Pay equal attention to production and services In Theory

Many lessons can be drawn from the global financial crisis. However, the consecutive developments uncovered changes in basic structures of some economies that took place in the past three decades.

Among these is the adoption of some economic theories which emerged in the 1980s that focussed on creating wealth basically from the service sector. This theory was adopted in Britain during the term of Prime Minister Margaret Thatcher and thereafter.

Despite the vital role of the service sector and its positive impact on economic growth, it would not be a substitute for the production sector, the key driving force of economic development.

At the end of 1970s, the production sector represented approximately two thirds of the British economy, while the service sector constituted the remaining third. Comparatively, during the past five years, it kept lagging behind the economies of other countries, especially the German and Chinese economies.

However, the situation in Britain turned upside-down in the middle of this decade when the service sector made up two-thirds of the British economy compared to the production sector which constituted only one third because of economic policies adopted by successive British governments.

As a result, the British economy has been affected by the global financial crisis tremendously and rapidly. This is simply because the financial sector, is the worst and most rapidly hit in the global downturn.

And this is why we saw the magnitude of decline in the real estate and banking sectors. This coincided with an increase in the number of unemployed people in Britain compared to other countries.

Unlike the British economy, the Singaporean economy is balanced in its production and service sectors, approximately 50 per cent each.

This gave Singapore room for flexibility to deal with the repercussions of the world economic crisis.

Although Singapore is a key financial and trade hub in East Asia, its economy is the least affected by the global financial meltdown.

Although global changes in the field of high technology, information and knowledge have given a strong boost to the development of the service sector, the production sector remains the cornerstone of any modern economy.

For instance, the automobile industry, which is currently passing through a sharp crisis, has increasingly depended on robotic work and computers in its production operations. Yet, its basic components still constitute the backbone of this industry.

Modern economies are no exception. Although they are increasingly depending on information technology and knowledge, the production foundations of these economies still exist in industry, agriculture and the extraction of natural resources, including oil, gas and other primary materials.

Consequently, achieving a balanced, stable and lasting development would be impossible without creating a balance between service and production components of economies. And this is one of the most important lessons to be drawn from the global financial crisis which is still being felt by many countries in one way or the other.

Those who are concerned about the global financial crisis should monitor the situation and learn from the meltdown. However, many countries have formed specialised teams to study the reasons for the crisis and to come out with practical solutions.

Others must follow suit and set up teams to find out its causes because overcoming the consequences of the crisis successfully will allow them to benefit from opportunities that can be utilised to achieve a balanced and sustainable development in future.

Dr Mohammad Al Asoomi is a UAE economic expert