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Technology and Global Industry: Companies and Nations in the World Economy (1987)

Chapter: The Impacts Of Technology In The Services Sector

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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"The Impacts Of Technology In The Services Sector." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 119 The Impacts Of Technology In The Services Sector JAMES BRIAN QUINN In recent years much attention has been appropriately focused on the structural changes technology has wrought upon manufacturing, particularly in the United States. But technology has created even more dramatic changes in the services sector, which now accounts for some 68 percent of U.S. GNP and 71 percent of U.S. employment. The shift toward services has been a long-term trend, not only in the United States but in all major industrialized countries (see Figures 1 and 2). This chapter addresses a variety of issues relating to technological change and services: • What are the major causes and implications of the shift toward a services economy? • How has technology restructured the services sector and how does this restructuring affect U.S. trade and competitiveness? • Can a services economy generate a continuously higher standard of living? • How might a services economy and services technologies affect national sovereignty and the nation's posture in the world? WHAT IS THE SERVICES SECTOR? Many engineers and executives mistakenly perceive the services sector as "making hamburgers" or "shining shoes." Such simplifications belie the complexity, power, technological sophistication, and continuing growth potentials of services in a modem economy. Although there is not complete consensus on a definition for the services sector, it is generally considered

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 120 Figure 1 Employment in industrial sectors as percentage of total labor force. From Quinn (1983). Figure 2 Percentage of employment in service industries, five nations, selected years, 1960 to 1982. From Quinn (1986).

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 121 to embrace all those Standard Industrial Classification categories in which (1) the primary output is not a product or a construction, (2) value is added principally by other means (such as convenience, amusement, feelings of well- being, improved knowledge, security, health, comfort, location availability, or flexibility) that cannot be inventoried, and (3) outputs are essentially consumed when produced (Collier, 1983; Mark, 1982). ''Services'' cannot be viewed as a single sector easily isolated from all others. Table 1 suggests its scale, diversity, and economic impact. If one defines an industry as a group of enterprises whose outputs are largely substitutable for each other, there is no such thing as a single services sector. The sector is at least as heterogeneous as manufacturing; one should think of it as a grouping of diverse industries, just as manufacturing is. This context makes it easier (1) to understand some of the more important relationships between technology and specific services industries, and (2) to dispel some of the myths about the services sector. MYTHS ABOUT THE SERVICES SECTOR The first myth about services is that they are somehow less important on a "human needs scale" (Maslow, 1954, chapters 5 and 8) than products. Hence (so the argument goes), services cannot provide the same value added or economic stability as a production economy. In elemental societies, the first value added is created by the mere presence or adequacy of a product, for example, producing food for sustenance, housing for basic shelter, or clothing for protection from the elements.1 But as soon as there is even a localized self- sufficiency or surplus in a single product, added value is created by distribution of the product—a services activity. In fact, the added production is worthless without the distribution. In such primitive societies other "services," such as health care, education, trading, entertainment, religion, creative designs, and nonfunctional art works, quickly become more highly valued than basic products, whose production soon becomes the work of the poor. Similarly, in modem societies most of a product's added value is due to service functions: better design, convenience in use, packaging, distribution, marketing presentation, post-purchase serviceability, and so on. And many of the most highly valued (high-priced) activities in the economy are services such as architecture, art, health care, entertainment, travel, banking, investment, personal security, or education. Initial analyses indicate that measured value added in the services sector is at least as high as in manufacturing (see Figure 3). Services also appear less cyclical than manufacturing. In the last two decades, services employment has advanced an average of 2.1 percent during economic con

TABLE 1 Components of United States Gross National Product Services Current $ Billions 1972 $ Billions 1970 1975 1980 1983 1984 1970 1975 1980 1983 1984 Total GNP 993 1,549 2,632 3,305 3,663 1,086 1,234 1,475 1,535 1,639 Agriculture, forestry, fisheries 29 53 77 73 91 34 37 40 39 45 Manufacturing 252 358 582 685 776 261 290 351 354 391 Transportation 39 55 99 115 130 43 46 52 47 $0 Communication 24 40 67 92 103 26 36 52 59 63 Wholesale trade 68 117 190 229 265 72 88 104 114 130 Retail trade 98 149 238 307 337 104 122 142 152 165 Finance, insurance, real estate 142 216 399 543 598 155 188 236 254 265 Other service industries 114 186 342 478 529 127 148 189 207 219 THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 122

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 123 tractions and 4.8 percent during expansions. Employment in the goods- producing sector declined an average 8.3 percent in recessions and increased an average 3.8 percent in expansions (Office of the U.S. Trade Representative, 1983, p. 21) (see Figure 4). This means that people will give up many product purchases (indicating lower marginal utility for those products) before they will sacrifice desired services like education, telephones, banking, health care, police, or fire protection. A second myth is that service industries are much more labor-intensive and less technologically based than manufacturing. Stephen Roach of Morgan Stanley & Company, Inc., has shown that capital stock per services worker has been rising since the mid-1960s and now surpasses that for manufacturing workers (Roach, 1985). Kutcher and Mark's data—grouping 145 industries on the basis of capital stock per worker and labor hours per unit of output—show wide variations in labor intensity in both the manufacturing and services sectors. Some service industries—notably rail and pipeline transportation, broadcasting, communications, public utilities, air transport—are among the most capital-intensive of all industries. Nearly half of the 30 most capital- intensive industries were services. But, Figure 3 PIMS index of value added. Derived from industry survey and calculations from PIMS (Profit Impact of Management Strategy) 1985 data base, Strategic Planning Institute, Cambridge, Massachusetts.

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 124 surprisingly, few service industries were found in the three lowest capital- intensity deciles (Kutcher and Mark, 1983). Profit Impact of Management Strategy (PIMS) data from the Strategic Planning Institute, Cambridge, Massachusetts, also show that aggregate capital intensities in services are comparable to those in manufacturing (see Figure 5). Figure 4 Recession resistance of the services sector. Many service industries are very technology-intensive today. One thinks first of communications, information services, health care, airlines, and public utilities. But the banking, education, financial services, entertainment, car rental, message delivery, and retailing industries have also become technology- intensive (Office of Technology Assessment, 1984). For example, retail discounting (largely by major chain retail operations)

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 125 represented 48 percent of all retail general merchandise sold to the public in 1984, and the top five merchandise chains had more than $70 billion in total sales in 1985.2 These and the large food-retailing chains require extraordinarily sophisticated computer, communications, product control, credit, and cash- management systems to compete successfully. The services sector is a major market for high technology—one study indicating that 80 percent of the computing, communications, and related information technologies equipment sold in 1982 went to the services sector (Kirkland, 1985). In Britain 70 percent of all computer systems sold in 1984 went to the services sector (The Economist, July 6, 1985). Figure 5 PIMS indices of capital intensity. PIMS 1985 data base, Strategic Planning Institute, Cambridge, Massachusetts. A third myth about the services sector is that it is much too small-scale and diffuse either to buy major technological systems or to do research on its own. Again, initial analysis of the PIMS data suggest this is not true. Although detailed Herfindahl indexes are not available, concentration and mechanization in the services sector (see Figures 6 and 7) appear to be about as high as in manufacturing.3 Thus, the sector has the potential not only to purchase technology but also to contribute to its conception, design, and development. We have not included government agencies or municipalities in our statistics, but they clearly have similar capabilities. A fourth myth is the fear that a services economy cannot continue to

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 126 Figure 6 PIMS indices of concentration. PIMS 1985 data base, Strategic Planning Institute, Cambridge, Massachusetts. Figure 7 PIMS indices of mechanization. Index of mechanization calculated as [Gross Book Value of Plant and Equipment]/[(Value Added/Net Sales) x (Net Sales + Change in Inventory/Percent Plant Utilization)]. From PIMS 1955 data base, Strategic Planning Institute, Cambridge, Massachusetts.

