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The Future of the SNA in a Broad Information System Perspective André Vanoli IARIW-OECD Conference : “W(h)ither the SNA?” April 16-17, 2015 1 Three groups of comments 1 How could evolve the coverage of the SNA integrated central framework 2 Central framework revision policy 3 The SNA/SNAE in a broad information system perspective 2 1. How could evolve the coverage of the SNA integrated central framework (SNA/CF)? • SNA/CF, a reminder Integration and consistency from conceptual and valuation (transaction values or equivalents) viewpoints • Clarification strongly needed about the relationship between : - the SNA and its concept of economic wealth, and - the conceptual model of extended/inclusive wealth : economic, human, social, natural capital (all sources of welfare, welfare measurement, sustainability Hicks, Weitzman, etc) 3 1. How…(cont.) • feasibility, acceptability of directly integrating the inclusive wealth model in the accounting structure called “ the SNA/CF ” ? = a prerequisite of any reflection on the future of the SNA in a long term perspective (excessive expectations of national accounting; negative consequences) • discussing the Economy/Nature issue is sufficient • two ways of formulating the challenge : strong vs weak requirement 4 The strong requirement case “ Should / could the current SNA central framework estimates aim at delivering meaningful aggregates of sustainable welfare / well-being / quality of life (sustainable net product or income) ? ” 5 The strong requirement case (cont.) The Stiglitz, Sen, Fitoussi (SSF) report most elaborated and influential answer, unambiguously « no » : - all dimensions of current well-being cannot be integrated in any adjusted N.A. aggreg. ; sets of wellbeing indicators unavoidable - distinction between means and well-being - sustainability assessment requires very ambitious long term modeling with strong assumptions Is there any reason for revising the conclusion of the SSF report? I don’t think so 6 The weak empirical requirement case “ Should / could the current SNA central framework be extended in order to fully integrate both current economic accounting and a possible current environmental (or more precisely current Nature’s) accounting to come ? “ 7 The weak empirical requirement case (cont.) • Difference with the strong case: no attempt to measure neither well-being nor sustainable product / income • Leave aside the issue of the depletion of natural, in general market, resources (unsatisfactory traditional SNA treatment is ready for change with possible final choice still open) 8 Full integration : a poorly investigated issue • a reminder SEEA 1993 SEEA 2003 • SEEA 2012 second volume, a proposal of “experimental ecosystem accounting” - very ambitious : - accounts for ecosystem services in physical terms - accounts for ecosystem assets in physical terms - accounts for ecosystem services in monetary terms - accounts for ecosystem assets in monetary terms 9 Full integration (cont. 1) No attention paid in this volume to the « full integration » issue as I formulated it above • a short section (6.4) with an annex A6.1 devoted to “ integration of ecosystem accounts and economic accounts in monetary terms ” • it suggests, though without any recommendation: - a “ degradation adjusted NDP ” similar to the proposed “ depletion adjusted NDP ” (SEEA 2012 first volume) - a possible rise in GDP “ to the extent that some of the ecosystem services are consumed as final consumption ” 10 Full integration (cont. 2) • an explanation follows (para A6.3) : “ Many ecosystem services will be indirectly included in measures of final consumption when they are used by enterprises in the production of standard SNA outputs (e.g. food, clothing, recreation) ” This echoes what is often written by economists trying to estimate extensively the value of ecosystem services, in some cases at the world level (see for instance Costanza et alii, 1997 and 2014). They stress the point that one part (which they do not specify) of the services that they estimated is already included in GDP as it is “ embedded in the contribution of natural capital to marketed goods and services ” (Costanza et alii, 2014) 11 Full integration(cont. 3) • Here lies the problem: if the existence of this kind of contributions is ascertained in physical terms, one cannot conclude from that evidence that those contributions are “ included in GDP” which is an aggregate of transaction (or transaction equivalent) values • What would mean “full integration” ? - “disentangle” from actual transaction values the respective contributions of nature and the economy ? implication : to-day relative prices of products are their “true relative prices” ! 