A majority of world trade today is in
services, yet trade progress talk focuses on manufacturing.
It’s time we recognize the obvious.
The services industry is often overlooked as an engine of
economic growth. More often we think in terms of manufactured
goods—phones, cars, houses, clothing—those tangible
products we use every day.
Both goods and services are a critical part of any economy.
They depend on each other. One makes the other more efficient.
Services are fast eclipsing goods as the world’s economic
driver. According to the World Bank, services account for 70%
of world GDP, up from 59% in 1990. The numbers don’t
differ much from country to country, rich or poor. While some
emerging countries lag behind the developed economies, services
still play a big role, accounting for 50% or more of output in
A newly released paper, “Services Trade
Liberalization: Foundation of Recovery,” by Edward
Gresser, the director of Progressive Economy, was written for
the Coalition of Service Industries (CSI). Gresser argues that
services trade reform can help lead us out of economic crisis.
“As governments search for a durable economic recovery,
services trade reform has great potential to help strengthen
the fragile rebound from crisis and help drive long-term
growth,” says CSI president Bob Vastine.
Gresser’s paper outlines some important facts about
the service economy, which governments should examine closely
as they develop strategies for economic growth. Not only is the
services economy a big contributor to the world’s
economy, it is a major employer as well. Of the 3.2 billion
workers in the world’s labor force, about 60% of men and
70% of women work in services. The jobs range from restaurant
and hotel workers to highly skilled professionals, such as
lawyers, engineers and insurance brokers.
Services complement other industries. To manufacture and
deliver a product today requires a sophisticated global system
of services—telecommunications, delivery, insurance,
finance, accounting and more. To put it into perspective,
Gresser notes, “The modern world is linked by 5,000
communications satellites, fiber-optic cables to every
continent, thousands of daily air-cargo flights, and a shipping
industry moving 14 million containers every day.”
Services help raise living standards and promote
development. Even the smallest business owners use modern
technology and services to operate their businesses. For
example, farmers and fishers use PDAs to track weather
conditions and market their products, and they take out
insurance on their boats and farm equipment to protect
themselves from the unexpected. Governments use services to
improve public service and safety. Individuals are able to
comparison shop with a flick of a button and find the best
prices and deals available from suppliers around the world.
The economic potential for services is tremendous. Many
services are highly tradable in world markets. World exports of
business services rose from 8.3% of total exports to 10.9% in
2010. Although service exports are growing, they still lag far
behind exports of goods. An increase in service exports would
translate into a huge boost in jobs in many parts of the
According to CSI, trade in services has not lived up to its
full potential as a driver of growth because of the relatively
weak services trade policy over the last two decades. Although
“pioneering” agreements on services were put into
place in the 1990s—the WTO’s General Agreement on
Trade in Services, Financial Services and Basic
Telecommunications—they “stopped well short of a
broad opening of the services markets,” according to
Gresser’s paper. Compared with trade agreements for
goods, Gresser wrote, the service agreements left in place
“modest and flimsy” rules.
Despite inroads, barriers to services trade and foreign
investment remain largely in place in many countries. A recent
World Bank study looking at five sectors, including financial
services, found the most common barrier was in the area of
direct foreign investment. The barriers include outright bans
on foreign investment, restricted ownership (India, for
example, restricts foreign investment for insurance to 26%) or
“Substantially reducing barriers to both cross-border
digital-based trade, and to direct foreign investment, would
help services trade realize its potential to be a powerful
support for growth in the aftermath of the financial
crisis,” Vastine says.
With the WTO Doha Round at a standstill, there is growing
interest in pursuing an international services agreement. The
CSI says it supports an ambitious services agenda that
“embraces all the regional and bilateral efforts to
create open and fair services markets.” An International
Services Agreement, the CSI contends, would be the “next
generation” and a “powerful advance” in the
global trading system.
Improving cross-border trade for large multinational
insurance placements is a high priority for The Council.
Brokers play a vital role in helping businesses of all sizes
expand and grow in the global market through insurance and risk
management programs. Barriers that prevent the efficient use of
master policies for multinational risks slow down economic
growth and exports. The Council supports efforts to move
services trade into the future.
Kemper is The Council’s vice president of Industry