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 127 create an ever higher level of per capita income. Part of this fear is the belief that services do not lend themselves to productivity increases through technology infusions. Our analysis suggests that the overwhelming proportion of productivity increases in both manufacturing and services have derived from capital and technological infusions. Between 1975 and 1982 there was a 97 percent increase in new technology investment per service worker (Office of the U.S. Trade Representative, 1983, p. 24). Some service industries have undergone significant improvements in productivity over the last two decades. In others, such improvements have not been very impressive (see Table 2). TABLE 2 Productivity Increases in the Services Sector Percent Average Annual Improvement 1960-1983 1970-1983 Telephone/communications 6.1 6.8 Air transportation 5.8 4.5 Railroad (revenue traffic) 5.1 4.8 Gas, electrical utilities 2.7 1.0a Commercial bang — 0.9b Hotels/motels 1.6 0.8 a1981 data, b1982 data, SOURCE: Bureau of Labor Statistic, Office of Productivity and Technology. At the margin, services and manufacturing seem about equally attractive to capital (see Figure 8). Consequently, one would expect a continuing willingness to invest in services for productivity improvements and competitive advantage whenever services eau offer adequate returns. Because less attention has been given to automating services than to manufacturing, many opportunities to improve productivity still exist, and office automation is high on both producers' and users' lists of priorities (Collier, 1983). Services can create real growth in per capita income as long as any of three conditions obtain: (1) the product sectors can produce enough output at continuously lower relative costs to release purchasing power for other desired (services) uses, (2) it is possible to increase productivity in existing services, or (3) entrepreneurs can conceive of new services having higher marginal value to buyers than existing services or products. Within wide limits, the services economy is a natural outgrowth of productivity increases in the goods- producing sector. Whereas agriculture once demanded some 70 percent of all employment in the United States, less than 4 percent of the work force now produces much more food per capita—including 50 percent more of the major grains than the country can eat (see Figure 1).

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 128 Figure 8 PIMS indices of investment efficiency. From PIMS 1985 data base, Strategic Planning Institute, Cambridge, Massachusetts. A similar productivity phenomenon is now at work in manufacturing. With a decrease in the number of hours of work needed to produce or buy a basic automobile, radio, or washing machine, the percentage of the economy able to be devoted to other things naturally goes up. Since the average person can eat only so many pounds of food or use so many cars, washing machines, or appliances, the marginal utility of other things rises, and in recent years these things have often been services. As the perceived value (relative utility) of these activities increases, a given expenditure on services will create greater value at the margin and wealth is enhanced. For decades, the services sector has provided the U.S. engine for growth (see Table 3). Once survival needs are met, the relative value (or utility) of all other objects, concepts, or services is solely a creation of the human mind. Pearls, gourmet foods, more comfortable furniture, vacations, phonograph records, parks, high-powered cars, or travel have value only because people create this value in their minds. Thus, there is no intrinsic limit to the wealth a services economy can create, other than the limits of human imagination in finding or placing higher values on new services. Such limits seem remote at the moment.

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 129 TABLE 3 Services Growth Sector Compound Annual Growth (percent) 1960-1984 1980-1984 Goods-producing 2.8 2.4 Agriculture, forestry, fisheries 1.4 3.1 Construction 0.7 1.2 Manufacturing 3.5 2.6 Mining 2.1 1.0 Services-producing 4.0 3.6 Communication 7.1 4.7 Telephone, telegraph 7.6 4.7 Radio, television 2.9 6.2 Finance, insurance, real estate 4.0 2.9 Banking 3.8 1.7 Insurance 3.0 0.2 Securities, commodities brokers 4.6 16.9 Real estate 4.2 3.3 Public utilities 3.9 1.9 Services 4.1 2.4 Amusements, recreation 3.4 4.9 Auto repair 4.2 1.5 Business services 6.8 7.2 Health services 5.2 3.6 Legal services 4.6 6.4 Personal services 0.4 1.9 Transportation 2.1 -1.0 Wholesale, retail trade 3.9 4.7 SOURCE: New York Times (October 27, 1985). THE LIMITS OF CURRENT DATA To help show how technology affects the generation of wealth through the services sector and the structure and competitiveness of a modem economy, this paper draws upon information collected from four data bases: the Bureau of Labor Statistics, the U.S. Department of Commerce, the Standard & Poors Corporation's Compustat Tapes, and the PIMS data base. Aggregate data for the services sector are compared against aggregate GNP and manufacturing sector data and are analyzed for each major services sector to reveal certain key variables and make appropriate comparisons among the sectors. This chapter also draws upon information obtained from

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 130 knowledgeable technology-using concerns and from experts in five sample service industries: financial services, communications, public transportation (airlines and rental cars), health care and delivery, and retailing. The information from these various sources makes clear that, although current data are replete with definitional problems and artifacts, the impact of technology on the services sector is powerful, misunderstood, and crucial to the future development of the United States and other advanced economies. This topic is worthy of much further study. This chapter, therefore, is not intended as a research report, but rather to help provide some initial insights on this complex issue. Some Data Anomalies Data anomalies abound. Most serious are those in defining what is included in measures of "the services sector." Specialized services (like product design or development, market research, accounting or data analyses) are captured as "manufacturing" costs if performed within manufacturing concerns, but as "services" if provided externally. Internal salesmen are reflected in manufacturing employment, but external sales representatives and wholesalers are services. If a farmer harvests his own grain, the costs become production costs; if the farmer hires a professional combine operator, the activity is a service. Home cooking and clothes washing are not measured as services activities, but restaurants and automatic laundries are. The oil that provides a home's heat is a product sale; but electricity for the same purpose may come from a "services sector" utility. And so on. Productivity measurements pose a special problem (Mark, 1982). Although it is easy to count the number of autos or washing machines produced, how does one measure the output of a bank, insurance company, legal firm, or consultant in order to make productivity measurements? The output of a government agency is often measured only by the agency's cost (New York Times, October 27, 1985). One medical procedure may require fewer resources than another, but the (unmeasured) pain and morbidity it entails could be much higher. Many people may actually place more value on noncurative treatments or hope-creating reassurances (such as laetril or counseling) than a statistically beneficial procedure (such as chemotherapy). And so on again. Defining the services component of international trade movements is even more complicated. If a loan officer in the British subsidiary of a U.S. bank relies heavily on analyses or expertise developed in New York for a deal he consummates in London, is this an export, a return on investment abroad, or just a local sale of services? Similarly, in manu

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 131 facturing it is often impossible to say how much of a company's overseas profit is due to the company's products versus the embodied technology, training, systems, or services support the company provides indirectly to host country users from its U.S. base. How a cost or benefit is classified often depends on how the company is organized and the purpose of the measurement itself. Such definitional problems are magnified by the ease with which services can be concealed in transfer pricing, cost allocation, or tax avoidance choices. Finally, trade in services is seriously distorted by the not too subtle trade barriers individual countries have placed on such trade, through their regulatory or monopolistic (banking, insurance, travel, postal, telegraph, and so on) home market restrictions (Sellers, 1985; The Economist, July 6, 1985). These will be attacked seriously for the first time in the next round of the Multinational Trade Negotiations. Product Versus Service Interchangeability Another artifact is the distinction (and preference) often attributed to production of products as opposed to services. This viewpoint ignores the truism that products and services are often interchangeable over a broad spectrum. Theodore Levitt, editor of the Harvard Business Review, has said, ''A man doesn't buy a ¼-inch drill, he buys the expectation of a ¼-inch hole.'' A customer rarely cares whether a computer manufacturer accomplishes a function by a hardware circuit or internal software. Cable network services replace home antenna sales and provide more of what the customer is really buying, increased quality in reception and choice in programs. Computer-aided design and manufacturing software substitutes for added production machinery. Conversely, tree shakers and automatic harvesters substitute for teams of migrant pickers. Disposals and compactors lower garbage disposal costs. Home hair sprays replace beauticians. Gourmet processed foods and microwave ovens substitute for restaurants. And so on. All of these substitutions create productivity and value-added increases that are just as real as the substitution of a machine for a factory worker or a new vacuum cleaner for a carpet sweeper. One set should not be denigrated and the other praised. CHANGES IN INDUSTRY STRUCTURE Recognizing these anomalies in the data, what useful observations or hypotheses can we make concerning the impact of technology on the services sector? What are some of the resulting effects on the overall

