From: glevy@PRATT.EDU
Date: Tue Oct 11 2005 - 13:58:41 EDT
----- Original Message ----- From: "Jurriaan Bendien" <adsl675281@tiscali.nl> Sent: Tuesday, October 11, 2005 9:23 AM Subject: Re: [OPE-L] [Jurriaan on] Estimated percentage share of public sector employment In a sense, you got to be correct - the relevant measure would be GDP/employed labour force. As you may know (and as I indicated in various wiki articles), there are quite a few criticisms of the notion of GDP; even so, it does measure, even if in a crude and inexact way, the new incomes generated by production, affording some comparisons of proportions internationally, and over an interval of let us say 5-10 years. As regards productivity, my argument has been that there is no "neutral" measure of productivity, a measure of productivity is a measure taken " from a certain point of view", and one ought also to distinguish sharply between physical productivity and productivity in value or price terms. Oddly, neoclassical economists who hold a subjective theory of value, will nevertheless freely use GDP data based on an objective theory of value, to devise output measures. More consistent in this context is so-called Austrian economics of the Hayek type, which simply rejects the validity of price-aggregation (except where it involves their own bank accounts, their own transactions or their own well-paid jobs). Austrian economics, stripped of bullshit, is really stunningly simple: it just says that "the market is good". My claim really is that, even using a variety of widely used official measures, the typical "neoliberal" arguments fail to make much sense of the factual evidence. You can e.g. have a high GDP and a large public sector, a low GDP and a large public sector, a high GDP and a small public sector, and a low GDP with a small public sector, in a wide range of countries of varying size and degrees of development. You can also have a high GDP with a high exports/GDP ratio, a low GDP with a high exports/GDP ratio, a high GDP with a low exports/GDP ratio, and a low GDP with a low exports/GDP ratio. Sometimes privatisation correlates with declining GDP, sometimes it correlates with a rising GDP. There is no pattern here. To see the real pattern takes much more work. There is no statistical correlation which would corroborate the idea that a proportionally large public sector in employment terms results generally in a low GDP or a low exports/GDP ratio, or is somehow a general "drain on wealth". Much more evidence would be required, to make that argument plausible. Of course, the whole argument is a bit tricky anyway - correlation does not necessarily mean causation; GDP itself includes public sector outputs, etc. One of the conclusions that accidentally came out of my own Phd research on social accounting (which I didn't complete, being priced out of the market there) is that the measures derived from national accounts to describe the economy are distorted by the specific way in which "income from production" is conceptually distinguished from "property income". That distortion becomes very important, when property income increases, while income from production stagnates or grows only sluggishly. Gerald Epstein & Arjun Jayadev have suggested that in the USA today, around 1/5 of profits are rentier profits, yet to the extent that they base themselves on gross product data, they actually underestimate the true proportion. Quite possibly 1/4 is nearer to the truth, if we include property income excluded from the product account. Originally, GDP was designed to indicate the value of new net output, the value-added when intermediate goods were deducted from gross output, but over the years people started to use GDP as a total income measure or a total expenditure measure. That new approach is flawed, simply because property income and transfer income is excluded from consideration (if anywhere, it shows up in the income & outlay account, the capital account, transfers account, or BOP data). Marxists often fall into the same trap - Jacques Gouverneur writes for example "The new monetary income that is created (or the sum of the net prices of commodities) is calculated in the following way, setting out from national accounts data: created income = net domestic product at market prices, less income of earners outside the commodity sector. The net domestic product represents the sum of incomes (gross) for the whole of the economy" (Kapitalisme Vandaag [Contemporary Capitalism], p. 280). That's just not true, he's been hoodwinked by the value-added concept, and double-entry bookkeeping. That is to say, GDP does not measure total national income, at best it measures only that income thought to be generated from production, but even there, this is not quite accurate. The problems are, among others, - a significant portion of interest, profit and rents paid from gross enterprise income are excluded from value-added on the ground that these are defined as property income (a distinction is drawn for instance between property rents and the rental on leased productive assets), - gross profit measures derived from tax data are adjusted in many ways - some more credible than others - to arrive at a profit figure consistent with the notion of value-added (I still have to write up how this really works). - actual depreciation charged, is adjusted to arrive at "economic depreciation", to which certain expenses directly related to fixed assets are then added; in the last instance, "economic" depreciation is usually based on schedules of observed average prices for assets traded at a various ages. - compensation of employees includes deferred income (principally social insurance contributions), certain types of "expensing" by employers (which can include imputations which are not made explicit), certain self-employed income, and items such as profit-sharing and stock-options. - tax considered to be unrelated to production is excluded. - a valuation adjustment is made for inventories held. - the imputed rental value of owner-occupied housing is included, even although largely fictitious. - there are big differences between countries in terms of the way government and household expenditure is accounted for. A GDP measure thus results, which is a mixture of fact and theory, but which in my view neither constitutes an adequate measure of net output, nor of actual gross income distributed. Additionally, historical series of GDP obscure the changes in the division of labour, e.g. with respect to the growth of the tertiary sector (services). The main reasons why GDP is still used are: (1) because there is no other or better measure of total net new output readily available, (2) because it hides the true income distribution, i.e. the sources and recipients of income generated by economic activity. The second reason has become more and more important, as income inequality has grown. However, the more foreign transactions expand, the more GDP is undermined as as a measure which is in some sense a valid indicator of the social product and income. One of my favourite examples of confusion in this area concerns GDP versus GNI (which is really just GNP). The World Bank and similar agencies state vaguely that GNI is really more an "income" measure, than a "product" measure. The real point however is, that GNI includes net factor income from abroad, and by valuing GNI using an "Atlas method" while valuing GDP at purchasing power parity, the amount of factor income transferred internationally is conveniently obscured. Conceptually, of course, world GDP and world GNI are quantitatively identical, but the "Atlas method" applied to world GNI will reduce world GDP by an increasing margin, which nowadays amounts to about US$1.1 trillion, i.e. an amount which comes close to the reported annual real increase in the variable! The ActionAid report "State of Disaster: Causes, Consequences & Policy Lessons From Malawi", dated June 13, 2002 queried "what the relevance of development of macroeconomic targets, private sector led GDP growth, fiscal discipline and export growth targets are, if such variables seemingly have little impact on the ability of the economy to support food security?" http://www.50years.org/cms/ejn/story/89 . Well, quite. While we are gawking at financial statements, an unknown number could starve to death. The categories do not enable us to see the wood for the trees, and in truth it takes quite a bit of work to uncover the true situation. Jurriaan
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