The Pivotal Role of Services in Transitional Economies: Lessons from the West

A critical lesson to be learned from developed market economies is that strategic services are at the core of an efficiently operating market system. Paradoxically, in transitional economies striving to create a private market structure, services tend to be the least developed, least appreciated, and unbalanced sector. This condition derives from the heritage of socialist countries which is largely one of supplanting these essential services functions with a command structure in which development of independent service industries lags that of manufacturing and agriculture. Improving our understanding of the significance, composition, and evolution of service industries in the development process of market economies is an important contribution to the current economic transition process. This extensive experience serves to illustrate not only the pivotal role of services in facilitating growth and development, but also the dynamic and flexible public policy toward services. Western service development, therefore, is used as a basis for projecting current and future needs of service industries in transitional economies. There is strong evidence that without efficient service industries, other sectors of the economy stagnate, a situation which must be strenuously avoided in the fragile political environment of most transitional economies