National Accounts, Globalisation and Business Surveys Robin Lynch UK Office for National Statistics.

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


• Once upon a time

– People lived in a sovereign state

– People worked in the state

– All of production was in the state

– Output was sold in the state

– staters bought state produce


• People lived in a state

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


• People worked in the state

But now

• People work abroad

• People work in many places in the world


All of production was in the state

But now

• Multinational companies span the world

• Design centre in UK• Production in Eastern Europe• Marketing in United States• Financial centre in The Netherlands


• Output was sold in the state

But now

• Output is sold abroad

• Output is sold to foreign tourists

• Output is sold on the world wide web


• consumers bought local produce

But now

• We buy from abroad

• We buy as we travel abroad

• We buy on the internet


• Intellectual property

• Created on site

• Shared amongst many

• Can we measure a capital service between countries?


• The EU is different

• Economic statistics are used for fiscal targets

• Accuracy more important than appropriate

• Market transactions are measurable


• New SNA update globalisation challenges

• Goods for processing

• R & D generates intellectual property assets

• 20% - 10% ownership rule for FDI

Multinational Insurance

• A multinational insurance company corporation has

• a head office and computer centre in Canada

• a help call-centre in India and

• sales in the UK

Multi-National Production account

Uses

Material costs

50

Computer services

x

Call-centre services

y

Wages 100

Profits 50

Resources

Sales 200

Computer services

x


y

Example Multinational Insurance

• Let the value of the computer services to the rest of the group be 10, 5 to the sales activity in the UK and 5 to the call-centre activity in India.

• Let the value of the call-centre services to the UK sales activity be 20

UK Production account

Uses

Material costs

40

Computer services

5


20

Wages 80

Profits 55

Resources

Sales 200

Canada Production account

Uses

Material costs

5

Wages 15

Profits -10

Resources

Computer services

10

India Production Account

Uses

Material costs

5

Computer services

5

Wages 5

Profits 5

Resources


20


• Now suppose tax on profits is higher in the UK than Canada. To reduce the global tax burden, the company accounts showing each site separately re-values the computer services to the rest of the group from 10 to 50, of which 25 to the UK and 25 to India.

New UK Production account

Uses

Material costs

40

Computer services

25 (5)


20

Wages 80

Profits 35

Resources

Sales 200

New Canada Production account

Uses

Material costs

5

Wages 15

Profits 30

Resources

Computer services

50 (10)

New India Production Account

Uses

Material costs

5

Computer services

25 (5)

Wages 5

Profits -15

Resources


20


• So the profits centre values have changed from

Old New

UK 55 35

Canada -10 30

India 5 -15


• And the GDP values have changed from

Old New

UK 135 115

Canada 5 45

India 10 -10


• 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?


• 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


• 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?


• 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?


• 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”


• 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


• GDP through expenditures

• Reduce business surveys and bump up consumer surveys and other demand sources

• Make more use of administrative sources (often tax sources)


• 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


• Eurolinks and Eurogroups Register

• European registers of multi-national companies will keep data on ownership and links of control between legal units in the EU

• A Community register of multi-nationals will be introduced from 2008


• The defence

• Large business units

• International cooperation

• Profit centres

• Transfer pricing – standard methods


• For national accounts, business surveys less important in the future

• Concentrate on income and spending (good old days)

• Try harder on tax sources


The message

GOOD LUCK

to

Business Survey statisticians

National Accounts, Globalisation and Business Surveys Robin Lynch UK Office for National Statistics.

Documents

national accounts people

national statistics

national accounts output

centre services y slide

world slide

national accounts consumers

measurable slide

netherlands slide