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 132 structure of economic and competitive activities? Many potential effects are not yet realized because major technology introductions in several key services areas are relatively recent. Other effects are difficult to separate from those caused by the simultaneous deregulation of such important activities as airlines, communications, financial services, or common carrier services. Two classes of technology affect service industries: industry-specific technologies (such as aeronautics for airlines or internal-imaging technologies for health care diagnostics) and generic technologies (such as communication, information-handling, data-storage, or transportation technologies) available to all sectors. Their effects on the service industries and overall economic competition differ somewhat. But their main impact is to allow significant changes in (1) economies of scale, (2) economies of scope, (3) output complexity, (4) functional competition, (5) international competitiveness, and (6) distribution of wealth. Such impacts occur virtually everywhere in the economy. Introductions of technology have created entirely new competitive situations for the service industries, their suppliers, and their customers domestically and internationally. They have changed the nature of manufacturing competition, and they have posed new technological, management, and policy opportunities and threats throughout the world. Economies Of Scale Many service industries reported new economies of scale made possible by recently introduced technologies. The first-order effect in most cases was a new competitive structure characterized by both increased concentration and increased fragmentation (niching or segmentation). To obtain the full economies of scale available, large services companies merged into giant companies (Standard & Poor's Industry Survey, December 13, 1984). This phenomenon offers some interesting international trade policy opportunities. Since many services are inexpensive to transport internationally, nations or enterprises that achieve economies of scale early should enjoy some initial trade advantages externally and some entry barriers to their home markets. And countries whose economic policies permit such scale should benefit. In the United States, new consortia have formed to provide new services no existing entity could handle alone. Many intermediate-size companies, unable to afford the new technologies, sold out to their larger brethren (see Table 4). Concentration measures in banking, transportation, financial services, and (less so) retailing all show increases from 1975 to 1985 (see Table 5). The communications industry was so affected by the AT&T

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 133 breakup as to make comparisons meaningless. After an initial concentration toward larger hospitals and delivery units, Diagnostic Related Groups and other economic considerations have begun to stimulate decentralization in certain aspects of health care. In all these industries, however, many smaller enterprises also identified local niches or specialized services and concentrated successfully on these. The result seems to parallel the classic "V"-shaped return pattern that Booz Allen & Hamilton, Inc., has reported for other industries, with higher returns accruing both to a few large entities and to those who specialize. For example: • In the mid-1960s and early 1970s, automation of the securities-trading process changed the entire structure of that industry. Under the old market system, shares traded had to be physically delivered from the seller's agent to the buyer's. As daily volumes hit 10-12 million shares, only the big banks could hire and manage enough people to keep track of and clear their securities trades each day. Smaller firms began to fail because they could not control or process their securities. Finally, Wall Street firms joined together to form the Central Certificate Services (later the Deposit Trust Company) to immobilize virtually all the securities certificates under one roof. Then, rather than moving shares, a single set of accounting entries could control ownership. After 5-6 years the system became all electronic, and smaller broken could tie into the depository. Now more than 175 million private and 175 million government transactions are handled yearly by automated clearinghouses (Office of Technology Assessment, 1984, p. 101). Later a group of New York banks formed the Clearinghouse for International Payments System (CHIPS), which handles transfers worth $60 trillion annually with same-day settlements (American Bankers Association, 1984). Trades can be made instantly by investment bankers all over the world, broadening and decentralizing the market vastly, despite the procedures required by the centralization clearinghouse. And specialized networks like Nasdaq, Intex, and Instinet now serve smaller, segmented, or localized markets (The Economist, July 6, 1985). • Because of the reimbursement system then in use, the first effect of capital-intensive technologies in medical care was to centralize treatment into the hospitals. Small practitioners and hospitals did not have the patient volumes to afford the elaborate diagnostic, treatment, surgical, and recovery equipment that was being developed. This concentration allowed highly specialized medical practices to form around the hospitals and created even more specialized regional referral centers

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 134 TABLE 4 Merger Transactions Number of Transactions (rank) Four-Year $ Millions Paid (rank) Industry 1984 Cumulative Industry 1984 Classification of Classification of Seller Seller Banking and 251 ( 1) 1,343 Oil and gas $42,981.8 ( 1) finance Wholesale and 143 ( 2) 498 Food processing 7,094.8 ( 2) distribution Miscellaneous 138 ( 3) 506 Conglomerate 6,982.9 ( 3) Services Retail 130 ( 4) 393 Retail 6,673.2 ( 4) Computer 118 ( 5) 399 Banking and 5,846.3 ( 5) software, finance supplies, and services Oil and gas 102 ( 6) 369 Computer 3,766.4 ( 6) software, supplies and services Industrial and 93 ( 7) 379 Packaging and 3,089.4 ( 7) farm equipment containers and machinery Brokerage, 86 ( 8) 251 Insurance 3,005.9 ( 8) investment and management consulting services Health services 86 ( 8) 244 Printing and 2,863.9 ( 9) publishing

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 135 Number of Transactions (rank) Four-Year $ Millions Paid (rank) Industry 1984 Cumulative Industry 1984 Classification of Classification of Seller Seller Broadcasting 83 (10) 237 Chemicals, paints, 2,629.9 (10) and coatings Chemicals, 79 (11) 251 Leisure and 2,580.7 (11) paints, and entertainment coatings Instruments and 71 (12) 237 Energy services 2,546.2 (12) photographic equipment Printing and 67 (13) 225 Miscellaneous 2,323.9 (13) publishing services Electronics 67 (13) 271 Timber and forest 2,297.2 (14) products Insurance 66 (15) 303 Electrical 1,978.4 (15) equipment Drugs, medical 61 (16) 260 Broadcasting 1,917.9 (16) supplies, and equipment Food processing 58 (17) 253 Health services 1,687.9 (17) Office equipment :55 (18) 167 Wholesale and 1,651.8 (18) and computer distribution hardware Electrical 50 (19) 196 ladusUal and farm 1,635.6 (19) equipment machinery and equipment Primary metal 43 (20) 141 Brokerage, 1,460.3 (20) processing investment, and management consulting services SOURCE: Grimm (1984), pp. 40-41.

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 136 to handle particularly difficult cases. The first-order effects were that many smaller hospitals suffered, closed down, or joined cooperative networks with the larger centers. TABLE 5 Concentration Measures in Five Service Industries, 1975 and 1985 1975 1985 Commercial banking Total assets $525 billion $1,018 billion 4 firm measure 0.36 0.42 8 firm measure 0.52 0.63 Life insurance Total assets $213 billion $526 billion 4 firm measure 0.47 0.43 8 firm measure 0.63 0.60 Diversified financial services Total assets $127 billion $603 billion 4 firm measure 0.29 0.40 8 firm measure 0.44 0.60 Retail sales Total sales $112 billion $297 billion 4 firm measure 0.31 0.32 8 firm measure 0.49 0.48 Transportation Total operating revenue $36 billion $107 billion 4 firm measure 0.25 0.30 8 firm measure 0.42 0.51 NOTE: Concentration measures represent the proportion of assets, sales, or operating revenues accounted for by the largest 4 or 8 companies in the industry. Totals represent summation of assets, sales, or operating revenues for the largest 50 companies in the industry. Some totals are estimated. SOURCE: Compiled from Fortune Service 500 data, Fortune, July 1975, and Fortune, June 10, 1985. However, as uncontrolled costs soared (the average cost of an inpatient stay rose from $729 in 1972 to $2,898 in 1984) and patient care became more impersonal, new distribution systems emerged (U.S. Department of Commerce, 1985). Now medical services are integrating both vertically (home care, primary care, and specialty care) and horizontally (pediatrics, obstetrics, dermatology, internal medicine) into complex systems (such as health maintenance organizations [HMOs]) linked by electronic technologies. HMOs have grown in number from 39 in 1971 to 326 today and now serve more than 13.6 million people, compared with 3.1 million in 1971. The number of ambulatory surgical centers exploded from 400 in 1982 to 1,200 in 1985; and home health care was offered by 42 percent of U.S. hospitals

