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A standard view on economic structure is still based on simplified three sector model: economy consists of primary production, industry, and services. In this model services are a “residual”, while the two others the source of goods and material well-being. The goods-services dichotomy has remained in spite of fundamental changes in economy. In modern economies services and service consumption often determine what kinds of goods are produced and what kinds of technologies used – not the other way round. Services have become an integrated part of goods; the border line between the two is fading away. Digitalization of services has turned out to be an important source of productivity growth in advanced economies.
Traditionally, services have been regarded as non-productive activities, since they could not be stored and therefore they could not be traded in similar way as goods. Today an increasing amount of services are digitalized – they can be stored and exchanged in further transactions. There is currently a major transformation of services going on. The transformation is driven by digital technologies and IT networks as new global infrastructure. Due to digitalization many services are cheap to reproduce, i.e. there are substantial economies of scale in services production. Services are increasingly becoming both tradable and scalable.
This means that services are a hindrance for productivity growth. On the contrary, they have become a major productivity driver in advanced knowledge-based economies. The old notion of “Baumol disease” has lost its significance.
Knowledge-intensive business services are an increasing part of intermediate inputs of all industries. There a growing amount of evidence that competitive and efficient business services sector has a clear positive contribution to the growth of value added and productivity of other industries. And the other way round – high level of regulation of services affects negatively on growth and productivity performance of other industries.
The ongoing services transformation has major implications for global division of labor. The advanced countries – Finland included – are likely to specialize even more than today on service production and trade. The competitive advantage in global digital era is more and more in highly specialized services, as well as in new combinations of industrial goods and services.
