Services: Performance of the Future

Services have outperformed the economic leverage of manufacturing. The growth not only changes the structure and composition of economic activities in both the United States and the world but also leads to a more integrated future. Both legislators and negotiators must pay more attention to the service components of international exchanges if they are to achieve long-term change.

Worldwide, services contributed more than 60 percent of total value added in most major economies in 2017. China and India were the exceptions. For world trade, the value of services exports grew 5.1 percent per year between 2006 and 2016 with a rising tendency. 

U.S. services now account for over two-thirds of GDP. The U.S. companies achieved more than $2.2 trillion in recorded international services sales In trade, services deliver a large surplus. Four out of five new private-sector jobs in the U.S. are created by services. In 2015, the Peterson Institute estimated that the elimination of global barriers to trade in services would increase the U.S. service exports by $300 billion and create 3 million jobs when fully implemented.

There is more to services than meets the eye. Services come in different categories and at different, often opaque international levels. Examples are varied performances in fields such as telecommunications, financial services, computer services, retail distribution, environmental services, education and express delivery.

Manufacturing strength increasingly comes from strong and tailor-made services which enable manufacturing to be more effective and competitive. Current cars are service driven and updated with sophisticated navigation systems. TVs have to connect to streams in order to be smart. iPhone sales rely on Apple’s support services, including troubleshooting and retailing. Even a traditional aerospace exporter like Boeing uses cloud services to manage inventory, optimize maintenance, and minimize the costs of system malfunctions.

Service performance at high has typically been greatly underestimated due to insufficient measurement insight. For example, if a person travels abroad for medical tourism, such value generating activity is hardly recorded. A local session of advice with a financial expert may create high value. However, poor valuation and insufficient recordation lead to only little understanding of current account impact.

Services and manufacturing are not at opposite ends of a scale. Rather, services strengthen the performance of manufacturing and are enhanced by the application of technology. Through its investment in the services sector, China has greatly improved the capabilities of its logistics, transport and infrastructure conditions. China can now demonstrably use its newly generated logistics expertise to outperform its competitors. For example, due to its service investments, the transport time of persons and goods via the new Hong Kong-Zhuhai-Macao Bridge has diminished from 4 hours to 30 minutes since the end of 2018. What a time wharp, yielding clear insights into shifting capabilities. Many will be the companies and countries which sign up to exchange raw materials for infrastructure. 

The integration between services and manufacturing will relegate entire supply chain conditions, which have been laboriously created, to a mere blur. Today, most apparel manufacturers own retail stores. Many store brands like Target build up their own manufacturing, controls, and retail distribution. Apple manufactures its own chips, fingerprint sensors, and other custom components. Concurrently, its retail stores flourish and allow it to control its direct distribution and sale to customers.

Services growth promotes new types of manufacturing. Printing technology gives new meaning to scale economies. Services, combined with flexibility and adjustment bring opportunity and vitality to the global economy. In terms of innovation and employment, strong services are no less important for a country than a strong manufacturing sector. U.S. legislators and negotiators must place growing emphasis on services and their links, both direct and indirect, with manufacturing. A more integrated economy will provide all with a significant payoff.

Professor Czinkota (czinkotm@georgetown.edu) teaches international marketing and trade at Georgetown University and the University of Kent in Canterbury. His latest book is ‘In Search for the Soul of International Business’ 2019, Businessexpertpress.com

International Business & Roman history

Czinkota on the International Business facts behind Roman history. Few marches of legions and warfare , but much incentive for immense growth. A Good domestic-oriented trade policy will build the future.

“AOC, Bernie Sanders confuse inequality with poverty” by Jerry Haar

Published in The Hill (April 27th,2019),”AOC, Bernie Sanders confuse inequality with poverty”

AOC, Bernie Sanders confuse inequality with poverty

Jerry Haar

“Socialism,” anathema to many but a path worth exploring to others, has been packaged nicely as “democratic socialism” (a hilarious oxymoron) by millionaire author Sen. Bernie Sanders (I-Vt.) and proselytized by neophyte Rep. Alexandria Ocasio-Cortez (D-N.Y.) who, like the president, invents statistics extemporaneously.

