1. Rencontre internationale sur le Développement Humain au Maroc 15 th January 2010 Stiglitz-Sen-Fitoussi Report Classical GDP Issues Paul Schreyer, OECD

2. Stiglitz-Sen-Fitoussi Commission Report in 3 parts Classical GDP Issues deals with measuring material well-being in a system of national accounts Quality of life deals with measuring other dimensions well-being By way of introduction, a quick reminder about the nature of GDP

3. Classical GDP Issues - Material living standards One dimension of well-being = material living standards Classical GDP Issues in the report of the Commission deals with measuring material well-being in a system of national accounts By way of introduction, a quick reminder about the nature of GDP

4. What GDP is … GDP is: –A measure of aggregate economic activity –Captures market and some non-market activities –Measures the supply and demand of final products within ‘production boundaries’ –Directly linked to supply side and jobs –And correlated with many aspects of living standards, in particular in comparisons of very different groups of countries

5. …and what it is not GDP is not: –A measure of current well-being – too many dimensions of well-being are not captured –A direct measure of living standards –A measure of sustainability of human activity of any kind None of this is new and has long been recognised, first of all by national accountants

6. So what can be done? Make more use of the wealth of existing measures in the national accounts De-emphasise the role of the single indicator ‘GDP’ Supplant core national accounts with satellite accounts Here are 5 more specific messages

7. Message #1: look at income rather than production National income rather than domestic product: take account of income flows in and out of the country National disposable income: take account of current transfers Potentially important for developing countries and countries with large foreign investment

8. Net national disposable income as % of GDP

9. 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

10. 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

11. Message #3: emphasize the household perspective Average HH income can move very differently from GDP Examples: Italy, Japan, Korea, Poland, Slovakia, Germany as next graph shows

12. Real household income and GDP growth, 1996-06

13. …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

14. ‘Individual’ services provided by government in France in 2007 (€290 bn, ≈20% of HH disposable income)

15. …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

16. 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  recent work by INSEE

17. 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

18. Changes in society may lead to shifts from household production to market/institutional production Example: care of elderly moves from care by children or relatives to professional care Measured income rises and suggests economic growth But there has only been a shift in how these services are organised …for example household work

19. Key ingredients: –Results from time-use surveys –A price or wage for each hour spent on housework –A measure for the capital used in housework …but how to measure household services?

20. Time use surveys

21. 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

22. Real income with/without household work

23. Probably not But periodic statistics with a measure of full income very useful Potentially large effects on measured income distribution Distribution of full income likely very different from distribution of NA income …full integration into core national accounts?

24. National accountants have never claimed that GDP is the best measure of material living standards, let alone quality of life Inside the national accounts, reasonable measures of material living standards exist but need more visibility Some new measures should be developed to complement the accounts: Conclusions (1)

25. For instance, household production of non- market services lend themselves very well to teratment in satellite accounts International comparisons of living standards should emphasize comparisons of real household income Add distributional information so that people more easily recognise themselves in official statistics Conclusions (2)

26. Thank you!