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Series on Technology and Social Priorities NATIONAL ACADEMY OF ENGINEERING Technology In Services. . Policies for Growth' lodes and Employment Bruce R. Guile ant! James Brian Quinn Editors NATIONAL ACADEMY PRESS Washington, D.C. 1988

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National Academy Press ~ 2101 Constitution Avenue, NW ~ Washington, DC 20418 NOTICE: The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization for outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievement of engineers. Dr. Robert M. White is president of the National Academy of Engineering. Funds for the National Academy of Engineering's Symposium Series on Technology and Social Priorities were provided by the Andrew W. Mellon Foundation, Carnegie Corporation of New York, and the Academy's Technology Agenda Program. This publication has been reviewed by a group other than the authors according to procedures approved by a Report Review Committee. The views expressed in this volume are those of the authors and are not presented as the views of the Mellon Foundation, Carnegie Corporation, or the National Academy of Engineering. Library of Congress Cataloging-in-Publication Data Technology in services: policies for growth, trade, and employment / Bruce R. Guile and James Brian Quinn, editors. p. cm.- (Series on technology and social priorities) At head of title: National Academy of Engineering. Includes material presented at an NAE symposium entitled "Technology in Services: the Next Economy" held in Washington, DC, on January 28 and 29, 1988. Bibliography: p. Includes index. ISBN 0-309-03895-2.ISBN 0-309-03887-1 (pbk.) 1. Service industries United States Technological innovations- Congresses. I. Guile, Bruce R. II. Quinn, James Brian, 1928- III. National Academy of Engineering. HD9981.5.T43 1988 338.4'561'000973 dcl9 88-37920 CIP Copyright ~ 1988 by the National Academy of Sciences No part of this book may be reproduced by any mechanical, photographic, or electronic process, or in the form of a phonographic recording, nor may it be stored in a retrieval system, transmitted, or otherwise copied for public or private use, without written permission from the publisher, except for the purposes of official use by the United States Government. Printed in the United States of America

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Preface It is common to structure the debate about U.S. competitiveness in a global economy principally in terms of the productivity growth and trade perfor- mance of U.S. manufacturing industries. Although it is true that manufac- turing industries are a crucial element of our national economy, it is important to recognize that the U.S. economy consists of interdependent productive systems, including manufacturing, services, agriculture, mining, and natural resources. Although each of these sectors exhibits considerable internal di- versity, each sector is dependent on all other sectors for the level of its productivity. Services industries, in particular, play a central role in this system. Services now account for the largest part of U.S. gross national product and of employment, and industries such as communications, finance, transportation, and medicine are technologically dynamic and absolutely cen- tral elements of the U.S. and global economies. They are the heart and circulatory system of the current and next global economy. This volume and its companion volume, Managing Innovation: Casesfrom the Services Industries, explore the role, importance, and technological dy- namism of services industries. Managing Innovation focuses on the appli- cation of technologies in services businesses. This volume addresses the way in which technology applied in services business has changed and continues to affect the structure of production. In particular, the volume focuses on economic structural change, issues of services productivity, and trade in services in a way that should be helpful to policymakers. Perhaps the most important lesson that the volume offers is that policymakers concerned with the performance of the U.S. economy need to accept the central role of services industries. . . .

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. 1V PREFACE Much of the material in this volume was presented at an NAE symposium entitled "Technology in Services: The Next Economy" held in Washington, D.C., on January 28 and 29, 1988. I would like to thank James Brian Quinn, who chaired the activity on technology in services, and Bruce R. Guile, the principal staff officer for the project, for their efforts in organizing the sym- posium and moving quickly to get this material published. Also, on behalf of the National Academy of Engineering, I would like to thank the symposium advisory committee (listed on p. 235) and the authors who participated in the symposium for their time and energy. Special thanks are due to Penny Cushman Paquette, research associate at the Amos Tuck School of Business at Dartmouth, and to a number of individuals who worked on the project or publication including Jesse H. Ausubel, H. Dale Langford, Hedy E. Sla- dovich, Michele M. Rivard, and Bette R. Janson, National Academy of Engineering, and Sally Fields, National Academy Press. ROBERT M. WHITE President National Academy of Engineering