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Economic Monthly Report

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Services: the great reform

Thu, Nov 19 2009, 11:01 GMT
by La Caixa Economic Research Dept.

La Caixa

The hullaballoo caused by indicators and news on the economic crisis prevents us from hearing a murmur that is faint but will nonetheless play a vital role in how the economy evolves over the next few years. This murmur is caused by the reform of services, a sector that contains around two thirds of the value added of developed economies. At the end of 2006, and after a long, complex negotiation, the European Parliament and the Council passed the Services or Bolkestein Directive, named after the EU commissioner who promoted it, which establishes a general legal framework to facilitate the exercise of the freedom of establishment for service providers and the free movement of services, while maintaining a high quality of services.

However, transposing this Directive into Spanish law is turning out to be a complicated task. In March this year, the Spanish government passed a bill on general concepts, known as the «Umbrella Act»; in June, it passed a package of reforms of a specific nature, known as the «Omnibus Act». In July, it also passed a specific bill on the regulation of retail trade.

Why so complicated? Firstly, the aim was to comply with one of the precepts established when founding the European community at the end of the 1950s: thefree movement of services. In some EU countries there are numerous barriers to the free establishment of non-national professionals, and it is a similar situation with firms, in spite of the progress made. But the latest reason for launching the great reform proposed by the Services Directive is the patent delay of most EU countries in developing the tertiary sector.

In fact, in the last fifteen years an evident gap has opened up in growth in sector productivity between countries with a more liberalized legislation, such as the United States, United Kingdom and some small European countries, and those with greater regulation, such as most of continental Europe. Empirical evidence reveals that different sector regulations are the cause of this divergence. It is not a question of more or less regulation but of having rules that allow and promote free competition, innovation, quality and access for new firms. It is not a question of eliminating regulations justified from an environmental or social perspective but to get rid of restrictions that go beyond the intended purpose. It is also a question of placing public administration at the service of economic activity, promoting «points of single contact» and e-government.

It is estimated that the scope of the Services Directive will affect more than 40% of the added value of the Spanish economy. It does not apply to those sectors for which there is already a specific EU regulation, such as telecommunications, transport and financial services (although the regulations for these sectors are naturally also being revised), as well as certain activities, such as health or social services. But the nature of the tertiary sector means that improvements in its productivity spread throughout the economy, both towards the industrial sector, a great consumer of services, as well as among the different activities of the services sector itself. Improving services means a more efficient and productive and, therefore, more prosperous economy with higher living standards. This is precisely the reward we should expect from the great reform.

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Published on  Thu, Nov 19 2009, 11:01 GMT