national accounts, globalisation and business surveys robin lynch uk office for national statistics
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National Accounts, Globalisation and Business Surveys
Robin Lynch
UK Office for National Statistics
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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
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Globalisation and national accounts
• 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
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Globalisation and national accounts
• 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
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Globalisation and national accounts
• People worked in the state
But now
• People work abroad
• People work in many places in the world
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Globalisation and national accounts
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
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Globalisation and national accounts
• 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
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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
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Globalisation and national accounts
• Intellectual property
• Created on site
• Shared amongst many
• Can we measure a capital service between countries?
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Globalisation and national accounts
• The EU is different
• Economic statistics are used for fiscal targets
• Accuracy more important than appropriate
• Market transactions are measurable
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Globalisation and national accounts
• New SNA update globalisation challenges
• Goods for processing
• R & D generates intellectual property assets
• 20% - 10% ownership rule for FDI
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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
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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
Call-centre services
y
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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
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UK Production account
Uses
Material costs
40
Computer services
5
Call-centre services
20
Wages 80
Profits 55
Resources
Sales 200
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Canada Production account
Uses
Material costs
5
Wages 15
Profits -10
Resources
Computer services
10
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India Production Account
Uses
Material costs
5
Computer services
5
Wages 5
Profits 5
Resources
Call-centre services
20
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Example Multinational Insurance
• 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.
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New UK Production account
Uses
Material costs
40
Computer services
25 (5)
Call-centre services
20
Wages 80
Profits 35
Resources
Sales 200
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New Canada Production account
Uses
Material costs
5
Wages 15
Profits 30
Resources
Computer services
50 (10)
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New India Production Account
Uses
Material costs
5
Computer services
25 (5)
Wages 5
Profits -15
Resources
Call-centre services
20
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Example Multinational Insurance
• So the profits centre values have changed from
Old New
UK 55 35
Canada -10 30
India 5 -15
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Example Multinational Insurance
• And the GDP values have changed from
Old New
UK 135 115
Canada 5 45
India 10 -10
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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?
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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
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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?
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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?
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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”
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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
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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)
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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
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Globalisation and national accounts
• 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
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Globalisation and national accounts
• The defence
• Large business units
• International cooperation
• Profit centres
• Transfer pricing – standard methods
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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
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Globalisation and national accounts
The message
GOOD LUCK
to
Business Survey statisticians