The Productivity Commission's inquiry on the services sector: topics for in-depth analysis

In late July, I emailed to inform you that the Productivity Commission had released the first interim report for its inquiry into Boosting Productivity in the Services Sector (www.productivity.govt.nz/inquiry-content/services-sector).

In that email, I set out the three topics that the Commission was considering for more in-depth analysis in the next stage of this inquiry:

Addressing barriers to the successful application of ICTs – In some countries the innovative use of information and communication technologies in services has been a key source of higher productivity performance. What barriers exist in New Zealand to extracting full value from ICT investments in service industries and what government can do to reduce those barriers? Issues include encouraging ICT-enabled business innovation, investing in complementary skills and capabilities, and ensuring that regulations do not unnecessarily inhibit the uptake and use of ICTs.

Stimulating services competition – Several attributes typical of services markets can limit competition. Two are high search costs and high switching costs. The Commission aims to identify services markets with those attributes and where government action could empower consumers and stimulate competition.

Improving occupational licensing in the services sector – Occupational licensing is common across the services sector. It helps to mitigate the problems that can arise as a result of the complexity and information asymmetries (ie where the seller knows more than the buyer about the quality of the service) that are inherent in many service transactions. However, the benefits of occupational licensing need to be clearly articulated, demonstrated, and balanced against the costs. For example applying entry restrictions to certain professions can reduce competition, creating adverse outcomes for customers.

After conducting further engagement and research, and considering the views of submitters, the Commission has decided to focus on the first two topics (addressing barriers to the successful application of ICTs and stimulating services competition). A second interim report will be published in January 2014, and include the Commission’s draft analysis, findings and recommendations on these two topics.

While there does appear to be scope to lift productivity through improvements to New Zealand’s occupational licensing system, we felt that this topic was better suited to a dedicated inquiry, and therefore decided against pursuing it further in this context.

We are interested in hearing your views on the ICT and competition topics and receiving any relevant information to help inform the inquiry. We have already received a number of submissions which helped our decision regarding the scope of the next stage of this inquiry. Further submissions that focus on the two topics outlined above may be made online at: http://www.productivity.govt.nz/make-a-submission; by e-mail: info@productivity.govt.nz; or sent to our physical address (PO Box 8036, Wellington 6143). If you would like to discuss either of these topic areas, please contact Geoff Lewis (04) 903 5157 or Geoff.Lewis@productivity.govt.nz

ENDS

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