1

13th OECD – NBS Workshop on National Accounts,

November 2009

Stiglitz-Sen-Fitoussi Commission

Paul Schreyer

OECD Statistics Directorate

2

“Many people looked at US GDP growth in the 2000s and said: ‘How fast you are growing – we must imitate you.’ But it was not sustainable or equitable growth. Even before the crash, most people were worse off than they were in 2000. It was a decade of decline for most Americans.”

Joe Stiglitz

Financial Times 27 January 2009

3

Main features Commission put in place Feb 2008, report presented Sep

2009

Main thrust: statistical systems need to re-focus from measuring market production to measuring people’s well-being, and sustainability

Why important? Issue for credibility of statistical system, quality of political debates and democracy– Address discrepancy between perception and official

data– What we measure affects what we do

4

Main features

Arguing for such shift does not imply minimising either the significance of the NA (“one of the major inventions of the last century”) or the importance of improving existing measures of economic production (e.g. quality changes), but recognising:

– a “tension” within the NA between a production- and welfare-focus that has always been there but is more evident today than in the past

– a “political demand” for going beyond-GDP that was not there in the past and that combines with a ‘grass-root’ demand by citizens and civil society

5

Main features

Report covers a broad field under headings of:

i) Classical GDP issues – material living standards

ii) Quality of life;

iii) Inter-temporal aspects (sustainability).

6

Needed: statistical measures that bear a closer relation with people’s experiences

Such measures are already available inside the NA or can be developed consistent with the NA

NA ≠ GDP! 5 messages

Improve measures of material living standards (‘Classical GDP Issues’)

7

Message #1: look at income rather than production

At current prices: Income = production But real income ≠volume of production

Volume = the ‘quanity’ of goods and services coming out of the national ‘factory door’

‘Real’ income = how much goods and services (some of them produced abroad) can I purchase with the income generated in the factory?

8

Net rather than gross…and accounting for international income flows

Real net income instead of volume GDP Net income accounts for depreciation People receive income and transfer payments from

abroad and they also send them abroad Important issue in developing countries when eg incomes

are re-patriated by foreign investors: value of production may go up but national disposable income may decline

9

Net national disposable income as % of GDP

70.0

75.0

80.0

85.0

90.0

95.0

France

USA

Ireland

10

Message #2: income and wealth come together

How well off people are is more an issue of wealth than of income

But wealth is actually not very well measured More needs to be done to have balance sheets of

financial and non-financial assets of households, firms and the government

Problem: valuation of assets

11

Message #2: income and wealth come together

Measures of capital are also the main ingredient to track sustainability

Sustainability = capacity to go on with current patterns of consumption and production without jeopardising stocks of physical, environmental and human capital

Some of these stocks are not part of assets recognised national accounts assets

But wealth measures can be constructed following NA principles satellite accounts

12

Message #3: emphasize the household perspective

A average HH income can move very differently from GDP

Examples: Italy, Japan, Korea, Poland, Slovakia, Germany as next graph shows

13

Real household income and GDP growth, 1996-06

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

Canada France Germany Italy Japan United Kingdom

United States

Finland Korea Norway Poland Slovak Republic

Real HH income Volume GDP

14

…better than disposable income is adjusted disposable income

Adjusted disposable income corrects for (mainly) health and education services that households receive from government

Otherwise biased comparison between countries and/or over time

A look at France

15

Education30%

Health services34%

Pharmaceuticals9%

Social work9%

Recreational facilities and

activities6%

Real estate4%

Other8%

‘Individual’ services provided by government in France in 2007

(€290 bn, ≈20% of HH disposable income)

16

…but these services have to be well measured

Traditionally, outputs=inputs Not necessarily true Measurement is tricky but possible Helpful: new administrative sources, for example for

health

Conclusion: let us make real adjusted disposal household income one of the headline figures

17

Message #4: more prominence to distributional information

Individuals cannot identify themselves with averages if distribution is very skewed

Introduce indicators such as median income alongside mean income

Problem: income measures for micro data ≠ income measures for national accounts data

But comparisons can be made

18

Canada

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005

Average per capita income, SNA

Average per consumption unit, SNA

Average per consumption unit, survey

Median per consumption unit, survey

19

United States

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Average per capita income, SNA

Average per consumption unit, SNA

Average per consumption unit, survey

Median per consumption unit, survey

20

Message #5: there is more economic activity than meets the (statistical) eye

No recognition of the production activity of services by households (typically provided by women)

Childcare, cooking, washing, care of the elderly All this constitutes productive activity and implicit income Putting a monetary value to housework is difficult but can be

done for research purposes Changes the picture of real income growth over time

(typically downwards) Changes the picture of comparisons of real income levels

across countries

21

Real income with/without household work

France United States Finland

USD per capita 25378 32110 21771USA=100 79 100 68

USD per capita 35037 41904 29208USA=100 84 100 70

*For private households and non-profit institutions serving households; net of depreciation, converted with PPPs for actual individual consumption

**'Income from household production' equals the value of the estimed labour and capital inputs used by households to produce own-account services

(except owner occupied housing); converted with PPPs for actual individual consumption corrected for household production

Real adjusted disposable income* per capita, corrected for household production**

Real adjusted disposable income* per capita

22

From material living standards to quality of life

Economic resources are not all that matters for human well-being: many of the determinants of human well-being are not resources but aspects of people’s life (“doings and beings”);

Measurement of both objective and subjective dimensions is important

– Subjective measures, covering evaluations, feelings, affects ; they provide critical information about well-being and its determinants – often uncorrelated to measures of material well-being

23

From material living standards to quality of life

Objective measures: health, education, personal activities, political voice, social connections, environmental conditions, (in)security

Task: developing indicators for these areas or bringing existing information together

Big agenda: measuring inequalities in these conditions (e.g. health) and assessing how these conditions relate to each other and to income

24

Pragmatic approach to inter-temporal aspects of sustainability

Beyond current well-being (i.e. monetary resources and non-monetary dimensions of QoL) it is key to see whether current levels of well-being can last over time

– Measuring sustainability moves us from data to modelling of future interactions

–Indicators of sustainability should correspond to changes in some underlying “stock” relevant for well-being (man-made, natural human and social capital)

25

Pragmatic approach to inter-temporal aspects of sustainability

– Monetary valuation of stocks promising mainly for economic aspects (produced assets, human capital); for other types of capital (environmental capital, social capital) monetary index difficult

– Because of this difficulty, measuring environmental sustainability require physical indicators

26

How was the report received? President Sarkozy: France will put this report on the

agenda of all international meetings and discussions that have for objective the creation of a new economic order

French Minister of Finances: mandated INSEE and the OECD for concrete follow-up

Report played important role in the 3rd OECD World Forum on Statistics, Knowledge and Policy (Busan Korea)

Report fits perfectly into the Global Project on Measuring the Progress of Societies that is hosted by the OECD

OECD Road map prepared for follow-up work