BRIDGING I TO A

Peter van de VenHead of National Accounts, OECD

IARIW-OECD Conference “W(h)ither the SNA” on the Future of National AccountsParis, April 16-17, 2015

An expression of love and admiration

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National Accounts She is beautiful,she is elegant,she is …

Introduction

• Looking back over a period of 30 years

• Main developments having a potential impact on the System of National Accounts:

– Input

– Throughput

– Output and user demands

• How to move forward?

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Looking back

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Looking back: a lot has changed!

• Timeliness and periodicity:– 1985: Only annual estimates, 6-7 months after the end of the

reference year

– 2015: Quarterly estimates have become dominant, released 30-90 days after the end of the reference quarter

• Scope of the system in practice:– 1985: Mainly focused on the production of goods and services,

with some marginal data on income and finance

– 2015: Full-fledged system of national accounts, including institutional sector accounts, up to and including balance sheets

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Looking back: a lot has changed!

• Compilation process:– 1985: A lot of manual interventions

– 2015: More and more automated, although manual interventions are still needed

• Administrative use of national accounts data:– 1985: ???

– 2015: Sometimes, one gets the feeling that it completely governs the life of a national accountant in the EU

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Main developments having a potential impact on the System of

National Accounts

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Present and future changes in input

• Continuing pressure on decreasing respondent burden– Less surveys, but then again …

– … how good are survey data actually?

• More use of administrative records– Public records are nowadays more and more available, increasing

knowledge on how to process them efficiently

– Much more granularity, more complete, and better defined (although not always fully consistent with NA-definitions)

• Big Data:– Internet scraping???

– Use of private records very promising, but how to get access to

them …

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Changes in throughput

• ICT-capabilities have changed tremendously, and will continue to improve

• Increasing possibilities to process vast amounts of data

• Much more attention for process design of statistics, potentially enabling to have more transparent linkages between macro-data and underlying micro-data

• Providing potential for flexibility to meet user demands and for efficiency gains

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Output and user demands

Changes in economic developments and related user demands:

•Changes related to the “economic core”:– Globalisation

– Knowledge economy

– From production to income and wealth

– Distribution of income, consumption and wealth

•Going beyond the core system– Well-being versus GDP

– Sustainability

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1. Globalisation

Significant share of domestic value added is generated by foreign affiliates:

Value Added of Foreign Affiliates – share of national total 2009 (ISIC B-N, ex K)

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10%

50%

40%

30%20%

1. Globalisation

• Continuing international fragmentation of production processes, and outsourcing more generally

• Allocation of value added and profits mainly driven by minimisation of global tax burden through:– Transfer pricing

– Channelling funds through SPEs

– Optimisation of recording economic ownership and use of IPPs

– Allocation of costs related to corporate services more generally

• Economic rationale, but it hampers analysis and policy from an economic substance point of view, certainly when it comes to national parts of MNEs

• Growing and quickly changing complexity of arrangements adds to complexity of compiling statistics

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1. Globalisation

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1. Globalisation

• Need to link various statistics on MNEs at individual level, also to support analysis

• Need for international exchange of (individual) data

• Need to distinguish foreign controlled enterprises from nationally operating enterprises, also in supply and use tables

• Need to link data on production process with data on income and finance => single statistical unit?

• Need to have additional analysis, e.g. OECD Trade in Value Added (TiVA), looking at Value Added content of trade flows, instead of analysing gross cross-border flows

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2. Knowledge economy

• Knowledge including human capital considered as the driving force of economic growth

• SNA made great progress in capturing knowledge capital:– SNA 1993: mineral exploration, software and databases,

entertainment, literary and artistic originals

– SNA 2008: research and development

• Should we make further steps?– “Information” more broadly

– Organisational capital

– Brands, trademarks, logos, domain names

– Human capital

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2. Knowledge economy

Why not further extend the asset boundary?•Further drifting away from business accounting standards => negative consequences for potential micro-macro linkage?

•Distinction between current and investment-type of expenditures requires highly subjective assumptions

•Fully integrating human capital into the SNA would provide a completely different picture of the economy, which users may find difficult to relate to

•Quick wins possible without changing the asset boundary, thus providing a basis for further analysis:

– Labour input by level of education

– More targeted classification of goods and services (e.g. education type of expenditures, expenditures on advertising, training, organisational changes, etc.)

