as Australia, Canada, Slovak Republic, US
Q
Q
Q
Q
Almost all jobs created in OECD countries are in the
services sector – many are for highly skilled workers.
Some concern about offshoring of services.
Not all countries are doing well in the services sector,
which points to a potential for improvement.
The policy challenge – enhancing employment and
productivity in OECD countries – the contribution of
services needs strengthening.
7 7
The contribution of services to OECD economies is growing
(share of services in total employment, 1970-2002, in %)
80
75
Canada
70
France
Germany
65
Italy
60
Japan
UK
55
USA
50
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
45
Source: OECD STAN Database, 2004
Q
Q
Growing also in Japan
But Japan is still more manufacturing oriented than others
8 8
But the contribution of services to employment rates varies
considerably across countries
(share of the working-age population employed in goods and services, 2002)
Services
Goods
100
90
80
70
60
50
40
30
20
10
Sl
Po
la
Hu nd
ov
a k n ga
Re r y
pu
G r blic
ee
ce
I ta
ly
Sp
ain
Ko
re
Au a
st r
i
I re a
la
Po nd
rt u
ga
l
EU
Be
lg i
u
Fr m
a
G e n ce
rm
a
F i ny
nla
nd
J
Lu
a
xe p a n
m
bo
A u u rg
S w st ra
it z lia
er
la
Ca nd
na
S w da
Ne
e
w d en
Z
Ne eal
th an d
er
la
Un De nd s
nm
ite
d
ar
U n K in g k
ite d o
d m
St
a
N o te s
rw
ay
0
9 9
Source: OECD, Labour Force Statistics and STAN Database, 2004.
Services now account for almost all employment growth …
Contribution to aggregate employment growth, 1990-2002, percentage points
5
Market services
Other services
Manufacturing & other industries
in percentage points
4
3
2
1
0
Luxembourg
Ireland
Korea
Netherlands
Germany
New Zealand
Canada
Australia
Slovak Republic
United States
Spain
EU
Portugal
France
Italy
United Kingdom
Austria
Greece
Poland
Norway
Belgium
Denmark
Hungary
Japan
Sweden
Finland
-2
OECD
-1
Source: OECD STAN Database, 2004
Q
Q
Growing services offsets decreasing manufacturing in Japan
BUT, contribution of market services is smaller than other countries
10 10
… and for a considerable share of productivity growth
Contribution to aggregate productivity growth, 1990-2002, percentage points
Total services
Manufacturing and other industries
4.5
in percentage points
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
Ita
ly
Au
s
Ne
tr ia
wZ
ea
la n
d
Be
l giu
m
Ja
pa
Lu
n
xe
mb
ou
rg
Po
r tu
ga
l
Ko
r ea
Ge
rm
an
y
Hu
ng
ar y
De
nm
a rk
Fin
l an
d
Ca
na
da
No
rw
ay
Sw
ed
en
Au
s tr
Un
ali
a
i te
dS
Sl o
t
a
te s
va
kR
ep
ub
lic
Gr
ee
ce
P
Un
ol a
i te
nd
dK
i ng
do
m
Sp
a in
Fra
nc
Ne
e
the
rla
nd
s
0.0
Source: OECD STAN Database, 2004
Q
Q
Services productivity in Japan grows twice as fast as manufacturing
Employment is also growing in contrast with manufacturing
11 11
Services are closely integrated with the manufacturing sector
Input-output flows, in % of gross output
Domestic
final
demand
Domestic
final
demand
56.4%
24.4%
8.5%
Manufacturing
Services
6.2%
24,5%
10.6%
Exports
Source: OECD Input-Output-Tables, 1995, 1997
24.0%
32.1%
Exports
12 12
With multinational firms playing an important role
Table 6.2. Labour productivity growth in US non-financial corporations, by sector and industry
Percentage points, annual rate
1977-2000 1977-89
Non-financial corporations
1.5
MNEs
Manufacturing
IT equipment
Other manufacturing
Non-manufacturing
Domestically oriented
1.2
0.8
0.5
0.4
0.4
0.4
1989-95 1995-2000
1.1
1.6
2.6
-- Contributions to growth -0.9
0.8
2.2
0.6
0.7
1.3
0.4
0.4
0.9
0.3
0.3
0.5
0.2
0.1
0.9
0.3
0.8
0.5
Source: Corrado et al. (2003).
