Tag Archives: Service exports

The Foundation of the U.S. Knowledge-Based Economy

Pool of Knowledge by Ian MuttooIn a recent academic journal article co-authored with Godwin Ariguzo and Angappa Gunasekaran, the ascension of the U.S. economy from service-based to knowledge-based is investigated and a foundational model offered. According to official U.S. sources reporting gross domestic product (GDP) data, the U.S. became a service-based economy (majority of Gross Domestic Product made up by services) at the end of 1958, beginning of 1959 ($211.2 billion GDP services, $200 billion GDP goods), much earlier than previously proposed. Today, services make up 70 percent of total U.S. GDP ($9.8 trillion out of $14.07 trillion).

Following the logic of total factor productivity, the argument can be made that the U.S. officially became a knowledge-based economy, simply measured as the point at which a majority of total service exports are made up of knowledge-based services, at the end of 1997, beginning of 1998. By the end of 1997, 50.74 percent of all U.S. service exports consisted of knowledge-based services. Today, knowledge-based service exports make up 64.6 percent of total U.S. service exports, accounting for $390.95 billion of $604.90 billion in annual service exports for 2011. The diffusion of the internet is thought to be the proximate trigger for the transition of the U.S. to a quaternary stage economy.

We attribute the establishment of the U.S. knowledge-based economy, based on the best available extent research, to the synergistic interaction of five components. The five components consist of a foundation of information and communications technology, plus open innovation, education, knowledge management and creativity. A visual representation of the foundational structure on which the U.S. knowledge-based economy is built is offered below.

Structural Components of the Knowledge-Based Economy

The proposed model is not exhaustive. Certainly other factors contribute to the ascension of the U.S. economy from primarily service-based to knowledge-based. However, while the five structural components offered above are well known and well researched individually, ours is one of the first manuscripts to suggest that the synergistic interaction of the five has provided the U.S. knowledge-based economy with its competitive advantage in the global market.

How long we will enjoy this competitive advantage remains to be seen and depends, in part, on the fate of our system of higher education and its ability to generate graduates with the knowledge and skills required to foster innovation.

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Growth of the Knowledge-Based Economy: U.S. Service Exports January – June 2010

Mysterious GlobeEarlier this week, the U.S. Department of Commerce Bureau of Economic Analysis released its July update of international trade activity including revised trade figures for the first half of the year (the January to June period). We are, as was pointed out in the Tipping Point blog on this site, a service-based economy that is transitioning into a knowledge-based economy. A majority of our manufacturing has moved off-shore. Thus, it should be no surprise that we have an overall trade deficit in manufactured goods. Our total exports for 2009 (goods and services) exceeded $1.57 trillion with imports of just under $1.95 trillion. The result was an overall trade deficit of roughly $375 billion, consisting of a $506.944 billion deficit in goods trade offset by a $132.037 billion surplus in service trade.

The focus of today’s post is the contribution of service exports to the U.S. economy. The U.S. Department of Commerce tracks seven categories when determining the level of our economy’s service trade: travel and tourism (inbound visitors/vacationers), passenger fares, other transportation (shipping, etc.), royalties and licensing, other private services, transportation related to military activity and government miscellaneous trade in services. The 2009 percent of contribution for each of the activities, presented in the pie chart below, ranges from 0.27 (gov misc) to 47.45 (other private). The largest three categories in descending order are other private (47.45), travel and tourism (18.70) and royalties and licensing (17.88). The latter category includes fees paid back to the U.S. related to the operation of U.S.-based franchises overseas.

2009 U.S. Service Exports

Of specific interest to those of us participating in or studying the export of services is the category of “other private” which consists mainly of professional services. Professional services include businesses such as accounting and financial services, advertising and public relations, architecture, business consulting and development, computer software, copywriting, education and education services, engineering, legal services, medical and health care services, recruitment services, research firms, research and development services, software engineers and web designers. These same businesses make up the bulk of the new knowledge-based economy.

Service offerings from those in the knowledge-based economy are exportable to the extent that the production and consumption of the services are separable. That is, can production and consumption of the service be separated? If so, the opportunity for export exists. For example, a face-to-face visit to a primary care physician is not separable. But having a physician read the output of an imaging process and report back the results is separable and exportable.

For the past three years, the January to June service export figures have reflected the status of the U.S. economy: volatile. A graph of comparing the first six months of 2008, 2009 and 2010 is presented below. Overall, in terms of dollar value, our 2010 half-year results are nearly back to the 2008 level. The half-year trade surplus in services exceeds $72 billion while the deficit in goods is over $320 billion.

Jan June Service ExportsThe chart for professional services (other private) presents a different picture. The growth in professional service exports has been less volatile and reflects the positive contribution and growth in importance of the knowledge-based economy to our international trade profile. As our knowledge-based economic activities increase, it is expected that the export of knowledge-based services will increase as well.

Professional Service ExportsOpportunities for exporting knowledge-based services exist and represent a growth area for marketers. With more than 95 percent of the global population residing outside of the U.S., once can only imagine the growth possible in this segment of the economy. Although private services have consistently contributed between 44 to 47 percent of total service exports for the past three years, I predict growth to a contribution level of 60 percent or more of total service exports by the end of the next decade. Clearly apparent for those of us engaged in the knowledge-based economy is the importance of acting locally and thinking globally.

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