Transcript 1993 SNA update Provisional recommendations

IARIW 2006
André Vanoli
discussant
1993 SNA update
Provisional recommendations
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Welcome recommendations
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Issue 2 : Private employers’ pension schemes
Issue 3 : Employee stock options
Issue 5 : Non-life insurance
Issue 6a : Financial services
• allocation of FISIM and volume measure of output
• output of market making services
• further investigation : role of expected holding gains
and losses
Issue 6b : output of central banks, measure and allocation
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group of issues on intangible assets
Issue 9 : R&D
Issue 11 : Originals and copies
Issue 12 : Databases
Issue 21 : Contracts, leases and licences
Issue 22 : Goodwill and marketing assets
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Definitely wrong recommendation
Issue 19 : Military expenditures on equipment and inventories of
consumables
(see André Vanoli’s paper for session 7 A : the central question is : “Is war
a process of economic production ? “ )
However : The deletion of the heading Tangible assets / Intangible assets
would be a mistake (e.g. IAS 38 is called Intangible assets ; common
usage).
confusion is generally made between output and outcome : see for
example SNA/M1.04/09 p.1, fourth line.
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Ambiguous recommendation
Issue 15 : Cost of capital services
no changes to the standard entries in the accounts, in relation with
capital services : OK.
a new chapter on capital services in the 1993 SNA Rev 1 ?
= an ambiguous compromise (a Trojan horse ?)
strong conceptual objections against the inclusion in the SNA of
the concept of capital services (see specific slide).
However : including an opportunity cost of capital for fixed
assets owned in the estimate of non-market output is welcome
(Issue 16)
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Doubtful recommendation
Issue 40 : Goods for processing
Systematic recording on a change of ownership basis
instead of the basis of physical movement
= a recommendation with far-reaching consequences that
have not been sufficiently investigated and not in a wide
enough context (investigation of the full issue of
globalization needed). (see specific slide)
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Issues not satisfactorily solved
Issue 4 : Non-performing loans
• no change recommendation (with complementary information) : lack of
boldness
• need to reinterpret the implication of the quadruple entry principle in this
context
Issue 28 : Amortization of intangible non-produced assets (mobile
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phone licences)
no agreement apparently (unless something new happened in the recent
period).
is the issue well stated in terms of intangible (non financial) non produced
assets ?
why not follow a simple approach in terms of up-front payment as an
advanced payment of a stream of annual rents
annual rents recorded as property income between the licensee and the 7
licensor.
André Vanoli
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Miscellaneous
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Consumption of fixed capital replaced by Depreciation ? No,
in my view :
What relation with the update orientation ?
Depreciation : ambiguous status versus the treatment of
holding gains/losses
CFC more specific to NA which is a very good thing ; any
possible extension (see issue 28) to be carefully investigated
See A History of National Accounting, box 58, p.327-8
Classification and terminology of assets
Deletion of the umbrella terms,tangible assets, intangible
assets is lamentable (see previously)
« intellectual property assets » : too narrow, too legal ?
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Definition of economic assets, of economic benefits
No substantial decision taken in this respect apparently, which
is ok
In my view, the 1993 SNA does not need any substantial
change
Possible redrafting temptation could be a source of confusion
(see paper M1.06 14)
Additionally, economic benefits wrongly understood
sometimes (see paper M1.04/09 on military expenditures)
Costs of ownership transfer (issue 14)
Clarification on terminal costs, etc, welcome
Rediscussion of the all issue to please some people : a loss of
time and energy
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Important outstanding questions
• Treatment of the extraction of non-renewable natural resources
– discussion not reopened apparently (issue never fully taken in any process
of updating/revising the SNA)
– central issue in my view : the refusal to accept both the idea of the proceeds
of the extraction (the resource component) as being sales of assets and the
notion of an (oil) rent economy, with consequences on both GDP and NDP
However
Clarifications on issue 17 : Mineral exploration are useful and some bad
solutions have been avoided (e.g.the “ developed natural asset” approach for
mineral deposits);
• Interest and inflation
still on the research agenda : no progress
• Concept of general price change
flows and stocks
• Apparently « free of charge » services
for instance, medias services financed through advertising
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More on :
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Capital services
(Issue 15 : Cost of capital services)
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2.