Source: STI Outlook 2004
13 13
0
EU4: France, Germany, Netherlands, United Kingdom
Source: O’Mahony and Van Ark, 2003
Total Economy
Communications
Financial Intermediation
RE, Business Serv.
Wholesale Trade
Retail Trade
Paper Products
Chemicals
Electr. Equipment
Food Products
Rubber & Plastics
Wood Products
USA
Transport Services
Hotels & Catering
Textiles Products
Non-Market Services
in percent
Services are intensive users of ICT capital
IT capital as a percentage of value added per industry, 19902001, United States and EU4, annual average shares
25
EU4
20
15
10
5
14 14
Source: OECD, based on Eurostat CIS survey data
nm
ai n
ly
ce
ay
e
It a
ee
rw
nc
Sp
Gr
No
s
d
a rk
nd
F ra
De
rl a
ia
m
la n
lg i u
Fin
Be
l
en
s tr
ed
Au
Sw
rg
ga
ou
r tu
mb
t he
xe
Ne
Lu
Po
y
d
an
l an
rm
Ic e
Ge
0
10
20
30
40
M a n u fa c tu rin g
50
60
70
%
Services are highly innovative
Share of innovative firms in each sector, in %
15 15
Services are more skill-intensive than manufacturing
Percentage share of high-skilled employment in total employment
40
Manufacturing
Services
35
30
25
20
15
10
5
Source: OECD Labour Force Survey, 2003
Belgium
Spain
Finland
Denmark
France
UK
Ireland
Sweden
Netherlands
Austria
Italy
%
Portugal
0
16 16
And have greater entry of new firms
(fixed effects of entry regression for 10 EU countries, 1997-2000)
Telecommunications***
Data base activities***
Hardware consultancy***
Labour recruitment ***
Management consulting***
Market research***
Office mach. & computers***
Advertising***
Transport equipment***
Chemicals
0
2
4
6
8
10
12
14
16
18
20
%
Indicates significance at the ***1 %, ** 5 %, * 10 % level
Manufacture of food & beverages is the reference
Source: Brandt, STI Working Paper 2004/1, OECD.
17 17
But there are also factors that may constrain productivity
growth
Services are less exposed to international trade …
(trade to value added ratio of services and goods, 2002, in %)
%
300
Services
Goods
250
200
150
100
50
Me
xico
Uni
ted
Sta
te s
Jap
an
Pol
and
Ital
y
Aus
tral
ia
Fra
nce
Hun
gar
y
Can
Cze
ada
ch R
epu
bli c
Spa
in
Kor
ea
Fin
l an
d
Ge
rma
Sl o
ny
va k
Rep
ub l
ic
Por
tug
Uni
al
ted
Ki n
gdo
m
EU
19
(2)
Gre
e ce
New OECD
Zea
la n
d
Sw
i tze
rl an
d
Sw
ed e
n
Net
her
l an
ds
Nor
way
Bel
giu
m-L Austria
uxe
mb
our
g
Den
ma
rk
Ice
land
Irel
an d
0
18 18
Source: OECD, Science, Technology and Industry Scoreboard 2003.
… and are characterised by a small firm size
(share of firms by size group in % of all firms)
0 Empl.
1-4 Empl.
5-9 Empl.
70
60
50
40
30
20
10
0
20+ Empl.
Manufacturing
70
60
50
40
30
20
10
0
Services
Source: Brandt (2004)
Sweden
UK
Portugal
Netherlands
Spain
Finland
Italy
Denmark
n.a.
Belgium
%
10-19 Empl.
19 19
ICT-using services has shown more rapid productivity growth
in some OECD countries, but NOT in Japan
(contribution to average labour productivity growth, in per cent)
1990-95
1.4
1.2
Countries where productivity growth improved
1996-2002*
Countries where productivity growth
deteriorated
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
U
Ita
ly
er
m
an
y
Fr
an
ce
G
ni
te
d
St
at
es
Au
U
s
ni
tra
te
li a
d
Ki
ng
do
m
Ire
la
n
Sw d
ed
en
C
an
ad
a
D
en
m
N
ar
et
k
he
rl a
nd
s
Fi
nl
an
d
Sp
ai
n
N
or
w
ay
Au
st
ria
Ko
re
a
Ja
N
pa
ew
Ze n
al
an
d
-0.6
Source: OECD, STAN Database, September 2004.
