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.
Table 5 >>
 
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.
Table 6 >>
 
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.