Borderline between National Accounting as an observation system (even if :
imputations needed, some modelling unavoidable like consumption of fixed
capital) and research work (analyses) like Productivity estimates.
Tensions between assumptions and recommendations of economic theory and
observation of real economies.
See for instance Hulten, March 2005, p.28-29 :
assumptions of the « zero-rent economy » (Hall 2001)
in a more realistic world (the « Nonzero-Rent Economy ») monopoly
power, infra-marginal efficiency rents, persistent disequilibrium, imperfect
information, or uncertainty
« Any attempt to impose the zero-rent economy rules in this world results
in a biased estimate of the return to the specific capital assets included in
the analysis ».
(by the way where does the notion of “pure economic rent” used in the
presentation of issue 15 come from ?)
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3.
“ Concrete capital” (equipments, etc…)versus financial capital
See for instance Frisch and Aukrust (1949) sharp distinction between natural
interest on real capital and financial interest on financial capital (cf. box 25,
p.154, in A History of National Accounting).
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Capital services as productive services of equipments (in a broad sense)
versus capital income as income of financial capital
5.
Manifold meanings of the term « Service »
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Multifactor productivity analysis and NA
representation of enterprises within an institutional framework (NA) based on
a certain empirical approach ; for example categories, like income from
property and entrepreneurship, corporate profits, mixed income,
entrepreneurial income, property income, are preferred to more abstract ones,
like labour income and capital income
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• more abstract representation, based on labour and capital categories,
very often in economic theory (marxist theory, neo-classical theory)
and MFPA.
• a good case in point : MFPA requires mixed income decomposed into
labour and capital components ; a controversial issue among
economists in the context of MFP and primary distribution of income
analyses ; no reason for NA to settle the question
• a certain ambiguity in MFPA about the meaning of productivity
change (cf. Jorgenson and Griliches 1967 : “ if real product and real
factor input are accurately accounted for, the observed growth in total
factor productivity is negligible” ; this shifts the problem towards the
upstream sources of knowledge and innovation)
• anyway, the best contribution of statisticians and NA to MFPA would
be to extend to all capital products a proper measure of their volume
based on their performances and to tend towards a better coverage of
intangible capital products in GFCF.
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7. NA could have been asked to make use of the concept of cost of capital in
market activities and to break up, of course by industry, its gross operating
surplus between consumption of fixed capital, opportunity cost of capital or
normal return to capital, and residual item covering economic rents, in a broad
sense, in a nonzero-rent economy (similarly to what we do when estimating the
value of the resource rent from extracting non-renewable subsoil resources).
Obviously, many difficulties involved, both conceptual and practical ones).
(see relations with the exogeneous rate of return approach)
8. NA should not suppose all such difficulties solved and introduce a catch-all
concept of capital services that would be deceptive.
Such a conclusion does not prevent capital and MFP analysts from developing
a standardized framework for their calculations, in order to harmonize as far as
possible research work in these fields. The OECD Manuals obviously intend to
play this role. However, such a function should not be confused with the
purposes of NA.
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More on :
Goods for processing and globalization
Issues 40 : Goods for processing
« 41 : Merchanting
« 25 a : Ancillary units
« 25 c : Multi-territory enterprises
« 25 d : Non-resident unincorporated units
I take the issue more broadly than processing itself.