Q
Q
Japan is categorised in “countries where productivity growth deteriorated”
Productivity growth of ICT-using services decreased to 1/3!!!
20 20
Which may be linked to high levels of product market
regulation
Increase in productivity growth, ICTusing industries, 1990-95 to 1996-2002 (%
point)
1.5
Correlation = -0.54
T-statistics = -2.70
United States
1.0
Portugal
Ireland
0.5
Australia
Canada Spain
Netherlands
Finland
Denmark
New Zealand
Germany
Norway
Austria
France Korea
Sweden
United Kingdom
0.0
-0.5
Belgium
Japan
Italy
-1.0
0.0
0.5
1.0
1.5
2.0
2.5
Index of Product Market Regulation, 1998
3.0
21 21
International services sourcing
Q
Q
Offshoring not new, but it is increasingly taking
place in the services sector (enabled by ICTs)
and affects white collar jobs (both high and low
skill) previously considered ‘untouchable’
Occurs in response to:
– Increased competition, resulting from trade and
investment liberalisation and reinforced pressures to cut
costs, combined with rapid technological change, making
services increasingly tradable
– Skills shortages Ö ensuring a skills base is in place
increasingly becomes a locational determinant of
economic activity
Source: DSTI/ICCP/IE/2004-19 final
22 22
Offshoring/outsourcing/insourcing
2x2 matrix based on location and control
International
Outsourced
Control
National
Domestic Outsourcing
International outsourcing
Insourced
Location
Domestic supply
Offshoring
International insourcing
Anecdotal evidence suggests following breakdown:
Outsourcing: 2/3 domestic, 1/3 international
Offshoring: 2/3 insourcing, 1/3 outsourcing
23 23
Aggregate illustration: the share of employment potentially affected by
offshoring in total employment, EU15, USA, Canada and Australia, 19952003*/4
The differences in the levels are difficult to interpret because the
classifications have not been harmonised, but the trends are revealing!
24 24
(*USA 2003 is an estimate)
Potential offshoring of ICT-intensive users
Q
Q
Many business services sectors have a very high share of
employment potentially affected by offshoring, as do some
manufacturing sectors
Illustration for EU15, sectors with a share >30%:
NACE 2digit
Share (%)
2003
Industry
>30%
72
66
67
65
30
74
70
73
51
23
40
32
24
79.5
71.6
68.1
62.9
51.4
47.7
44.4
41.4
37.5
35.3
33.0
32.7
30.9
Computer and related activities
Insurance and pension funding, except compulsary social security
Activities auxiliary to financial intermediation
Financial intermediation, except insurance and pension funding
Manufacture of office machinery and computers
Other business activities
Real estate activities
Research and development
Wholesale trade and commission trade, except of motor vehicles and motorcycles
Manufacture of coke, refined petroleum products and nuclear fuel
Electricity, gas, steam and hot water supply
Manufacture of radio, television and communication equipment and apparatus
Manufacture of chemicals and chemical products
Discussion on Globalisation and Structural Adjustment
•New work will be launched at the MCM 2005
•Follow-up study under the GSA
25 25
Exports of other business services and computer and information services:
(reported dollar value shares and average annual growth rates)
%
1995
2002
CAGR 95-02
18
India
16
Romania
14
Peru
12
10
Argentina
8
Nicaragua
6
Estonia
4
Ireland
2
Brazil
Austria
Ireland
Italy
Japan
India
Netherlands
France
Germany
United
States
United
Kingdom
0
Japan: -4.7%
Sweden
China
0
5
10
15
20
25
30
35
Source: Adapted from the 2004 OECD Information Technology Outlook, Chapter 2.