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 137 in 1984, a 17 percent increase over 1983 (DeYoung, 1985). Management of these complex service systems has become such a critical factor that large private companies have found it profitable to apply their skills to hospitals and integrated health care management. To obtain specific economies, insurance companies have integrated forward into health care management, and some hospitals have begun to offer insurance (Business and Health, 1986a,b). Economies Of Scope The introduction of new technologies has often created a powerful second- order effect—economies of scope—the capacity to provide entirely new service products through the same service network. This was especially true when the driving technology was electronic communications or information handling. When properly installed, such technologies often allowed their users to undertake a much wider set of customer, data, or services activities without significant cost increases—or even with cost benefits through allocating equipment, development, or software costs over a richer base of applications. In addition, new technologies frequently offered increased strategic potentials through timing advantages in introducing new products or fast response capabilities in dealing with competitors' moves. Such strategic flexibility can be the most significant payoff for companies in the services sector. • In the mid-1960s, when the insurance industry was stable and heavily regulated, insurance companies automated their back-room activities to obtain dramatic gains in productivity in handling premium billings and collections.4 As wildly fluctuating interest rates hit the industry in the mid-1970s, companies had to change their products rapidly to attract premiums and to offset the effects of customers borrowing against their policies at low interest rates. Only those companies that had flexibly designed computer and control systems could deploy their products rapidly enough to obtain a competitive edge. Persistence rates (losses or changes in policies over a 5-year period) jumped from around 5 percent to 30-40 percent. Insurance companies used to bring out new rate books every 3-5 years. Now both rates and products were presented in the electronics technologies. Industry executives said they could have neither conceived of the variety of new products needed nor explained and introduced them through their agents in a timely way without effective electronic and software systems. Smaller companies could not afford the huge initial costs of needed technologies and sold out or merged with larger companies who could benefit from their distribution networks. A flexibly automated back room became a key element in survival and competitive success.

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 138 Again, smaller or local groups had to create new relationships with those who had requisite technical capabilities in order to obtain new products in a timely fashion. Or they had to concentrate on localized or specialized services the larger company could not yet reproduce. The flexible potentials of telecommunications have led to an unprecedented series of national and international coalitions among large and small companies. Because of the need for compatibility among telecommunications systems, the formation of these coalitions perhaps led to (1) more rapid technology dissemination than ever before and (2) the obliteration of many potential national comparative advantages in these technologies. The worldwide affiliations of IBM and AT&T offer major examples (see Figure 9). Two other industries suggest the basic restructurings caused by technology in the service industries: • Recognizing that the capability for sales of financial services is now embodied in the electronic display system, Sears, K mart, and J. C. Penney have experimented in the $1.6 trillion retail financial services Figure 9 When worlds collide. Reprinted with permission from The Economist, June 29, 1985.

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 139 market. Starting with its access to 40 million customers annually through its credit records, Sears now offers insurance (Allstate Insurance Co.), investment (Dean Witter Financial Services, Inc.), and full real estate services to customers in many locations (Gardiner, 1985). Through its savings bank, credit card, and automatic teller machines (ATMs), it is now extending other financial services to its most remote branches. Although the nation's 45,000 ATMs (U.S. Department of Commerce, 1985) already offer highly decentralized access to financial services, more than half are hooked into one of seven national networks such as Citishare or Cirrus (United States Banker, August 1985, p. 10). Many observers expect home banking services and electronic funds transfers (EFTs) to extend these services even further. Whereas only 31 percent of transactions are made through EFT today, Arthur D. Little estimates this represents 90 percent of the total value of all transactions. McKinsey & Co. has forecast a three-tiered future banking structure in which about 10 commercial banks and a few other financial institutions will operate on a national level (Cooper and Fraser, 1984, p. 216). A few new entrants will use technology to bring specialized services (such as clearing centers or discount brokerage) to the middle tier, and the regionals and local banks will scramble to find coalitions or service highly specialized local needs. • In rental cars, the large companies in conjunction with airlines can lock up the general or business traveler with instantaneous guaranteed reservations virtually anywhere. All have international subsidiaries or affiliates connected electronically. But niched operators have proliferated under their pricing umbrella. Automatic telephone answering devices allow both the super elegant and the Rent-A-Wreck extremes to serve local markets with office-in-the-home scales of operations. Alamo and Agency rental companies have segmented target groups with specific needs. Output Complexity Technology in services permits complexity. Engineering specialists, molecular biologists, or epidemiologists can analyze and resolve more complex problems using computer models and data base networks than ever before. The effects are so great that in some research areas, Joshua Lederberg, president of the Rockefeller University, suggests the technology is moving from "information search to knowledge search," that is, computer technologies can identify relationships and pose new hypotheses as well as merely analyze and test dam. For example, computerized an

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 140 alytical models can suggest entirely new structures for complex proteins, and gene machines can manufacture them within hours for testing against potential antigen or biological insults. Entertainment and educational media can achieve effects never before attainable. Law firms can accomplish more complex searches of legal background, prepare more intricate contracts, and negotiate and document the resulting settlements more thoroughly in hours than they previously could in weeks. The velocity of transactions in monetary exchanges and in commercial activities has increased so greatly that firms cannot compete without well-developed electronic support systems. These shorter transaction times have led in turn to potential economic volatilities that can threaten the capacity of even great companies or nations to control their economic destinies. The complexities that service technologies allow have created some bizarre twists integrating world economies in unexpected ways. • Once the financial houses could process documents efficiently, they began to look for ways to market effectively and to sell products off their technology bases. Among other things, a proliferation of products for pension funds appeared, including master trusts, securities lending, and international custody. GTE Corporation now has 40 different firms managing its pension fund worldwide, yet these investments can be monitored, handled, and settled through a master trust anywhere in the world every day of the week— impossible without electronics technologies. With this capacity, large pension funds (like the $17 billion fund of General Motors Corporation) can make or lose enormous amounts of money on small changes in stock prices or interest rates. Because these funds can trade large blocks quickly, the volume of trades has increased by orders of magnitude in the last decade. Daily volumes traded on the New York Stock Exchange grew from 10-12 million shares in the early 1970s to more than 102 million in 1984, with more than half of the trades involving 10,000 or more shares (Wall Street Journal, April 22, 1985, p. 1). Since the pension funds with large holdings of common stocks could trade profitably on small point spreads, the secondary consequence of this new technology has been tremendous pressure on short-term profit and stock price performance. This pressure has plagued all U.S. companies—manufacturing or otherwise—trying to increase productivity through long-term investments in technology. As financial markets further internationalize, this pressure may extend equally to all nations' publicly held companies. The technologies that allow manufacturers to produce a higher variety and quality of products at ever-lower costs also open entirely new market

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 141 niches requiring sophisticated new marketing and services practices never needed before. But computer-related technologies now permit retail establishments to deal with this greater range of offerings at a lower cost and under better control than ever before. Again, technology creates a higher service value (or utility, hence real growth) for consumers by matching their more complex tastes and localized needs more explicitly—and usually at lower cost. For example: • Computer technology allows rental car companies to analyze their costs for each type of customer. Because these costs vary enormously, the result has been an elaborate set of rate structures by city, length of rental, day of week, season, holiday pattern, and so on. Interestingly, if customers cannot figure prices accurately, they concentrate more on services rendered, allowing higher margins to those who can satisfy their needs. Computerized airline reservation systems allow similar complexity, but they also permit unique service values to customers, such as: specialized meals, wheelchairs, committed seat assignments, luggage verification, and even customer counseling for nervous or new flyers. Bar-code scanners in retailing allow retailers instant feedback on their sales and inventory movements—and hence the capacity for much more complex inventory and cost management systems (Chain Store Age Executive, January 1985, p. 3). Some are now selling this information back to market research firms who use it to help manufacturers fine-tune their strategies. Sophisticated information systems are allowing major chains to branch out and manage a portfolio of retail drug, supermarket, home center, and small specialty chains with much higher value added potentials (Chain Store Age Executive, March 1985, pp. 25-27). Unfortunately, to use the full sophistication of modem technologies, data about individuals' health, wealth, and activities axe stored in many accessible places. And disastrous data errors, frauds, or system failures are possible. To protect individuals and institutions in this environment will require further sophisticated developments in technologies, institutional attitudes, professional standards, and national and international regulations. The President's Office of Telecommunications Policy has suggested some of the likely key issues for public policy (National Science Foundation, 1975; Rule, 1975). • Medical technologies perhaps provide the best example supporting the complexity argument. They can now diagnose, attack, and resolve most of the common infectious diseases and surgical problems of the past, switching the medical care system's attention toward the prevention and cure of much more complex diseases and morbidity patterns. Mortality rates have shifted markedly (see Table 6). But as

