Boosting productivity has been considered as a major economic challenge for the policy makers and the private sector alike. Given that the country suffers certainly on the productivity front, when compared with host of other countries, multiple initiatives have been taken to address the issue and to boost up the productivity.

These initiatives include National Productivity Organis-ation (NPO), SMEDA, Competitiveness Support Fund (CSF), Business Support Fund (BSF) and Agri-Business Support Fund (ASF) to name a few.

Almost all of these initiatives stay focused on the industry and agriculture sectors and none takes up the ever expanding service sector in a strategic and effective manner. Following article discusses the importance of boosting up productivity, particularly in the service sector.

Productivity is a complex issue and evades clear definition or even delimitation. In simplest terms, this is a measure of how efficiently a firm or an individual or an economy is able to utilise its resources and create maximum possible results. In the case of industry and agriculture, this still seems a possible task. In the case of manufacturing industry, inputs such as capital and labour are easy to determine and outputs such as price are also measurable. In the agriculture sector too, inputs (seeds, water, labour etc.) and outputs (crops, vegetables etc.) are very clearly determined and hence productivity can be measured.

In the services sector, inputs as well as outputs are multifarious in nature and thus productivity measurement becomes more difficult. The quality of service from a banking transaction can represent itself in much more different ways than quality of a product carved out on a machine or quality of a cotton bale. This diversity of possibilities makes measurement a challenge.

A relatively less contentious notion of productivity is labour productivity, which takes care of the education and training which the labour has undergone as inputs and the performance of the labour as output. Economists would simply take into account the average number of schooling of workers to reflect their education level and extract output data from the firm for labour.

A very important source of labour productivity is the number of labour or labour hours put in an effort. In an economy like Pakistan, when service sector grows, it absorbs surplus labour from the agriculture sector. As the output of the agriculture sector remains almost at the same level despite a decrease in labour, its productivity rises, as same output is now being achieved by lesser input.

The surplus labour from the agriculture usually joins the service sector as immediate avenue of survival. The industry is not ready to absorb surplus labour because of seasonal fluctuations and labour laws complications. As a result, the service sector productivity falls down due to a sheer increase in the labour input. As most of this new labour is unskilled, no productivity related gains are expected as no value addition is made. Thus inter-sectoral labour mobility between agriculture and service sector has negative bearing for labour productivity.

Beyond labour productivity, a somewhat complex issue is that of total factor productivity (TFP). Studies conducted on TFP (Pasha [2002], Sabir & Ahmed [2003]) suggest that in the services, the contribution of TFP remained negative or negligible during 1973-2002 but increased to 31 per cent during 2002-06. The stagnation and fall in TFP is observed primarily in the services sector and to some extent in the manufacturing sectors in the 90’s. These studies have also compared TFP growth rates across various sub-sectors of the services and vis-à-vis overall TFP growth rates in manufacturing sectors.

Pakistani economists have identified various factors that help explain changes in TFP. These include: human capital, use of capital, development expenditures and remittance. Human capital and use of capital have a direct effect on the productivity and TFP growth in the services. However development expenditures such as infrastructure related expenditures have indirect effect. As the country develops more roads, the transportation sub-sector gets momentum, for example, transporters become able to increase the movements of goods across various destinations quickly and cost effectively resulting thereby an increase in their efficiency level.

The effect of remittance also has an indirect effect on services expansion by fuelling more demand through an increased income level. It has been shown that as income level grows the citizens tend to consume more services like housing, leisure, banking, tourism etc. As remittances have swelled to quite unprecedented levels in recent years, we can explain the rise in the demand for services on its basis. The existing infrastructure, say housing, then has to produce more to meet the increasing demand of services thereby causing an increase in its productivity level as well.

It is clear that remittances cannot be made a policy tool as they are not controllable by the policy makers. Similarly, the escalating budget deficit has also made it virtually impossible to increase the public sector expenditures again in the short-run. Therefore, we need to present certain policy options given the above constraints to boost up productivity in the service sector. As a matter of fact, the following represent some of the main conclusions drawn by the meeting of experts from ten different Asian countries:

* Stock of IT capital should be enhanced, especially by way of increasing investment in the software instead of hard ware. This can be ensured by expanding the scope of IT training and linking promotion with the proper use of IT.

* Capital deepening of new technology should be ensured to speed up the process of technical change. This can be ensured by transfer of skills and knowledge at the firm level. * Inward FDI should be encouraged across the service sector instead of narrowing it down to banking and telecom sectors. Available and lucrative options are wholesale and retail trade as well as transport and housing sector.

* As entrepreneurs drive the movement of innovation and productivity, the state as well as the private sector should support the rise of new entrepreneurs, both by financing and facilitating. In this regards, we need a value-driven venture capital movement instead of cash flow oriented bankers. * Greater regulatory reform is needed to boost up productivity in the service sector on the pattern of successful examples of telecom sector. Similar best practices should be introduced in: electricity generation and public transport systems on priority basis.