26 26
40
%
Employment of U.S. parent companies and
of their affiliates abroad
Millions of employees
25
20
25
Parent companies in the United States
Affiliates of parent companies abroad
Net employment(1)
20
15
15
10
10
5
5
0
0
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
1. Employment of parent companies in the United States minus Employment of their affiliates abroad.
Source: OECD, FATS database.
27 27
R&D expenditures by US parent companies and
their subsidiaries abroad, 1994 and 2002
1994
Billion USD
2002
250
195
200
150
138
120
100
91
50
29
28
16
13
21
12
0
Parent companies
Affiliates under foreign
control
In the US
Source: OECD, Activities of Foreign Affiliates database.
Other non-multinational
companies
US subsidiaries abroad
All firms in the US
Abroad
28 28
Why Does Policy Matter?
Some of the variation in performance is due to
exogenous factors
Q
Q
Q
The demand for services in OECD countries is linked to
income levels, demographic factors, as well as to the
comparative advantage of certain countries.
The potential for improved performance in the services
sector also differs by sector, depending on market
structure, the role of regulation and the public sector, as
well as the potential for technological change.
At the same time, policy plays a role in two key ways:
– In fostering a business environment that can create incentives for
employment creation and productivity growth.
– In complementing this environment with effective policies that can
overcome barriers to innovation and technology diffusion.
29 29
Policy action can help enhance the
performance of services
Q
Q
Q
Q
Some of the strong performance in the services of certain
OECD countries (e.g. Australia, United States) seems
clearly associated with policy action, notably regulatory
reform.
Case studies evidence suggests that successful and
innovative new firms often emerged from policy action to
open markets to competition.
The opening of markets also allowed new firms to innovate
and offer new services.
7 key areas for policy action can be pointed out.
30 30
1: Opening domestic services markets
For example, high levels of regulation in transport
B. Transport
in several countries, 2003
3
6.0
5.0
4.0
3.0
2.0
1.0
Un
Q
Q
ly
ce
ee
Gr
Ita
d
lan
Ire
ain
Sp
rla
nd
l
ga
itz
e
rtu
Sw
Po
iu
m
lg
ce
Be
an
y
an
rm
Fr
ia
Ge
ay
str
Au
rw
n
No
pa
Ja
en
ed
l an
er
th
Sw
ds
d
an
nl
Ne
Fi
nm
ar
k
da
De
na
Ca
str
ali
a
A
Au
US
al a
Ze
Ne
w
ite
d
Ki
ng
do
m
nd
0.0
Simple average of air, rail and road transport.
Source: OECD, Product Market Regulation Database, 2004.
Japan’s level is not so high
But Japan can follow UK, USA and Australia
31 31
i te
Au
s tr
d K ali a
i ng
do
m
Ic e
Un
lan
i te
dS d
ta t
e
Ir e s
lan
d
De
n
ma
Ne
wZ
rk
ea
la n
Ca d
na
da
Sw
ed
Lu
en
xe
mb
ou
rg
Ja
pa
n
F in
l an
d
Be
l
g
Ne
i
th e u m
rla
nd
Sl o
Au s
s
va
k R tr ia
ep
u
G e b lic
rm
an
y
No
rw
ay
Ko
r ea
Po
r tu
ga
l
Sp
Sw
a in
i tze
rla
nd
F ra
Cz
ec
h R nce
ep
ub
l
G r ic
ee
ce
Ita
ly
Hu
ng
ar y
Me
x ic
o
Tu
r ke
y
Po
l an
d
Un
High levels of product market regulation still
remain an issue ..
3.0
2.5
2.0
1.5
1.0
0.5
0.0
The scale of indicators is 0-6 from least to most restrictive.
Source: OECD, Product Market Regulation Database, 2005.
32 32
i te
dK
ing
d
C a om
na
d
Ir e a
la
No n d
rw
Sw ay
ed
e
F in n
l an
Au
d
s tr
Ne
a
wZ
li a
U n e a la
i
n
S l o te d S d
t
va
k R a te s
Lu epub
xe
m b lic
o
D e urg
nm
P o a rk
r tu
ga
l
I ta
ly
Ja
p
H u an
ng
G e ary
rm
an
Ic e y
la n
Gr d
ee
ce
Sp
a
F ra in
nc
Be e
l g iu
Au m
s
Ne
th e tr ia
rla
nd
s
K
ore
Sw
a
C z i t ze r l
ec
h R and
ep
u
M e b li c
x ic
Po o
lan
Tu d
r ke
y
Un
… as do barriers to entrepreneurship
3.0
2.5
2.0
1.5
1.0
0.5
0.0
The scale of indicators is 0-6 from least to most restrictive.