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 142 technology improved, so did people's expectations and use of the system. Whereas medicine offered few nonsurgical ''cures'' (other than arsenic for syphilis and quinine for malaria) until the antibiotic revolution of the 1930s, by the late 1960s patients began to expect cures as a routine matter. They began to use the system for a much wider and more complex set of purposes and began to sue if their expectations were not met, regardless of the probabilistic or medical realities. Medical technologies in many cases became so powerful that life, according to some definitions, could be sustained almost indefinitely. This has, of course, led to still another level of technical, legal, and ethical complexities. TABLE 6 Causes of Death per 100,000 in the United States 1900 1978 Influenza/pneumonia 202 27 Tuberculosis 194 1 Gastroenteritis 142 0 Nephritis 81 0 Diptheria 40 0 Cardiovascular 137 443 Malignancies 64 182 SOURCE: National Center for Health Statistics (1980). Functional Or Cross Competition With such diversity has come the breakdown of traditional industry demarcations and significantly increased functional or cross competition. These changes are most obvious in financial services. • Disintermediation occurred because consumers found they could communicate effectively directly with the market and no longer cared what—if any—intermediary came between them and their investments. Banks, insurance companies, brokerage houses all began to offer a similar range of financial products and services (see Table 7). Soon retailers and manufacturers (such as GM and Ford) used their credit bases to present comparable offerings. The distinction between financing and product sales rapidly disintegrated—note the success of 2.9 percent financing campaigns for automobiles. General Motors Acceptance Corporation's $54 billion in assets and $1 billion in profits (more than the corporation's total profits in 1983) make it the nation's largest single holder of consumer debt (Gardiner, 1985, p. 9) and suggests the potential impact of such activities on manufacturing firms. In addition, financial services became another way to attract customers

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 143 into retail stores—for example, Sears' use of Allstate and Dean Witter on the one hand and First Nationwide Financial Corporation's joint venture with K mart Corporation to deliver its services on the other. • Communications, electronics, and printing technologies have allowed national and international newspapers to attack the advertising base of magazines and television networks. Communications technology has enabled airlines, rental car companies, and hotel chains to join together to offer complete vacation packages that were once solely the purview of travel agents and tour groups. Courier services have essentially integrated private airlines and ground services to compete selectively with telephone, facsimile, telegraph, and mail services. Through their electronically managed "wholesale clubs," retailers have integrated backward into wholesaling and into some manufacturing. One upshot of these changes is more rapid introduction and delivery of products or services with worldwide-scale economies and quality into the most remote markets of the United States and other advanced countries. In such countries, virtually all competition now has international dimensions. A second result is that consumers' attempts to enjoy both "one-stop" shopping and competitive prices create new possibilities for inventory and distribution economies. Major manufacturers can integrate completely from "just-in-time" suppliers to the shopping mall—as GM seems to intend with its Saturn automobile project. Although potential gains appear high, with such integration comes increased risks—notably GM's $5 billion TABLE 7 Financial Services Offered by Depository and Nondepository Institutions Banks S&L's Insurers Retailers Securities Checking a.b b b b b Saving a.b a.b b b b Time deposits a.b a.b b b b Installment loans a.b b b b b Business loans a.b b b b b Mortgage loans b a.b b b b Credit cards b b b a.b b Insurance a.b b b Stocks, bonds b b a.b Mutual funds b b a.b Real estate b b b Interstate facilities b b b a1960. b1982. SOURCE: Koch and Steinhauser (1982).

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 144 investment in Saturn—if a mistake is made. Conversely, if competitors miss this strategic opportunity, they could suffer major losses. So pervasive are communications and electronics technologies that a key element in competitive strategy for even "product-oriented" companies such as Exxon or GM is information management. Their profits can be made or broken by how well they develop and deploy knowledge about supply costs, new technologies, exchange rates, changing regulations, swap potentials, political or market sensitivities, and so on anywhere in the world. In the aggregate, more money may be made in the goods sector through information and services than "production" activities. The U.S. Trade Representative's Office in its U.S. National Study of Trade in Services (1983, p. 13) cites an estimate that about three-fourths (or 25 of the 33 percent) of the total value added in the "goods sector" is created by services activities within the sector.5 If this level of contribution is correct, one can expect to see information managers and similar services technologists increasingly rising to the top of major producing organizations—as they already have in oil companies, banks, and the retail trades. The cross substitution between production and services will become ever more apparent. International Competitiveness Perhaps the most perplexing, yet crucial, impact of services technologies will be on international trade. Within the definitional limits cited, The Economist (October 12, 1985) estimates only 18 percent of world trade to be in services as opposed to 49 percent in manufactures and 33 percent TABLE 8 World Comparisons Average Annual Compound Value in 1980 Growth Rate, 1970-1980 ($U.S. billions)a (percent) Services exportsb 18.7 350 Merchandise exports 20.4 1,650 Foreign investment incomec 22.4 225 World production 14.2 9,389 a Converted from SDRs and nominal values in national currencies at current exchange rates to U.S. dollars. World is defined as IMF member countries reporting data for both 1970 and 1980. b services exports exclude official transactions and investment earnings. c Foreign investment income includes private direct investment income and portfolio income but excludes official transactions. SOURCE: Derived from various issues of Balance of Payments Statistics, International Monetary Fund, and International Financial Statistics, International Monetary Fund.

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 145 in other goods support activities. Admitting that the $100 billion statistical discrepancy in world trade balances is probably due to a substantial under- estimation of services trade, the U.S. Trade Representative's Office estimates $350 billion in world services trade in 1980 as opposed to $1,650 billion in merchandise trade (see Table 8). Yet even these figures are misleading because so many of today's sophisticated products could not be sold abroad without supporting services to finance, maintain, and upgrade them in the marketplace. TABLE 9 Ten Largest Services Exporters 1980 (billions of U.S. $) Country Value of Value Services Services Services Services Foreign Balance Exports Exports Exportsa Investments — GDP — Incomeb (%) Merch. Exp. (%) United States 34.9 70.2 6.0 1.4 15.6 United 34.2 17.1 9.8 6.5 30.9 Kingdom France 33.0 18.4 5.5 5. 1 30.7 Germany 31.9 8.5 - 17.9 3.9 17.2 Italy 22.4 5.3 6.2 5.7 0.2 Japan 18.9 7.2 - 13.4 1.8 14.9 Netherlands 17.7 10.0 0.2 10.5 26.2 Belgium 14.5 17.6 0.5 12.1 26.3 Spain 11.7 0.2 6.3 5.6 56.9 Austria 10.8 2.5 5.1 14.0 62.6 aServices exports exclude official transaction and investment earnings. b Foreign investment income includes private direct investment income and portfolio income but excludes official transactions. SOURCE: Derived from various issues of Balance of Payments Statistics, International Monetary Fu nd, and International Financial Statistics, International Monetary Fund. Worldwide services exports in 1980 were only about 3.7 percent of gross domestic product, and those of the United States were only 1.4 percent, but worldwide services trade was growing at a 19 percent rate versus merchandise's 20 percent (Office of the U.S. Trade Representative, 1983, p. 13). Both rates were much greater than world production's 14 percent growth. Twenty-four countries accounted for 87 percent of services exports in 1980, and the United States led with $34.9 billion (see Table 9). Technologies related to services have vastly restructured the international marketplace in other important ways. Communications technologies, of course, permit manufacturers to coordinate their design, sourcing, distribution, and manufacturing activities worldwide to minimize costs. But economies of scale in services affect manufacturers' Scale economies in other ways as well. • Containerization and new on-board storage techniques (such as li

