Services are the driving force in OECD economies, accounting for at least 70% of GNP in many countries. However, their potential contribution is hampered by government policies that were designed for manufacturing industries. This report shows that policies can be adapted to stimulate innovation and boost productivity in service sectors, with economy-wide benefits for employment and growth. Crucial in this regard are policies aimed at promoting the development of human capital/resources and stimulating competition in services within and between countries. Further regulatory reform is essential to achieve these goals. Governments must explore ways to strengthen the interface between innovative services and traditional industry sectors.