Ease Global Trade in Services to Boost Our Economic Prospects : Daily Current Affairs

Relevance: GS-3: Effects of Liberalization on the Economy

Key Phrases: Food- and fuel-price inflation, Recession, Labour productivity, De-globalisation, New communications technologies, telemedicine, Data and privacy, bilateral agreements, pandemic.

Why in News?

  • Economic commentaries nowadays are typically about inflation or recession. As matters stand, there appear to be worrisome headwinds to growth.

Headwinds to growth:

  • Labour productivity:
    • As most advanced-economy populations age, their labour-force growth is slowing, so there will need to be greater productivity per worker to compensate.
    • But with investment in physical capital muted, labour productivity is unlikely to grow rapidly without significant innovation, either in work processes or products.
    • While it initially appeared that increased telecommuting during the pandemic would enhance productivity (by saving time and avoiding the duplication of capital at home and in the office), many firms are rediscovering the value of having workers in the office at least for some of the time.
  • Effects of pandemic and after events:
    • Another headwind comes from poorer countries, where lower-middle-class households have suffered tremendously through the pandemic and now from food- and fuel-price inflation.
    • Many children have missed more than two years of school and are likely to drop out, permanently impairing their earning potential and the skill-base of the labour force more broadly.
    • Meanwhile, de-globalisation—through re-shoring, near-shoring, and friend-shoring—threatens to make it even more difficult for them to get good jobs.
    • In the longer run, the weakness of demand in these countries will spill over to the developed world.

What if the world does not find new sources of growth?

  • It will fall back into the pre-pandemic malaise of secular stagnation.
  • But this time, the situation could be worse, as most countries will have limited fiscal capacity to stimulate the economy, and because interest rates will not fall back quickly to their pre-pandemic lows.

Ease of trade in service to unleash the growth:

  • While trade in goods seems to have reached its limits before the pandemic, trade in services still has not.
  • If countries can agree to remove various unnecessary barriers, new communications technologies would allow many services to be offered at a distance.
  • If a consultant working from home in Chicago can cater to a client in Austin, Texas, so can a consultant from Bangkok, Thailand.
  • Consultants in other countries might need to have front offices in the US to assure quality or redress complaints.
  • But the overall volume of work that could be undertaken by global consulting companies would grow substantially, and at a significantly lower cost, if their services could be offered across borders.
  • Similarly, telemedicine has become increasingly feasible not just in psychotherapy and radiology but also in routine medical diagnoses.
  • Again, global organizations could help reduce informational and reputational barriers, allowing for a general practitioner in India to conduct routine medical exams for patients in Detroit—referring them out to specialists there when needed.

Barriers to such trade in services:

  • Certification barrier:
    • The authorities in advanced economies do not allow general practitioners in India to offer medical services without proper certification.
    • But the problem is that most countries’ certification procedures are unnecessarily cumbersome.
    • The problem can be solved if the world could agree on a common certification process for the work done by general practitioners.
    • A country with unusual ailments could tack on an addendum to the exam for those who want to practice there, but only if necessary.
  • National health insurance schemes:
    • The national health-insurance schemes typically do not pay for services from outside the country.
    • But if the certification challenge has been met, there is no good reason why they shouldn’t, given the cost savings that would result.
  • Data and privacy:
    • No patient will be willing to share personal details or test results if she cannot be sure that the data will be kept confidential and safe from misuse.
    • In times of geopolitical tension and economic blackmail, meeting those conditions requires not just a commitment from the service provider but also assurances from the provider’s government that it will not violate patient privacy.
    • Democracies that can enact strong privacy laws (including limits on what their government can see) will be better positioned to capitalise on this trade than autocracies, where there are few government checks.

What if barriers are reduced?

  • It would be much faster and more affordable for people to reach a doctor if routine matters were outsourced.
  • Developed countries would benefit, but so would developing economies, because the incomes that their doctors generate would be used to employ more workers locally.
  • Moreover, these doctors would be less likely to emigrate, and they could use the same telemedicine technologies to provide services in remote parts of their own countries.
  • At the same time, specialists in advanced economies would be able to offer more of their services to patients in developing countries without them having to travel abroad.
  • Also, if barriers are lowered elsewhere, they will be able to serve larger markets with specialised high value-added services.
  • For this reason, an agreement on reducing barriers to trade in services among a broad set of countries will have a greater chance of success than bilateral agreements.
  • Moreover, many others in advanced economies, including manufacturing workers who have borne the brunt of global competition, will benefit from cheaper basic services.
  • As economic inequality both within and across countries decreases, global demand should also strengthen.


  • The post-pandemic, post-inflation economic outlook is not all doom and gloom. But much work needs to be done to dismantle barriers and leverage technologies.

Source: Live-Mint

Mains Question:

Q. How can easing the global trade in services boost the economic prospects for the world? Discuss.(250 words).