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 146 queried natural gas) facilitate and lower the cost of trade for such things as expensive high-technology goods, volatile chemicals, and coal. This trade in turn has led to major ($250 billion in 1981) construction and engineering projects in both buyer and seller countries that require more traded services and the development of technical support (services) industries in both exporting and importing countries. Cheaper and more flexible transportation systems also have lessened geographic constraints on production and further encouraged transfers of skills, technology, and knowledge among countries (Office of the U.S. Trade Representative, 1983, p. 16). • Large-scale investor arrangements now allow direct access to the Eurobond market where large "blue chip" companies can buy Eurobonds directly (often at lower interest rates than U.S. treasury bonds) and can place other securities directly with large investors or on a "bought deal" basis, thus lowering their capital costs relative to smaller companies. The extent of these transactions has become significant. By 1985 the market for Eurobonds denominated in dollars was $38.4 billion, and the commercial paper market was more than $230 billion (The Economist, March 16, 1985). An international "swaps" market of more than $20 billion had also developed (Credit Suisse- First Boston Bank, 1983) enabling two sophisticated companies to borrow in the domestic markets that were most favorable to their needs (interest levels or rate stability), then swap their interest obligations, splitting possible interest savings. World capital markets have become so integrated that it is difficult for any single nation's producers to achieve a capital cost advantage over other international competitors. Local banks or large companies can trade directly in virtually any money market in the world, as clearances are made instantaneously by electronics. At present there is continuous trading on some major market during all but 6 hours each day. Soon trading will be a 24-hour- per-day phenomenon. The business in foreign exchange transactions is already $6 trillion annually, and it is expanding. Under these conditions, the extent to which sovereign nations can intervene effectively to control their monetary systems (and hence inflation rates) in order to manage their economies through traditional means is not clear. This may be the most significant single impact of technology in the services sector. • In 1985 computerized quotations and satellites had global financial markets; more than 500 companies were listed on at least one stock exchange outside their home countries. Innovations in one market were rapidly reflected in others. The European "bought deal" procedure led the U.S. Securities and Exchange Commission to issue SEC Rule

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 147 415 allowing companies to preregister issues and sell them off-the-shelf as needs or market conditions warranted. The negotiated rates of U.S. brokers are slowly being forced onto the exchanges of other countries. The United States has relaxed requirements of its bond markets to make them more competitive with Eurobonds; and foreign exchanges (notably, London and Tokyo) have opened their memberships to foreign brokers. In investment banking, "bought deal" procedures have shrunk spreads and concentrated underwriting to the few firms that have the capital bases, distribution outlets, and trading systems to handle them. In 1984, two-thirds of all such new issues were handled by only five firms in the United States (The Economist, March 16, 1985). One initial impact of improved data, production control, and communications technologies has been to allow—or force—manufacturing outside of industrialized (or wealthy) countries to move toward developing areas where costs of labor or materials have been lower. With advanced electronic technologies, overseas facilities could be controlled or managed with whatever degree of centralized coordination competition demanded. Although this use of technology has distributed manufacturing more widely, the longer- term effects of decentralized production are less clear. The diversity of specialized customer tastes that can be accommodated by flexible manufacturing systems and better communications technology may soon create higher competitive premiums for those who stay physically closer to the marketplace and can respond more rapidly to customers' needs for services. • Saturn's planned 8-day cycle from order to delivery of an options-loaded vehicle may make it difficult for foreign producers to compete. The same may be true of just-in-time inventoried products throughout the U.S. production system. Japanese auto companies manufacturing in the United States are now bringing their suppliers here for just this reason. Interestingly, manufacturing may actually return to large advanced economies because of the "services" need to satisfy a highly diffuse marketplace rapidly and flexibly. A crucial question is whether, without domestically controlled manufacturing and R&D, a country can have a healthy technological community. In the past, manufacturing enterprises have been the locus of most R&D both for their own consumption and for performance of government R&D contracts (see Figure 10). If U.S. companies' manufacturing plants were located overseas, U.S. R&D could support them for a while. But it is difficult to maintain manufacturing R&D capabilities without the close interaction and feedback a local plant offers. As other nations' enterprises achieve world-scale economies with their

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 148 own domestic plants in maturing markets, it may be nearly impossible for U.S. concerns to stay abreast in manufacturing without domestic plants. Many competitors are sadly aware of how important user proximity (domestic plants and markets) has been for Japanese productivity. Although users of services can provide a significant driving force for product technologies, simultaneous development of product and manufacturing capabilities has become so important that lacking the latter could be the fatal flaw in a services economy. Both wealth and (more important) intellect could leak away to other "producing" countries. Figure 10 PIMS indices of research intensity. From PIMS 1985 data base, Strategic Planning Institute, Cambridge, Massachusetts. Nevertheless, services themselves are also a critical cost dimension of a nation's competitiveness in international production. Internal transportation, communications, financing, health care, distribution, and other services can lower the real cost of manufactures. Efficiencies in these sectors also improve the real wealth of laborers for any given wage level; that is, workers can buy more goods and services per dollar earned. For example, the Japanese have been superb in certain mass-manufacturing

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 149 fields, but their productivity (in GNP per person) has consistently lagged behind that of the United States, largely because of a less-productive services sector (see Table 10). As an economy moves ever closer to a total services base, a most important question emerges: What does the nation trade to obtain the manufactures and raw materials it needs from external sources? Although U.S. manufacturing and agricultural exports have suffered notable relative declines in recent years, the United States has had a strong positive net balance of trade in services and income from investments abroad, excluding payments for investments in the United States (see Table 11). Some have questioned whether traditional arguments of comparative advantage will be relevant in world services trade, especially in financial or information-based services where everyone can buy the same hardware (and often the same software) and connect into the same networks (Deardorff and Jones, 1985). This problem is compounded in the technology because the developers of much of the technology used in services trade are suppliers (often manufacturers) whose incentives are to sell and introduce their technologies as widely and quickly as possible worldwide. With rapidly advancing generic technologies such as electronics and communications driving the services industries, it will be difficult to establish or maintain a national competitive advantage in any given services industry. Nations' trade and economic policies may have to focus more on improving education infrastructures and removing barriers to fast and flexible deployment of technologies and less on traditional investment-oriented industrial policies (Grossman and Shapiro, 1985). For example, The Economist (November 29, 1985) asserts that by early deregulation of TABLE 10 Comparative Services Productivity, United States and Japan (dollar output per hour) Japan U.S. U.S./Japan 1970 1980 1970 1980 1980 Private domestic business 3.59 6.01 9.40 10.06 1.67 Agriculture 1.37 2.38 16.53 18.36 7.71 Selected services Transportation and 3.86 5.66 9.29 13.14 2.32 communication Electricity, gas, water 14.01 19.74 21.98 25.38 1.29 Trade 2.88 4.53 6.88 7.92 1.75 Finance and insurance 6.69 12.03 8.21 8.20 .68 Business services 3.39 3.60 7.69 7.59 2.11 Manufacturing 3.91 8.00 7.92 10.17 1.27 SOURCE: UNIPUB (1984).

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 150 communications markets, the United States gained a lead in both use and production of communications technologies that Europe's more regulated sectors may never close. On the other hand, there is little room for complacency. Many countries and companies have proved that their skills in managing services enterprises are formidable indeed. The United States must work hard not to dissipate its lead in communications as it did in manufacturing. Ominously, however, many of the same causes of lost position are beginning to appear in this sector, namely, a short-term orientation, inattention to quality, and overemphasis on scale economies as opposed to customers' concerns. TABLE 11 United States Net Trade Balancea (billions of current dollars) Category 1965 1970 1975 1980 1981 1982 1983 1984 Net goods 8.3 5.6 22.8 9.0 13.2 0.1 -31.9 -90.1 and services balance Merchandise 5.0 2.6 8.9 -25.5 -28.0 -36.4 -62.0 -108.3 balance Services 0.2 0.2 1.8 6.3 8.3 7.4 4.8 0.8 balance Net 5.3 6.2 12.8 30.4 34.1 29.1 25.4 19.1 investment income aExcludes military transactions. SOURCE: U.S. International Transactions 1960-1984, Washington, D.C.: U.S. Department of Commerce, Bureau of Economic Analysis. The trade balance in merchandise has been negative in 11 of the last 24 years. In more than half of these, however, services (including investment returns) have put the current account in the black. But even adding $10 billion for the U.S. 10 percent share of understated world services trade (Office of the U.S. Trade Representative, 1983, p. 108), long-term prospects do not look encouraging for U.S. trade balances unless manufacturing returns to the United States and the strong U.S. dollar weakens. Table 12 gives a detailed breakdown of U.S. services trade. Many experts believe that the net effect of services trade is even more seriously understated by definitional and reporting biases. For example: • As their major customers increasingly sought international raw materials, supply sources, economies of operating scale, or markets, both U.S. and foreign banks followed their customers overseas in the 1970s. By the early 1980s, 30-40 percent of all U.S. bank profits came from international operations, with many of the money center banks exceeding 50 percent (The Economist, March 16, 1985). The International Trade Commission cited an estimate that in 1982