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Intra-enterprise (inter-establishment) deliveries inside the national economy.
reference in the recommendation to change of ownership basis is not
relevant in this case.
relevant when exchanges or gifts are concerned
however, NA covers what is relevant for its purposes, including some
internal flows (internal to an institutional unit) :
e.g. consumption of fixed capital, changes in inventories of produced goods,
intermediate consumption.
no change of ownership is to be imputed for internal flows, if the 1993 SNA
is correctly interpreted
if we want to say ; recording inter-establishment deliveries is not useful for
SNA purposes, it is a different question to be taken as such, in connection
with I-0 tables, product statistics, regional statistics, etc... concerns (see for
instance issue 25 a – Ancillary units about regional accounts concern).
to be clear : even if the “pure” change of ownership basis was chosen for
exchanges and gifts, this should not imply any consequence for intraenterprise (inter-establishment) deliveries.
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2. Intra-enterprise deliveries between establishments located in different
economies
• as two different economies are concerned, a change of ownership is to
be imputed according to SNA 1993.
• however, the question should be raised in the context of the SNA
institutional framework : an establishment located in a country
different from the country of the parent is treated as a notional resident
institutional unit of the country of location (see issue 25 d)
• as a consequence : all flows between the non-resident establishment ad
the parent enterprise, or between different non-resident establishments
of a parent enterprise are to be recorded as if they were between
different enterprises.
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• changing this, in order to apply a pure change of ownership basic,
would probably imply redefining the concept of economic territory in
order to include establishments located abroad in the national economy
of the parent enterprise
• if this is what we like, it is an issue to be discussed in itself.
• such a reflection should take place having in mind possible similar
requirements for relations internal to groups of corporations, even
though in this case changes of ownership occur.
3. processing activities between different (non-notional) institutional units
resident in different economies.
• is the question well formulated in terms of choice between change of
ownership or physical movement ?
• the real issue is : « What representation of the process is the best in
order to fulfill the SNA (possibly conflicting) purposes ?
• the change of ownership basis seems to be taken as a kind of talisman
permitting to better reflect the « real life ». Is it true ? In many cases,
change of ownership occurs as a consequence of very formal changes
in the organization of enterprise activities (see for instance the Dutch
paper for session 2A of this Conference, notably category c) p.7-8).
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• Disturbing cases :
• when the whole process of production is sub-contracted elsewhere by
the owner of the good ; consequence : a strange production account
(see table 7, p.12, of M1.05/16), this extreme case is « an increasingly
common one » (§49).
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the Dutch issue of re-exports, after minor processing, if a change of
ownership occurs (the Dutch paper is not totally clear to me in this
respect).
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I did not find in the AEG documentation a study really permitting to
take position, probably because documentation too much focussed on
the change of ownership versus physical movement issue, too much
emphasis on BOP concerns, no wide enough consultation.
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• Provisionally at least, I would be inclined :
- to treat all three cases, (A to B, back to A ; A to B1, then
to B2 ; A to B, then to C), in the same way.
- to investigate more the feasibility of a mixed-type
solution (cf. SNA 93, § 14.64) distinguishing
significant processing and unsignificant processing.
- to require that the whole issue of globalization be
investigated in a broad concept, including questions
raised by the working of groups of corporations and in
a multilateral coordination process.
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4. processing activities between different institutional units located in the
same economy
. investigate the feasibility of a mixed-type solution, as suggestion in 3.
above.
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Update/revision strategy
I.
The 1993 update strategy not optimal :
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Too many issues opened for discussion
Too many changes proposed
Danger of extensive redrafting
Consequences :
1.
Update well beyond the orientation decided at the beginning –
now increasingly, revision (ex : military weapons)
2.
Difficulties for intellectually mastering the whole process,
embracing all connected issues and making statistical
coordination fully efficient (ex : goods for processing
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3.
