A second source of growth of the "finance, insurance, real estate and business services" group was the separation of a range of service activities from manufacturing activities, leading to the growing importance of what are termed "strategic business services" by protagonists of the new economy. Strategic business services are defined to include computer software and information processing services, research and development and technical services, marketing services, business organisation services and human resource development services. These sectors reportedly have shown rapid growth and strong employment generation in recent years in OECD countries. Total turnover in these services is estimated to have exceeded USD 1.1 trillion for 19 OECD countries in 1995. These sectors are also estimated to have employed 11 million persons in 1995 or 2.4 per cent of total employment in 21 OECD economies. However, given the fact of substantial outsourcing of services by manufacturing firms mentioned earlier, much of this growth in services may not be a net expansion but a mere restructuring of aggregate employment and production in the manufacturing and services sectors put together.
 
There, remain therefore only four arguments of relevance on the likely impact of service on the pace and nature of economic growth. The first is that the specialisation that results from the outsourcing of services has resulted in far greater value addition to manufactured goods through the incorporation of a range of "intangibles" provided by intellectual capital such as design features and technical inputs that enhance product quality. If such "intangibles" play a role, it should be reflected in a higher value for the product and, in particular a rise in value added per worker. The evidence on this count is by no means clear.
 
The second argument is that the specialisation in services has been accompanied by technological changes, especially those resulting from the role of information and communication technologies in the services sector, that have substantially enhanced labour productivity in the services sector. This either increases value added per worker in the services area or it reduces the cost of service inputs into manufacturing and therefore increase value added per worker in the latter area.
 
Third, some service activities, especially research and development activities that are outsourced, are seen as spurring innovation in the commodity producing sectors leading to productivity increases and growth.
 
Finally, there is the argument that specialisation into services generates new products the demand for which results in an induced demand for manufactures. Thus, just as the growth of the transportation sector results in increased demand for trucks, buses, ships and airplanes, an increase In demand for new forms of information and entertainment is expected to spur demand for printing presses, televisions, audio equipment and computers.
 
Of these, the first two are grey areas, given the fact that measurement of the output of and value added in services is extremely difficult to measure. But the little evidence that exists points to a slowdown in productivity growth in services after 1973. To quote a recent study by economists at the Brookings Institution: "From 1949 to 1973, the Bureau of Labor Statistics (BLS) estimates that U.S. non-farm multifactor productivity grew at 1.9% per year. After 1973, multifactor productivity grew only 0.2% per year. Despite a 20-year intensive research effort to find the cause, no convincing explanation of the post-1973 productivity slowdown exists.
 
Whatever the ultimate cause, circumstantial evidence suggests that services industries play some important role in the slowdown. In the first place, the aggregate numbers indicate that the productivity slowdown is greater in the non-goods producing portions of the economy. While no official estimate of productivity in services is published by the Bureau of Labour Statistics, nonfarm multifactor productivity slowed by 1.7 percentage points (from 1.9% per year to 0.2%), and manufacturing productivity fell by 0.6 percentage points (from 1.5% per year to 0.9%). Because manufacturing accounts for about 22% of non-farm business, this implies a 2 percentage point slowdown in the non-manufacturing sector.
 
If the data are right, one might infer, as did Baumol many years ago, that productivity improvements in services are harder to achieve than in goods producing industries. If so, the shift of the economy toward a larger share of services implies a reduction in the national rate of productivity improvement."
 
With regard to research and development there is little evidence that the volume of R&D has increased just because of the specialisation that outsourcing results in. And finally the last of the above begs the question of the source of the income increases needed to stimulate the demand for services, which in turn simulate the demand for various manufactures.
 
Thus, all told, the argument that the service sector has become a major driving force for economic growth is suspect even in the context of the developed industrial countries, where the expansion is in the area of finance, insurance, real estate and business services. In developing countries like India, where the growth of government "services", particularly public administration and defence, dominates the growth of services many of these benefits are not even potentially available. Any attempt to justify the slow pace of output and productivity growth in the commodity producing sectors based on tenuous arguments regarding the benefits of the service economy in the West merely provides an apology for an economic growth process that liberalisation has failed to invigorate.