•Would it add to analysing e.g. multifactor productivity?

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3. From production to income/wealth

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Attention for income and wealth issues has grown fast:

•Well-being perspective: differences between economic growth and real household disposable income

•Analysis of interaction between “non-financial” economy and the “financial” economy, e.g. impact of wealth changes (holding gains/losses) on consumption and growth

•Economic and financial crisis: analysis of risks and vulnerabilities related to interconnectedness, asset price volatilities, growing debt levels, etc. => G20 Data Gaps Initiative

3. From production to income/wealth

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• What can/should be done?– Compile and publish full-fledged institutional sector accounts, up

to and including balance sheets, on a quarterly basis

– Main gaps:

• Good and internationally comparable data on non-financial assets

• From-whom-to-whom information

– Some types of user demands, e.g. related to risk analysis, require very granular data

4. Distributional aspects

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“Every American should have above average income, and my Administration is going to see they get it.” (an American president on campaign trail)

4. Distributional aspects

• Sub-classifications per main sector in SNA 2008– Non-financial corporations: 11

– Financial corporations: 96

– General government: 15

– Households: 7

– NPISHs: 2

• More attention needed for people

• Need to integrate micro-data on households, to arrive at consistent distributional information– In supply and use tables: more details on labour input

– In sector accounts: more details on households (e.g., by income quintile/decile, by type of income, by composition of households) => OECD Expert Group DNA

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5. Well-being versus GDP

• Well-being is a multidimensional phenomenon

• Example of OECD Better Life Index, consisting of 11 dimensions: housing, income, jobs, education, civic engagement, health, life satisfaction, safety, work-life balance, etc.

• To get all of this into one consistent (monetary) accounting framework, thus arriving at one single measure, is, in my opinion, a mission impossible

• This does not preclude complementary research in trying to create a well-being function, with shadow pricing techniques, leading to one aggregate number

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5. Well-being versus GDP

• Accept that GDP is first and foremost an indicator of income or economic activity, which may actually be instrumental to the greater good of well-being

• Need to establish a much better link between national accounts and the work on well-being, via satellite accounts and micro-macro linkages

• Such a system will provide an improved information basis for analysing trade-offs and win-wins between various aspect of well-being

• But … it’s a long-term objective, … which will however also be instrumental to enhancing well-being functions

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6. Sustainability

• Present SNA deals poorly with issues related to environmental sustainability

• Endorsement of SEEA Central Framework is a major step forward

• Now, one should focus on the implementation of these SEEA satellite-type of tables

• Further work needed on ecosystems accounting

• In future, potential for development of physical and monetary estimates for capital stocks and depletion / degradation of natural resources and possibly ecosystems

• Main conceptual problem related to “ownership”

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Moving forward

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How to move forward?

Main trends relevant for the future:

•More and changing demands requiring granular data: distribution, well-being, measurement of risks and vulnerabilities, globalisation, etc.

•Need to combine analysis of production process with income and wealth

•Quickly evolving products and technologies, including less homogenous, quickly changing production arrangements

•Availability of granular data and the ability to process them

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How to move forward?

How to cope with this changing environment?

•Don’t make the system overly complicated: stay, for example, close to business accounting standards

•Simplify the system by using one statistical unit for supply and use tables and for institutional sector accounts: enterprise (input-output tables are in the end a statistical construct)

•Develop and implement a more transparent process design for statistics, from business registers to NA:

– More flexibility to adapt to user demands

– Enhanced possibilities for users to link micro (individual, I) to macro (aggregate, A) => Bridging I to A

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How to move forward?

How to cope with this changing environment?

•In some cases, further extend the core system, for example by having more detailed distributional information for households

•GDP = GDP; Well-being = Well-being; GDP ≠ Well-being

•Establish a link between the “economy” and well-being, making possible the analysis of trade-offs between various aspects of well-being, through the development of satellite type of accounts showing more details on e.g. the outputs of health, education, etc.

•In the area of sustainability, SEEA is an excellent example!

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Concluding remarks

• Not everything that is valuable can be valued, and not everything that can be valued is valuable (paraphrase of Einstein?)

• It’s all about people, it’s not only about the economy, stupid! (paraphrase of Clinton?)

• Not everything can be solved by economic rationale

• Need to bridge I to A

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Thank you for your attention!

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