Source: OECD, Product Market Regulation Database, 2005.
33 33
Relative price of services and GDP per capita
Ratio of the price level of consumer services to that of consumer goods and the level of GDP per capita
Consumer services are a proxy for non-tradable products and goods (semi-durables and durables) are a proxy for
tradable products. The level of GDP per capita in 2002 is measured in US dollars on the basis of 2000 PPPs.
34 34
Going for Growth – Economic Policy Reforms (2005), OECD
Relative price of services and GDP per capita
The relative price ratio adjusted for differences in the level of GDP per capita
Measured as the difference between the actual and the fitted value of the price ratio appearing in previous slide.
Going for Growth – Economic Policy Reforms (2005), OECD
35 35
2. Open international markets for trade in services
More can be done to open services markets to foreign direct
investment
(indices of FDI restrictions, 1998)
Highest in EU-19
Germany
United States
Japan
Lowest in EU-19
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
Q
Q
To
ta
l
ty
E
le
ct
ric
i
Tr
an
Te
sp
le
or
co
t
m
m
un
ic
at
io
ns
se
rv
ic
es
B
us
in
es
s
Fi
na
nc
e
D
is
tri
bu
t io
n
ur
in
g
M
an
uf
ac
t
re
st
an
d
H
ot
el
s
C
on
st
ru
ct
io
n
au
ra
nt
s
0
Source: OECD Economic Outlook
No. 73, June 2003
FDI restrictions is much higher in Japan
Business services is outstandingly restricted
36 36
Inward FDI positions of Japan
per cent of GDP
Source: OECD Economic Surveys – Japan (2004)
37 37
Foreign-controlled turnover as a share of total services
and manufacturing turnover, 2002
Services (%)
35
Hungary
30
Luxembourg (4)
Belgium
Poland
Czech Republic
25
Sweden (2)
Norway (5)
Netherlands (1)
20
Finland (1)
Austria (1)
United Kingdom (5)
Italy (1)
15
Portugal (1)
Denmark (3)
10
France (1)
Germany (1)
United States (6)
5
Japan (1)
1. 2001.
2. 2000.
3. 1999.
0
0
5
10
15
20
25
30
4. 1998.
35
45
50
55
60
65
Manufacturing (%)
5. 1997
6. The data used for foreign affiliates are broken down by industry of sales to be compatible with national total data.
Source : OECD, FATS database, November 2004, Eurostat New Cronos and US Census Bureau.
40
38 38
Lu
Ru
xe
ss
m
ia Si bo
n ng u
Fe a r g
de po
ra re
G tion
re
e
C ce
Be hin
C
lg a
ze
iu
ch
m
Re Ind
p i
Hu ub a
ng lic
C
Sw a ary
itz nad
er a
l
Ire and
l
Au and
Ne
s
w B tria
Ze ra
Un
z
ite N ala il
d o nd
So Kin rwa
ut gd y
h om
C
Af
hi
ne S rica
se pa
i
AuTaip n
De stra ei
n lia
Ne Swmar
th ed k
er e
la n
nd
Is s
Fr rae
Un F an l
ite in ce
d lan
S
G ta d
Eu
er te
m s
ro
an
pe
an It y
Un aly
i
Ko on
Ja r e a
pa
n
Percentage of patents with foreign coinventors1 (EPO filings)
(56)
50
40
30
20
10
0
Share of patent applications to the EPO with at least one foreign co-inventor in total
patent invented domestically.
Source: OECD, Patent database, September 2004.