12 Full integration (cont. 4) - add to the present price of each product the value (supposedly known) of the ecosystem services attributable to the process of production of this product and so get its “ true ” relative value ? implication : what about the system of quantities? modeling needed • This leads to the conclusion that the full integration (merging) of ecosystem assets and their services in the present national economic accounts is not conceivable outside large-scale modeling operations 13 Full integration (cont. 5) • Moreover the valuation issue points to the same conclusion : the methods used for estimating the value of ecosystem services generate values which generally cannot be interpreted as “equivalent transaction values” • This valuation issue is generally perceived, explicitly or implicitly (see the Costanza and alii papers or the various versions of the SEEA) The trouble is however that no general and clear conclusion is drawn from this established fact 14 Full integration (cont. 6) Anyway, if one likes to think about the future of the SNA central framework, it is rather urgent to clarify what could be / could not be the expectations concerning a possible complete integration between (natural) ecosystem accounting and economic accounting Clarifying this issue is essential, not only for national accountants, statisticians and economists, but also for the scientific community at large, and more widely various groups of the whole society If the answer is “no” to the question concerning the “weak empirical requirement case”, it means that the integrated SNA central framework can cover only the accounts of the Economy in the present SNA sense 15 Full integration (cont. 7) If there were an agreement on that, it would be advisable to adjust our terminology accordingly, in order to limit the risks of misunderstanding in the relations with the social community at large. The most suitable solution would be to slightly modify the title of the SNA. Instead of “ System of National Accounts ” , it would become “ System of National Economic Accounts, SNEA” or perhaps, if thought clearer, “ System of National Accounts of the Economy, SNAE ” 16 Focus on certain very important Economy / Nature relations Does such a limitation of the SNEA coverage mean that nothing new about the relationship between the Economy and Nature could / would appear in the SNEA central framework ? Not at all, but the focus would be on certain very important relations, not on the whole bulk of ecosystem assets and services whose full integration in the SNEA central framework is an objective out of reach. Note that Economy and Nature are treated as two distinct entities. 17 Give prominence to the recording of the degradation of ecosystem assets • A proposal that I developed in recent years - some additional concepts are introduced : - Unpaid ecological costs - Ecological Debt - Final demand at total costs (ie FD at paid economic costs plus unpaid ecological costs) - an extension of the accounting structure of the SNA Central Framework is worked out : an additional flow between Nature and the Economy is introduced corresponding to the value of the unpaid ecological costs 18 A proposal (cont.) - this additional flow counterbalances the amount of negative saving generated by the unpaid ecological costs; called in my previous papers “capital transfer”, it represents in fact a change in the ecological debt of the Economy towards Nature and is similar to a change in liability, though not a financial one - the stock of ecological debt reduces the net worth of the Economy - a simplified numerical example follows 19 Simplified numerical example for a closed economy • Assumptions : Gross National Income (GNI) 1000 (equal to GDP), Final Consumption 900, GFCF 100, additional degradation (Unpaid Ecological Costs) 50 imputed to FC 45 and GFCF 5 • Accounts of the Economy GNI 1000 FC at paid economic costs 900 Unpaid ecological costs on FC 45 [ FC at total costs 945] GFCF at paid economic costs 100 Unpaid ecological costs on GFCF 5 [ GFCF at total costs 105] Negative saving of the Economy -50 Capital transfer from Nature to the Economy 50 ( = change in the Ecological Debt of the Economy) 20 Numerical example (cont.) On the other side, a very partial representation of the accounts of Nature is provided : • Accounts of Nature (change in Nature’s assets) Degradation of natural assets Capital transfer to the Economy - 50 50 ( = change in the ecological debt of the Economy) 21 Warning • In contrast with the SEEA 1993, the ecological costs here are not treated as additional costs of production. The so-called “ capital transfer ” in question is not a capital transfer “ in kind ”. It is a capital transfer in value corresponding to a concept of responsibility towards Nature. From that is derived the concept of “ ecological debt ” • Estimating the value of the degradation of Nature is not an easy business, of course 22 2. CENTRAL FRAMEWORK REVISION POLICY • Soon (too soon in my view) after the SNA 1993, we issued the SNA 2008, with some very significant changes • Some of them were welcomed (R&D, insurance services for instance) • Two of them were, I think, regrettable (weapons systems, basis of recording international trade flows) • What future for such a big revision in the near decades ? 