Above difficulties implying significant reorientations of the system on a
casual piecemeal basis
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Ex :
borderline between a system of accounting and a research framework (
cf.issues connected with productivity measurement concerns, like capital
services)
purposes of NA measurement blowed up :
Eg : a certain confusion between legal (more broadly institutional)/economic :
- economic owners vs legal owners : too much emphasis
- change of ownership basis : here too much emphasis on
legal aspects perhaps ?
so called economic transformation vs technological processes (abusively
restricted to technical coefficients)
emphasis on financial/capital aspects vs actual production
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all this, with contradictory aspects of course :
- emphasis on production when financial services are concerned : ok - sometimes, emphasis on physical aspects (durables are durable) vs
economic production analysis(ex : military durables) : not ok
4. Difficulties for countries, except (perhaps) the most developed
statistically ones, to implement too frequent and too extended system
changes, in a context where experienced national accountants are not
many
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From an organizational point of view :
• The Advisory Expert Group (AEG), apparently central, not central actually
too many members
unbalanced influences from various sides :
- obviously, the Canberra II group and the « coup » attempted on the capital
services issue
- BOP people on goods for processing ?
• too weak vs the ISWGNA (and the Canberra II group ? )
• Unbalance due to Eurostat’s eclipse :
burden of current work in the EU
lack of conceptual investment in NA
eurostat crisis
• Was there a pilot in the plane ?
• As a consequence : a lot of work and devotion,
but a mixed feeling as to the outcome
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II The original intentions, during the first years after the SNA 1993
publication were better
1.
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3.
Some punctual limited issues needing clarification or real updating
(e.g. financial derivatives, output of central banks), resulting in a
one by one decision and simulaneously all changes to be made to
the text of the 1993 SNA
Some big issues needing deep investigations, a single one or a very
few of them at the same time
for example, R&D expenditures
The process led by the ISWGNA with the help of a permanent group
of experts PEG ( my understanding was : a limited group of experts,
selected only or nearly only on the basis of experience and
knowledge)
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III An advice for the future : improve, but follow the best of the above
original orientation
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There are lessons to be derived from the IASB working procedure,
not slavishly of course
ISWGNA with a permanent core expert group, with five to ten
members
Punctual limited issues ; taken one by one, solutions prepared by
the ISWGNA and the PEG , with necessary advices from outside ;
decisins and changes to the SNA text prepared simultaneously
(see II 1 above )
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4.
Big innovating issues :
i.
ii.
one by one, or a very small numbers in parallel
for each, an ad hoc group of experts (limited in number) under the
ISWGNA and the PEG supervision
each such group of experts being in charge of preparing an
elaborated complete report with a full set of recommendations and
more important changes needed to the text
on the basis of this report, however only on this basis, public
discussion as wide as possible, with EDG, etc…, and at a certain
point of time a wider expert meeting or seminar or conference
an adapted process of decision including the complete necessary
changes to the SNA text fully drafted
introduction of changes due to one or two big issues, let’s say,
every five years
iii.
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vi.
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5. Every twenty-five years, rethink the conceptual framework as a whole
6. Encourage research work, without any immediate implications for short
term or short sighted changes, in various circles like the IARIW ;
suggested topics, for example,
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output and outcome, process of production and process of consumption
NA and capital theory
NA and business accounting in the context of the development of
international business standards
NA and globalization (also a possible candidate for 4 above)
NA and the concept and measurement of well-being( see also above
output and outcome), including reflections on economic value, utility,
monetary and / or physical dimensions
NA and interest : theories and practices (all aspects including
discounting)
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Orientations and essential issues
(see also update revision strategy , part III / 6)
• Autonomy of NA , versus (though connections with) :
economic theory
business accounting and public sector accounting
social analysis and measurement
environmental analysis and measurement
other statistical frameworks (BOP, government finance, etc…)
Does it remain a conceptual coordination function for a system of national
accounting ? In front of many candidates, like economic theory (which
variant? ) in the first place ? On what basis ?
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• Observation systems and theoretical systems
many aspects : measurement without theory ? measurement without
history ? theory without history ? Lessons from theory and empirical
evidence ? Soft modelling and hard modelling in the context of
accounting ?
• Thinking by ourselves, as national accoutants
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