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Productivity, Innovation and Knowledge in Services

New Economic and Socio-Economic Approaches

Edited by Jean Gadrey and Faïz Gallouj

Written by some of the most distinguished authors in the field, this book elucidates the critical and complex relationships between services, production and innovation. The authors discuss the limitations of current theories to explain service productivity and innovation, and call for a conceptual re-working of the ways in which these are measured. They also highlight the important role of knowledge in the production system and in doing so make an important contribution to a key debate which has emerged in the social sciences in recent years.
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Chapter 7: Services as Leaders and the Leader of the Services

William J. Baumol


William J. Baumol* [A]lthough international trade widens the market attainable by a successful innovator and thus raises the incentive to do research, it also raises the cost of research by making labor more productive in manufacturing, with effects that tend to offset each other. (Aghion and Howitt, 1998, p. 5) 1. R&D AS SERVICE: PRIMUS INTER PARES Not so long ago, particularly in economic theory, the services were regarded as a backwater of the economy. Agriculture was king, and manufacturing was next in the line of succession. In the famous zigzag graph of the Tableau Économique, services do not even appear, and as late as Das Kapital they continue to be assigned a distinctly minor position. In today’s industrial world this has changed dramatically. In the USA, for example, services account for nearly three-quarters of total employment. Services, most of which were formerly difficult to transport, are increasingly exported. Indeed, one of them, entertainment, in the form of movies and television programmes is one of my country’s leading exports, to the distress of chauvinists in the importing countries. At the same time, the USA increasingly imports a variety of technician services from remote places such as India. All signs point to the services’ very substantial and growing significance for the economy. But there is one service that, from the point of view of the state of the economy and its future prospects, stands ahead of all the others. That service is research and development, which has so critical...

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