TABLE 12 U.S. Detailed Services Trade Transactions (millions of dollars) 1978 1979 1980 1981 1982 1983 1984a Change, 1983-1984 Service transactions, net 23,625 32,241 34,487 41,129 35,327 28,143 16,986 - 11,157 Receipts 77,940 102,323 118,216 138,636 138,250 131,944 142,010 10,066 Payments - 54,315 - 70,082 - 83,729 - 97,507 - 102,923 - 103,801 - 125,024 - 21,223 Military transactions, netb 621 - 1,778 - 2,237 - 1,115 195 515 - 1,635 - 2,150 Travel and passenger fares, net - 2,585 - 2,000 - 825 58 - 1,599 - 5,064 - 7,830 - 2,766 Other transportation, net - 988 - 935 - 172 86 591 480 - 976 - 1,456 Fees and royalties, net 5,215 5,352 6,360 6,560 6,938 7,402 7,577 175 Investmeal income, net 20,565 31,218 30,443 34,052 27,803 23,508 18,115 - 5,393 Direct, net 21,247 31,826 28,488 25,496 18,140 14,023 12,351 - 1,672 Other private, net 6,149 8,173 11,905 21,629 23,641 22,310 20,425 - 1,885 U.S. government, net - 6,831 - 8,781 - 9,950 - 13,073 - 13,978 - 12,825 - 14,661 - 1,836 Other private and U.S. government, net 798 383 917 1,488 1,401 1,302 1,734 432 Contractor operations, net 1,348 1,054 1,591 2,027 2,398 1,790 2,109 319 Reinsurance, net - 532 - 617 - 624 - 606 - 590 - 506 - 553 - 47 Communications, net - 65 - 143 - 317 - 466 - 758 - 724 - 721 3 U.S. government, net - 925 - 1,198 - 1,332 - 1,366 - 1,705 - 1,563 - 1,528 35 Other, net 972 1,287 1,599 1,900 2,057 2,306 2,427 121 aPreliminary. bConsists of goods and services transferred under military sales contracts less imports of goods and services by U.S. defense agencies. THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR SOURCE: Survey of Current Business, March 1985, Table G. 151

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 152 nearly 25 percent of U.S. merchandise exports went to U.S. services businesses overseas. Some services, such as drilling, minerals exploration, civil engineering, banking, communications, or transportation, can be readily exported or are necessary purchases an outsider must make to trade in the economy. Certain technologies can be exported through licensing agreements. However, most such agreements pertain to manufacturing or product technologies. Without significant production inside the parent country (for example, the United States), a nation's ability to generate international services revenues through royalties or technology payments may be seriously impaired. How serious this impairment could be is unknown. Many experts believe that, unless manufacturing reverts to advanced countries through mechanisms like those suggested, increasingly services-oriented economies of advanced countries could lead to a serious and continuing weakening in their world trade positions, their strategic capabilities, and the value of their currency in world trade. What the net effect might be as all affluent countries move toward services economies needs serious research. Growth And Distribution Of Wealth What are the effects of a services economy on distribution of growth and wealth, domestically and internationally? How does technology affect the process? For nonsupervisory workers, weekly average wages in manufacturing are about $373, whereas wages in services are about $250. This gap is overstated because more than 20 percent of all services workers are employed part-time (less than 30 hours per week); part-time workers constitute less than 5 percent of all manufacturing employees. Hourly wages in specific industries and current trends paint a more encouraging picture for services. Although average hourly wages per worker are higher in manufacturing than in some major services industries, notably retailing, other services activities enjoy higher average hourly wages than manufacturing, and the gap is closing in financial and other services (see Table 13). Job opportunities in the United States have, of course, been growing most rapidly in the services sector for years. But recent job growth has been dramatic. From 1948 to 1978, manufacturing jobs grew by 3.6 million, but only 600,000 of these employees were in production jobs. More recently, 642,000 jobs were lost in manufacturing from February 1981 to February 1985, but services employment grew by 3.1 million. Since more affluent people spend a higher percentage of their income on services, this trend is likely to continue for the near future. The Bureau of Labor Statistics (BLS) also estimates that about half of all new manufacturing jobs created between 1969 and 1979 were white collar. Neal Rosenthal of BLS's Division of Occupational Outlook estimates that the

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 153 shift to services employment in the last decade has actually decreased the percentage of workers holding low-paying jobs (Kirkland, 1985). BLS forecasts to 1990 suggest that low-paying services jobs will keep pace with, but not exceed, total growth in employment. But some service areas with high-paying jobs (such as computer services and investment banking) are expected to have high growth (see Figure 11). More than 60 percent of U.S. employment is now in the information industries, and virtually all of the 20 highest-growth occupations in the 1980s, as forecast by BLS, are in information handling. The Fishman-Davidson Center (University of Pennsylvania) showed that those states with the highest proportions of services employment also had the highest real income averages (see Figure 12). However, which is the cause and which is the effect is not clear. TABLE 13 Average Hourly Wages per Worker 1983 ($) 1984 ($) 1983-1984 Growth Rates (%) Average nonagricultural 8.02 8.33 3.9 Manufacturing 8.83 9.18 3.9 Durable 9.38 9.74 3.6 Nondurable 8.08 8.37 3.6 Transportation and utilities 10.80 11.11 3.2 Wholesale trades 8.54 8.96 4.7 Retail 5.74 5.88 2.6 Finance, insurance, real estate 7.29 7.62 4.5 Other services 7.30 7.64 4.3 SOURCE: Survey of Current Business, June 1985, Table S12. Although some observers have suspected that the shift from manufacturing to services was a prime cause of the productivity slowdown in the United States in the 1970s, Kutcher and Mark (1983) found that such changes accounted for less than 0.1 percent of the change in productivity growth from 1959 to 1979. A real culprit, however, was the shift from high to low productivity goods- producing industries, accounting for up to 0.6 percent of the slowdown per year. Since many services jobs must be close to the point at which the services are used, services employment tends to become more geographically dispersed, following people's preferences for suburban and rural living. The quality of employment thus improves on two scales. Many physically difficult or hazardous jobs in production disappear in favor of ''white collar'' jobs in services, and the location of jobs is generally more pleasant and convenient. Services allow more part-time jobs for multiple-income families, and there is evidence that the family income for those employed in services may thus be higher than for those in manufacturing.

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 154 Figure 11 Projected job growth by 1995. From Bureau of Labor Statistics. SOME ULTIMATE QUESTIONS This discussion may lead to several ultimate questions about services economies. Can a services economy remain wealthier in the long run than more manufacturing-oriented economies? How fax can an economy move toward a services base before it can no longer maintain its relative wealth? Can a services economy support the R&D necessary to maintain intellectual leadership and a high level of productivity growth? Can Services Allow Greater Wealth? As productivity increases in various manufacturing sectors, a large country such as the United States can reach self-sufficiency in a wide variety of products, employing only a small percentage of its population in manufacturing —just as less than 4 percent of the U.S. population now in agriculture produces a surfeit of food. Once reasonable self-sufficiency is obtained in a modest range of production, the definition of "wealthier" becomes more subjective. It depends on the relative value placed on different goods or

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 155 services by the society. A more stable, safer, healthier society with fewer goods could be considered wealthier than one with more goods. Although some observers claim that services industries are inherently incapable of creating "wealth" that can be transferred to future generations, even this argument fails. Better education, art, literature, health care, cultural capabilities, convenience in transportation, communication capabilities, recreational availability, and personal security can be transferred to future generations. These services have been the true measures of wealth throughout history. Thus, services societies can easily be wealthier than production- oriented economies—especially if the latter must pay a high premium in environmental degradation. In fact, some observers believe a services-driven economy may represent the most advanced level of economic development. Figure 12 Average state real per capita income by percent of total private nonfarm employment in services in states. From Fishman-Davidson Center (1985).

