Yes, productivity in services increases at a slower rate than productivity in manufacturing. Thus, inevitably, given that average wages are set by average productivity, services become more expensive compared to manufactures.
I\’ve made this point around here a number of times.
Ritchie then says that, as a result of Baumol\’s analysis, services should be run by the State and we shouldn\’t hope or aim for any further productivity increases in the.
Err, well, yes, except that ignores the other half of Baumol\’s life work, which has been showing how market systems are better than planned or State systems at improving productivity. Yes, even in services.
Or, as I would put it but Ritchie won\’t (\’coz \’e\’s ignorant, see?) the very proof that Baumol\’s Cost Disease provides us with is that services must be opened up to competition.