National Accounts, Globalisation and Business Surveys Robin Lynch UK Office for National Statistics
Globalisation and national accounts • National accounts aim to measure the economic activities of a nation • Multi-national activities are a measurement problem for national accountants 2
Globalisation and national accounts • Once upon a time – People lived in a sovereign country – a country – People worked in the country – All of production was in the country – Output was sold mostly in the country – people bought domestic produce 3
Globalisation and national accounts • People lived in a country But now • People leave their country (migration) • People have second homes (residency) • People live abroad some of the time • People holiday and spend a lot of money abroad 4
Globalisation and national accounts • People worked in the country But now • People work abroad • People work in many places in the world 5
Globalisation and national accounts All of production was in the country But now • Multinational companies span the world • • Design centre in UK Production in Eastern Europe Marketing in United States Financial centre in The Netherlands 6
Globalisation and national accounts • Output was sold in the country But now • Output is sold abroad • Output is sold to foreign tourists • Output is sold on the world wide web 7
Globalisation and national accounts • consumers bought local produce But now • We buy from abroad • We buy as we travel abroad • We buy on the internet 8
Globalisation and national accounts • Intellectual property • Created on site • Shared amongst many • Can we measure a capital service between countries? 9
Globalisation and national accounts • The EU is different • Economic statistics are used for fiscal targets • Accuracy more important than appropriate • Market transactions are measurable 10
Globalisation and national accounts • New SNA update globalisation challenges • Goods for processing • R & D generates intellectual property assets • 20% - 10% ownership rule for FDI 11
Example Multinational Insurance • So the profits centre values have changed from Old UK Canada India New 55 -10 5 35 30 -15 12
Example Multinational Insurance • And the GDP values have changed from Old UK Canada India 135 5 10 New 115 45 -10 13
Globalisation and national accounts • National business surveys can no longer collect market sales and costs • Transfer pricing to minimise global tax burden undermines traditional methods • How can we retain the status quo? 14
Globalisation and national accounts • Ask firms to estimate an “arms-length” value for non-marketed internationally traded goods and services within the multinational • Use these values to produce a traditional production accounts for the national activity 15
Globalisation and national accounts • OR • Change the mind-set – step outside the box • Are we attempting the impossible? • Do national production functions mean anything? • Can we measure productivity for national economic activity? 16
Globalisation and national accounts • Can we collect the necessary data? • Will multi-nationals cooperate (and so reveal their tax engineering activities)? • Even if they wanted to, how can they estimate the value of non-market transactions? 17
Globalisation and national accounts • What’s the alternative? • Use the income approach • Measure the employment income of the activity • Estimate the operating surplus as the sum of returns to capital assets plus the “entrepreneurial turn” 18
Globalisation and national accounts • Can we measure return to capital within national boundaries? • How do we estimate entrepreneurial turn? • How do you estimate national return on capital for intellectual property accessed across national borders • No answers – but worth exploring these issues 19
Globalisation and national accounts • GDP through expenditures • Reduce business surveys and bump up consumer surveys and other demand sources • Make more use of administrative sources (often tax sources) 20
Globalisation and national accounts • The way ahead for business statistics • Use multi-national supply-use frameworks to ensure consistency • Cut this up to get country pictures, rather than building the international picture like a jigsaw of country estimates 21
Globalisation and national accounts • The defence • Large business units • International cooperation • Profit centres • Transfer pricing – standard methods 22
Globalisation and national accounts • For national accounts, business surveys less important in the future • Concentrate on income and spending (good old days) • Try harder on tax sources 23
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