23 Three conclusions from the two main conflictual cases (i) one should be very cautious before changing certain SNA rules that are followed for a long time. Continuity upon time (ex. basis of recording international trade flows; weapons systems) is very useful as soon as a conceptual statistical body is mature 24 Three conclusions (cont. 1) (ii) when a change of great magnitude and / or significance is contemplated, it is necessary to analyse deeply this change and its consequences on the system as a whole before a decision is taken (ex. international trade flows and globalisation) 25 Three conclusions (cont. 2.) (iii) before making a change in the central framework itself, one should carefully examine if introducing an additional construct like a satellite account or something similar would be enough to solve the issue at stake (ex weapons systems) 26 A crucial issue to clarify • the relationship in the SNA / SNEA Central Framework between observation and analysis • behind this, the fundamental question of the relationship between the SNA / SNEA and economic theory ex.: the multifactor productivity estimates and growth accountingt in relation with the SNA Central Framework (SNA/CF and research methodological frameworks : a delicate issue) See also Part 1 of this presentation 27 Crucial issue to clarify (cont. 1) • The standard economic theory conceptual framework - theoretical assumptions and “ real life ” circumstances - influence of the time perspective, the more the time perspective of economic studies lengthens, the more the assumptions introduced get stronger 28 Crucial issue to clarify (cont. 2) • the purpose of national accounting is to represent and measure the current economic situation and its evolution, covering both flows and stocks. As far as stocks are covered, their current valuation by economic agents is used whatever imperfect their expectations of the future may be. Checking if current economic evolution is sustainable or not is a different, fundamental issue, left to economic analysis • both standard economic theory and national accounting approaches have their own rationale, none of them should be supposedly obliged to adopt the viewpoint of the other 29 Crucial issue to clarify (cont. 3) • it should be recognized that the SNA / SNEA adopts a certain representation of the economy that does not correspond entirely to either the general representations given by economic theory / theories, or the particular representations provided by sectorial sets of accounting standards - business or government accounting standards • as an example : the SNA concept of income and holding gains / losses ; a possible compromise solution : a new accounting tool called “ semi - integrated variants” , defining a complementary alternative income concept, like “income including holding gains/losses” • such semi-integrated variants being placed in a recommended satellite appendix after the sequence of accounts 30 Importance of the structuration of the system of accounts • SNA / SNEA Central Framework - fully integrated • Other SNA / SNEA Constructs - satellite accounts, other constructs - flexibility possibilities (see semi-integrated variants above) : a reflection on this issue would be useful in the near future. It would probably help to clarify issues like the relations between the SNA / SNEA and economic research, and between the SNA / SNEA and administrative and public policy uses. It would also permit to look more deeply to the relations between the SNEA and other information 31 systems The revision strategy • a recent unpleasant experience in Europe with the media • also the economic research community seems to keep far from a reasonable level of knowledge in the field of national accounting • we must admit that we contributed to seriously complicate the picture with two big revisions and two corresponding Blue Books, rather close in time 32 The revision strategy (cont. 1) • At the moment, my general conclusion is that the revision strategy in the next period should be modest in terms of making changes in the system’s central framework ; we need a period of stabilization • No ready-made solutions, some suggestions • To disconnect in a certain way the conceptual elaboration process and the implementation strategy • We should combine a continuous research effort on selected important issues, a less frequent inclusion of the results of these thinkings in a complete new version of the Blue Book and a less frequent implementation program than now. In between two versions of the BB, agreed upon provisional conclusions would be put in 33 waiting boxes like a provisional “BB on line” The revision strategy (cont. 2) Advantages of a latency period: • it would give national accountants the opportunity to consult interested people in various circles outside statisticial services or nearby agencies. Such a consultation procedure could be formalised (eg. IASB procedures with IFRS) • it would give the national accountants community the opportunity to check carefully what adaptations of the System at large are really required. As an example, the consequences of the globalisation and the representation of the activities of multinational enterprises. This probably will lead to a complementary satellite framework, fully compatible with the SNA / SNEA Central Framework, and integrated in a statistical system and in a research framework on the world economy 34 The revision strategy (cont. 3) Imagine an on line set of interpretations, that would become official interpretations following a given procedure of