But in all fairness, neither is a socialist in the true sense of the term, meaning a belief in government ownership of production and the abolition of private property.

Since more than half of Democrats, millennials and minorities hold socialism in higher regard than capitalism, one wonders if these groups truly understand what life is like, say, for the average Cuban. On the other hand, Americans as whole, according to Gallup, prefer capitalism 56 percent to 37 percent.

One can surmise that those who embrace or warm to socialism in reality wish to see a larger, more activist role of government, such as FDR’s New Deal and Lyndon Johnson’s “Great Society,” rather than adherence to socialist economics.

Whatever the case, the progressive wing of the Democrat Party will push its base further leftward; and the one socioeconomic issue they will try to bring along centrist Democrats, independents and even some moderate Republicans on is inequality.

Yet, inequality matters far less than poverty. Culling through the economic literature, one finds little evidence that economic inequality increases poverty; and while redistribution may reduce overall inequality, it is less helpful in lifting people out of poverty.

Economist Branko Milanovic notes that global income inequality fell between 1988 and 2008 for the first time since the Industrial Revolution.

Admittedly, inequality statistics in general are flawed, since they provide only a snapshot of income or wealth distribution at a point in time. Yet, that does not deter celebrity economists of the left, like France’s Thomas Piketty and Joseph Stiglitz to falsely claim that income inequality in the U.S. is at a record high.

They erroneously take as a measure “market income,” but this measure does not take into account taxes or transfer payments or changes in household size or composition.

Their solution? Raise taxes on the rich, despite as noted by French economist Frédéric Bastiat in the early 19th century, it is a disincentive to working harder and taking risks, resulting in lost savings and investment that could generate employment and tax revenue from output and productivity.

Explain that to AOC, whose tax proposal would raise top marginal rates to 70 percent to fight the war against inequality. Like her budget-busting Green New Deal, the massive increase in taxes would wreak havoc on economic growth, employment and capital formation in the U.S.  

Our Canadian neighbors would have to build a wall to keep out the hordes of Americans seeking to flee to a “tax haven” where the average rate is 26 percent.

What about poverty, then? 

Poverty is a serious problem, unquestionably; but it has declined over the last 50 years. The U.S. government has spent over $750 billion on major assistance programs for low-income Americans (including food stamps, Medicaid and housing assistance), none of which is included when calculating the poverty rate.

These safety-net programs helped reduce the number in poverty, especially African Americans, Hispanics, single mothers, and those without a high school diploma. The latest U.S. Census data reveal that poverty rates have declined in 13 of 25 of the most populous metro areas, including New York, Atlanta, Washington, Miami, Chicago and Los Angeles. 

Returning to the issue of inequality, Nobel laureate economist Sir Angus Deaton has found, countries with the greatest degree of inequality are also the countries in which there are significant disparities in opportunity.

Toward that end, the prudent course is not to raise taxes on the producers in society but to expand opportunities, reform occupational licensing and other regulatory barriers to entrepreneurship, reform criminal justice, provide apprentice training and re-training, and child care. 

Poverty alleviation — where we have made great strides — not inequality, should be of paramount importance.

Every semester I have at least one bleeding-heart student who rants about inequality. My response: “If you swap out your moped for a pre-owned Ford Taurus, why should you be concerned if I trade in my new Honda Accord next year for a C-class Mercedes-Benz?” (That usually works.)

Left-wing populism is as insidious as the right-wing variety. Expanding the economic pie, increasing opportunity and continuing to reduce poverty should by top public-policy priorities. Attacking inequality is a futile distraction.

Jerry Haar is a professor of international business at Florida International University and a Global Fellow at the Woodrow Wilson International Center for Scholars in Washington, D.C.

Global Interest Diverge

In this video Professor Czinkota speaks about the gradual divergence of global interests. No longer can one expect that a specific action always results in the same outcome in today’s International Business world. From creation to coordination,explains how people, firms and even countries should be grouped into four separate directions. Your comments are welcome. Let us grow together!