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 156 What Is The Basis Of World Power? We often equate manufacturing power with economic wealth and world power. We forget that in the past the wealthy and great nations tended to be the trading nations, the educated nations, and the money centers of the world. Commerce, not manufacturing, led to wealth and power. Has the world changed fundamentally in the last 100 years? Perhaps so. Military power recently seems to depend on production power. But today selected intellectual and research capabilities in high technologies may be more important militarily than massive production potential, especially if a war is short. Nevertheless, it seems unlikely that a large modem country could maintain its strategic viability without world competitive aerospace, steel, chemicals, transportation, electronics, communications, and related support industries. Some of these industries may need significant government support to be strong enough to meet the needs of defense, but fortunately most do sell extensively to the services sector. This sector could, if properly stimulated, provide the basic technological demands to maintain an important level of defense preparedness. Industries such as airlines, communications, information systems, financial services, and rental cars already hold such potential. Careful analysis is needed to explore the strategic issues raised by an economy increasingly oriented toward services. OVERALL IMPACTS TECHNOLOGY IN SERVICES Technological advance is rapidly revolutionizing modem economies through services and presenting entirely new opportunities and challenges for corporate and national policymakers. The old "room and pop store" and "hand laundry" analogies are anachronistic. Technology has created services industries of a scale, sophistication, complexity, and value-added potential to match those of any manufacturing industry. In fact, services and manufacturing are inextricably intertwined. Services industries are among the most important customers and suppliers for manufacturing. They buy many of manufacturing's highest-technology products and they provide important inputs for manufacturers, offering the latter opportunities to have lower cost than foreign competitors in critical areas. Services substitute so broadly and directly for manufacturing functions that no manufacturer's strategy is complete without a thorough consideration of how services (or services technologies) can contribute to the company's productivity, value added, growth, flexibility, and output quality. In international trade, services create strong relationships between a foreign company and its host countries. Most of the benefits of services

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 157 industries—the "product" as well as jobs and facilities—accrue to the host country, thus developing a strong mutuality of interests between parent companies and host countries. At present some U.S. services companies enjoy economies of scale and scope their international competitors cannot equal— except in banking and communications. And the deregulated U.S. marketplace provides them a unique stimulus for innovation. If U.S. services companies move aggressively to develop their own proprietary technology systems, they can maintain a 1- to 2-year competitive edge in most services areas. Any slowdown or delay in such innovations will be sure to attract competitive incursions in the U.S. and world services markets—as has already occurred with Japanese banking, tourist, hotel, and airline expansions and significant European acquisitions in U.S. distribution and tourist trade activities. National sovereignty may be challenged in new and significant ways by the emergence of modem technologies in the services sector. An individual country will undoubtedly find it harder to control some of its most important resources; for example, information, monetary flows, and intellectual property. Interdependence and diffusion in these areas, however, could lead to greater world stability and less disparity among nations. As capital and information increasingly flow electronically across borders, a real question exists whether traditional comparative advantages are possible, in the long run, and if not whether the very basis for trade decreases. If nations or corporations cannot capture the benefits of their research, will they continue to perform it? Or will they be forced to even more frantic efforts to maintain at least a short-term edge that makes profits possible? The long-term structural shift to services raises intellectual questions and important policy issues but, while there are certainly some problems, it seems inappropriate to be afraid of a greater services economy—or to deride it. A greater fear should be that nations misunderstand the services sector, underdevelop or mismanage it, and overlook its great opportunities while shoring up manufacturing industries at great national and corporate costs. ACKNOWLEDGMENTS The author gratefully acknowledges the generous contributions of Bell and Howell Company, Bankers Trust, and the Royal Bank of Canada in supporting the research for this chapter. NOTES 1. Note that even here the product (clothing) has value only in relation to the service (protection) it provides its possessor.

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 158 2. Annual reports, Sears Roebuck and Co., and J. C. Penney, K mart, WALmart, and Zayre Corporations. 3. This conclusion is based on the PIMS data, which are self-reported by relatively large companies, and like other data bases on service industries have some inherent definitional problems. 4. London banks, for example, reported handling 128 percent more clearings in 1982 than in 1973 with only a 33 percent increase in personnel (The Economist, July 6, 1985). 5. Studies of productivity in manufacturing also indicate that a typical product is worked on during only about 8-10 percent of its production cycle; some 90 percent of its cycle is consumed in movement, waiting, inspection, and other support activities. REFERENCES American Bankers Association. 1984. Statistical Information on the Financial Services Industry. 3rd Edition. Washington, D.C. Business and Health. 1986a. Insurer provider networks: A marketplace response. (January- February):20-22. Business and Health. 1986b. The world of insurance: What will the future bring? (January- February):5-9. Collier, D. 1983. The services sector revolution: The automation of services. Long Range Planning 16(December):10-20. Collier, D. 1984. Managing a service firm: A different game. National Productivity Review (Winter). Cooper, K., and D. Fraser. 1984. The changing structure of the financial services industry. In the Banking Deregulation and the New Competition in Financial Services. Cambridge, Mass.: Ballinger Publishing Company. Credit Suisse-First Boston Bank. 1983. Section 1.3 in Euromoney Yearbook 1983. Boston, Mass. Deardorff, A., and R. Jones. 1985. Comparative advantage and international trade and investment in services. Fishman-Davidson Center discussion paper. Philadelphia, Pa.: The Wharton School, The University of Pennsylvania. DeYoung, G. 1985. Health care looks beyond the hospital. High Technology (September). The Economist. July 6, 1985. The other dimension: Technology and the City of London. A survey. 296(7401):50. The Economist. March 16, 1985. International investment banking: The world is their oyster. A survey. 294(7385):58. The Economist. June 29, 1985. A threatening telephone call from the computer company. 295 (7400):69 The Economist. November 29, 1985. Telecommunications: The world on the line. A survey. 297 (7421):62. Financial Times. October 4, 1985. Into the era of specialization, special Financial Times survey on computing services. Financial Times. October 4, 1985. Keeping ahead through sophistication. Fishman-Davidson Center. 1985. The Service Bulletin (summer). Philadelphia, Pa.: The Wharton School, The University of Pennsylvania. Gardiner, R. 1985. Sears' role in consumer banking. The Bankers Magazine (January-February):6-10. Grimm, W. T. 1984. Mergerstat Reviews. Chicago, Ill.: W. T. Crimm Co. Grossman, G., and C. Shapiro. 1985. Normative issues raised by international trade in

THE IMPACTS OF TECHNOLOGY IN THE SERVICES SECTOR 159 technology services. Fishman-Davidson Center discussion paper. Philadelphia, Pa.: The Wharton School, The University of Pennsylvania. Kirkland, R. 1985. Are service jobs good jobs? Fortune (June 10). Koch, D., and D. Steinhauser. 1982. Challenges for retail banking in the 1980's. Economic Review (May). Federal Reserve Bank of Atlanta. Kutcher, B., and J. Mark. 1983. The services-producing sector: Some common misperceptions reviewed. Monthly Labor Review (April):21-24. Mark, J. 1982. Measuring productivity in the services sector. Monthly Labor Review (June):3. Maslow, A. H. 1954. Chapters 5 and 8 in Motivation and Personality. New York: Harper and Brothers. National Center for Health Statistics. 1980. U.S. Vital Statistics. Washington, D.C. National Science Foundation. 1975. The consequences of electronic funds transfer: A technology assessment. (RANN) NSF/RA/X-75-015(June). New York Times. October 27, 1985. Measuring the services economy. F4. Office of Technology Assessment. September 1984. Effects of information technology on financial services systems. OTA-CIT-202. Washington, D.C. Office of the U.S. Trade Representative. December 1983. U.S. National Study on Trade in Services. Washington, D.C. Quinn, J. B. 1983. Overview of current status of U.S. manufacturing. In U.S. Leadership in Manufacturing. Washington, D.C.: National Academy of Engineering. Quinn, J. B. 1986. Technology adoption: The services industries. In The Positive-Sum Strategy, R. Landau and N. Rosenberg, eds. Washington, D.C.: National Academy Press. Roach, S. 1985. The information economy comes of age. Information Management Review (Summer):9-18. Rule, J. B. 1975. Value choices in electronic funds transfer policy. GPO 041-001-00110-7. Washington, D.C.: Office of Telecommunications Policy, Executive Office of the President. Sellers, W. D. 1985. Technology and the future of the financial services industry. Technology in Society 17:1-9. Standard & Poor's Industry Survey. December 13, 1984. Banking and other financial services. 152 (50):B18. UNIPUB. 1984. Measuring productivity: Trends and comparisons. From the First International Productivity Symposium, Tokyo, Japan, 1983. New York: UNIPUB. United States Banker. 1985. (August):10. U.S. Department of Commerce. 1985. 1985 U.S. Industrial Outlook. Washington, D.C.

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