confirmation ? In a number of instances, certain cases can be dealt with by modifying or completing the interpretation of what is written in the last version of the BB, without necessarily modifying the book itself 35 The revision strategy (cont. 4) The communication strategy • try to associate some other people, e.g. in the economic research and education community and specialised medias, to the discussion of certain issues as soon as they have been fully investigated by the national accountants and a set of solutions has been proposed (see above) • A more reaching proposal is that we might reconsider completely the presentation of the SNA which is provided in the Blue Book. This is a task for the future • In the near future we should prepare a presentation of the existing SNA (however taking into account on-going discussions) directed to economists, other analysts, policy advisers and more generally people that are interested in the main national accounts results 36 The revision strategy (cont. 5) • To be concrete, simply expressed, the objective would be to cover the general issue : “what any economist should know about the SNA ?”, that is: – what the SNA covers, what it does not – what it can try to cover, what it cannot – what is presently disputed – what are the relationships • between the SNA and economic theory in terms of the measurement of well-being, the inclusive wealth approach, the sustainability perspective • between the SNA and business accounting standards, etc.. 37 The revision strategy (cont. 6) • A summary presentation of the accounting system would be provided, with the distinction between the fully integrated central framework and the other accounting constructs • Formally, the content seems similar to the topics covered in ch. 1 and 2 of the 1993 and 2008 BBs However, the end product should look very different. It would be a separate volume, a little longer than the present text, but of no more than one hundred pages. Above all, the drafting should be especially adapted to the public in view, and the volume should be conceived of as self sufficient, even if in the future it could be the first of a series of volumes replacing the 38 single volume of the present Blue Book 3. The SNA / SNEA / SNAE in a broad information system perspective • Four spheres ECONOMY PEOPLE NATURE SOCIETY 39 Economy / Nature relationship Clarify the relationship between: the SEEA - Central framework 2012 and the SNA / SNAE - Central Framework • the SEEA-CF 2012 as belonging to both the accounts of the Economy (as a developed satellite account) and the accounts of Nature 40 Economy / Nature relationship (2) • Possible accounts for ecosystem assets and services (see SEEA 2012-EEA) belong only to the accounts of Nature - developing accounts for ecosystem assets in physical terms (total stocks and their changes) is crucial ; towards a kind of periodical Census of Nature ? - macro indicators in physical terms for Nature’s assets and the issue of equivalences 41 Economy / Nature relationship (3) - for ecosystem assets estimates in monetary terms, only the value of their degradation and the resulting ecological debt (see part 1) are considered here ; they belong to both the accounts of the Economy and the accounts of Nature - the issue of the ecosystem services is completely left for the time being to the accounts of Nature 42 Economy / people relationship • The distributional dimension • The framework for the assessment of well-being / quality of life • Human capital / human resources account or rather set of accounts ( possible “set of solutions” approach) 43 Transversal concerns • In the approach presented above, certain concerns are transversal social • A good case in point is environmental accounting 44 As a matter of conclusion • The last slides show that national accounting is wider than accounting for the accounts of the Economy (e.g. the accounts of Nature are part of national accounting, not part of the accounts of the Economy) • Also accounting for the Economy is wider than the SNA / SNAE Central Framework stricto sensu (because of the existence of many satellite accounts or other semi-integrated constructs). • Flexibility is the master word. Using flexibility margins provides possibilities to take various phenomena into account without complexifying unduly the SNEA Central Framework or running the risk of altering its nature 45 As a matter of conclusion (2) • It should be recognised that such an orientation differs from the usual economic theory pressure towards integrating as much as possible every relevant concern in a single comprehensive framework in monetary value • The best illustration of this difference of orientation is given by the concept of extended/inclusive wealth. All segments of the extended wealth notion are present in the information system approach advocated here (economic assets, natural assets, human capital, social capital). However, contrary to the extended wealth conceptual model, they are not supposed to be combined in a total wealth measured in monetary value, from which welfare / well-being is derived and sustainability is checked. Trying to implement this 46 conceptual approach is left to research and analysis