Letter: Economy needs emphasis on goods not services

Sir: Hamish McRae ('Britain's cause best served by services', 8 July) tells readers that they might find it hard to believe that Britain earns more from the export of services than from exports of goods. So they should do, because it is not true.

He achieves his sleight of hand only by including within services the much larger sum for earnings from overseas investments. The official statistics differentiate quite clearly between the two, and show that services exports are only 30 per cent of trade in goods.

Overseas earnings are helpful in offsetting part of the current account deficit, but they do not produce any jobs or income here. And they have nothing to do with superior UK competitiveness; they fluctuate widely, mainly in response to movements in exchange rates. What they do have something to do with is the huge flow of capital out of the country.

Given the size of the service sector - more than two thirds of total economic activity, and proportionately larger than in any other major economy - it is hardly surprising that we do relatively well in export markets. But Mr McRae is wrong to say that we are at the top of the league table. It is France, with a considerably smaller services sector, that is number one both in services exports and in the trade balance in this sector.

Claims about the dynamism of the service sector are largely untested, in part because so many markets remain protected. The Bank of England has already said this about the financial services sector on which so many assumptions rest.

Such evidence as there is is hardly encouraging; the balance of trade in services has fallen, from 2.5 per cent of GDP in 1985 to 1.25 per cent in 1991. And it comes nowhere near to making up for the deficit in manufactured goods. It is in this sector of the economy that we ought to put our efforts.

Yours sincerely,

CHRIS SAVAGE

London, SE10