39 39
%
1999-2000
THE CONTRIBUTION OF R&D TO
PRODUCTIVITY GROWTH
Q
1% more in business R&D generates 0.13% in
productivity （The effect has increased since 1980
The effect is larger in R&D intensive countries）
Q
1% more in public R&D generates 0. 17% in
productivity （The effect is larger in countries where business
R&D intensity is higher） (higher education is important)
Q
1% more in foreign R&D generates 0.45% in
productivity （The effect is larger is smaller countries
The effect is larger in R&D intensive countries: only own efforts allow
any country to learn from others.）
Source: STI working paper 2001/3 by D. Guellec DSTI/DOC(2001)3
40 40
3: Reforming labour markets
Labour market reform creates new employment
opportunities in services
Employment/population ratios in services and for women, 2002
75
Employment/population ratio in services, persons
aged-15-64 (%)
Sweden
Norway
Denmark
Switzerland
70
Canada
Finland
65
Netherlands
UK US
New Zealand
Austria
60
Ireland
Australia
Portugal
Germany
France
Japan
55
Slovak Republic
Korea
50
Belgium
Luxembourg
Hungary
Poland
45
Spain
Greece
Italy
40
25
30
35
40
45
50
55
60
65
Employment/population ratio for women aged 15-64 (%)
Q
Q
Labour force participation by providing jobs that are needed to attract
new worker groups
For example, high employment in services goes hand-in-hand with high
employment for women
41
41
Countries with high EPL may have lower
employment in services
(EPL: Employment Protection Legislation)
4
Spain
3
EPL
France
Belgium
Sweden
Germany
Italy
Netherlands
Austria
Finland
Slovak Rep.
Korea
Switzerland
Japan
Hungary
Greece
2.5
2
Correl = -0.37
Portugal
3.5
Poland
1.5
Ireland
Canada
United Kingdom
US
0.5
0
25.0
Denmark
New Zealand
Australia
1
Norway
30.0
35.0
40.0
45.0
50.0
55.0
60.0
65.0
Employment rate in services, 2002
Q
Q
Japan does not in a bad position
But can learn more from US, UK and Canada
42 42
Reform may
raise woman
participation
rate by 20% in
Japan
( Going for Growth :
Economic Policy
Reform OECD 2005)
43 43
4: Adapting education and training policies
For example, human capital remains a cornerstone of services
innovation
%
Q
Q
Denmark
Austria
Italy
Netherlands
Iceland
Portugal
Germany
Spain
Sweden
Greece
Belgium
Luxembourg
Norway
Finland
France
0
10
20
Manufacturing
30
40
50
(Share of employees with higher education, 2000)
Share of highly educated employees is much higher in services
Lack of suitably trained HR is frequently reported services
44 44
5: Adapting innovation policies to the growing importance
of services
Some service sectors are more innovative than manufacturing
Innovative firms as a % of firms of each sector in JAPAN
50
%
40
30
20
10
0
Manufacturing
Services (average)
Wholesale & retail
trade
Transport
Post &
communications
Financial
intermediation
Business services
Source: OECD, based on Japanese innovation survey
Q
Q
Service firms are in general less innovative than manufacturing
BUT, some services are more innovative than manufacturing
average (e.g. post & communications, finance, business services)
45 45
6: Remove impediments to the effective use of ICT
ICT-using productivity growth may be linked to the levels of
product market regulation
Increase in productivity growth, ICTusing industries, 1990-95 to 1996-2002 (%
point)
1.5
Correlation = -0.54
T-statistics = -2.70
United States
1.0
Portugal
Ireland
0.5
Australia
Canada Spain
Netherlands
Finland
Denmark
New Zealand
Germany
Norway
Austria
France Korea
Sweden
United Kingdom
0.0
-0.5
Belgium
Japan
Italy
-1.0
0.0
Q
0.5
1.0
1.5
2.0
2.5
Index of Product Market Regulation, 1998
3.0
Countries with high level product market regulation show low
productivity growth of ICT-using industries (such as JAPAN)
46 46
7: Provide a financial environment that is conducive to services
Services firms more often face financial barriers:
European example
% of firms identifying a factor as highly relevant, as a share of all firms expressing relevance
%
35
30
15
Manufacturing
20
Services
25
10
5
0
Economic
risks
Innovation
costs
Economic factors
Q
Q
Lack of
financing
Org.
rigidities
Lack of
personnel
Lack of
tech. info.
Internal factors
Lack of
market info.
Regulations
constraints
Lack of
response
Other factors
Economic factors are ranked higher than any other factors
Service sectors more frequently mention economic factors than
manufacturing
47 47
European firms survey shows weak participation
of services firms in government programme
Share of innovative firms benefiting of
public support programmes
Manufacturing
Services
Finland
Italy
Q
Austria
Greece
Netherlands
Sweden
Spain
Q
Norway
France
Portugal
Belgium
Firms receiving public
funding was considerably
fewer in services than in
manufacturing.
It is important to design or
adapt support
programmes to be more
relevant and useful to the
service sector.
Germ any
Luxem bourg
n.a.
Denm ark
%
60
40
20
0
20
40
60
48 48
The main messages
1. Improve the broader business environment for services to
increase incentives for innovation and foster demand:
Q
Q
Q
Continue with regulatory reform.
Open international markets.
Provide an appropriate financial climate.
2. Help workers adjust to structural change:
Q
Q
Reform labour markets.
Help workers acquire new skills and competencies.
3. Foster innovation and technological change:
Q
Q
Q
Consider how innovation policies need adjustment.
Remove barriers to the effective use of ICT.
Policy messages are closely aligned to those of a parallel
OECD project on Trade and Structural Adjustment.
49 49
In conclusion
Q
Policy makers have an opportunity to strengthen services
sector performance:
– This is key to strengthening productivity and employment growth.
– And will help in addressing the globalisation of services.
Q
Q
Improved performance of the services sector will also
benefit other industries, such as manufacturing.
Reform will have different effects on sectors:
Q
Q
Q
Q
In some, they may enhance employment and productivity.
In others, they may reduce employment.
The overall effects of reform tend to be positive, however.
Structural adjustment policies can help facilitate the
adjustment to a services economy.
TASAP
50 50
Trade and Structural Adjustment (TASAP)
another OECD horizontal project reported to MCM 2005
Comprehensive and consistent policy strategy is needed.
Q Macroeconomic policy for promoting stability and
growth
Q Labour market policies for developing worker’s skills
and facilitating resources transfer
Q Efficient regulatory framework fostering competition
and market openness
Q Institutional/governance framework with public
understanding and acceptance of reform measures
Q Liberal trade and investment policies supporting
structural adjustment
51 51
Ireland: Success of Comprehensive Strategy for Growth
Q
Q
Q
Q
Q
Q
Education reform to create skilled workers ( English
speaking and relatively low-cost )
Trade Liberalization to enter EU in 1973
Attract Foreign Direct Investment in manufacturing (
tax incentives )
Regulatory reform
Invest in R&D by Higher Education as well as Foreign
Business
National = Regional Strategy in the expanding EU
52 52
Conclusion
Restructuring or Boneyard
: the Need for Speed
While restructuring our Company in the 1980s, we spent much
of our time talking about the accelerating pace of change: in world
politics, in technology, in product introduction and in the increasing
demands of customers. We don’t have to do that anymore. Change
is in the air. Newspapers and networks hammer it home daily. XX
people today understand that pace of change, the need for speed,
and the absolute necessity of moving more quickly in everything we
do, from inventory turnover, to product development cycles, to a
faster response to customer needs. They understand that slow-andsteady is a ticket to the boneyard in the 1990s.
53 53
Some references to STI work on services
Q
Q
Q
Q
Q
Q
Q
Productivity and employment patterns:
– Anita Wölfl (2005), “The Service Economy”, STI Working Paper 2005/3
Firm creation:
– Nicola Brandt (2004a), “Business Dynamics”, STI Working Paper 2004/1
The role of ICT:
– OECD (2004), The Economic Impact of ICT
– Information Technology Outlook 2004
Multinationals and productivity:
– “Multinationals Enterprises and Productivity Growth – Insights at the Firm
Level”, Chapter 6, STI Outlook 2004
– Criscuolo and Martin, “Multinationals and US Productivity Leadership”,
STI Working Paper 2004/5
Innovation and ICT:
– Science, Technology and Industry Outlook 2004
Offshoring DSTI/ICCP/IE/2004-19 final
And work by the Economics Department and the Trade Directorate.
54 54