Rewriting Economic History
From the perspective of a blogger/activist addressing the negative impact of globalization on people and ecological biodiversity, I recently considered organizing a campaigning group to explore one of the most fundamental and underutilized ways of addressing economic justice through National Accounting Systems. I’ve been occasionally writing about its historical and contemporary significance and impact on national economies and global trade, and advocating that the U.N. System of National Accounts (SNA), housed within the U.N. Statistics Division, should be ground zero for activating international change via integrated economic and ecological accounting.
As to the consideration of the relevance of the SNA, the recent release of the Bureau of Economic Analysis (BEA) on its revision of National Income and Product Accounts (NIPA) raises the value of GDP in the US by 3%. This may not account for much in social services, education, or healthcare, but as a primary index used to determine economic strength in international trade, GDP is substantial. The Financial Times calls this the most far-reaching methodological change in years and will “add the equivalent of a country the size of Belgium to output in the world’s largest economy.” Further, the article continues, “This change is aimed at more accurately reflecting the modern economy and will make the US the first country to adopt a new international standard.”
The international standard that is being referred to is the changes reflected in the 2008 update of the 1993 System of National Accounts (1993SNA). Some of these changes are highly technical and refer to global taxation, fixed capital formation, and intellectual property products. One of the changes recognizes Research and Experimental Development as a fixed asset, which means that investors can account for losses of “future anticipated profits,” and include other derivative financial products that would include losses from failed R&D.
Also included in the 2008 update are the changes made to Military Systems.
Expenditures on weapons systems have been moved from being accounted for as inventory to that of a fixed asset able to attract new capital investment, which may help to explain why despite sequestration, military contractors like Lockheed Martin have beat analysts’ forecasts with a 10 percent rise in second-quarter earnings and lifted its full-year profit forecast.
Discussions on the weapons systems accounting change included:
• recognizing that weapon systems provide a nation with economic benefits by protecting the liberty and property of its citizens.
• recognizing the role of capital in the production of defense services.
• recognizing that existing military equipment has value and can be sold.
• When a government sells or transfers used military equipment, the treatment requires a counter-intuitive accounting entry of negative intermediate consumption.
• The distinction between destructive equipment and non-destructive equipment that may be used for peaceful purposes is difficult to make in practice.
• The treatment of military equipment used by the military is inconsistent with the treatment of the same equipment (for example, armored vehicles) used by internal police.
• The treatment is inconsistent with the latest international public sector financial accounting standards.
• Many countries now maintain military equipment for long periods and are concerned about scheduling and providing for its replacement.
Also, last November, the National Bureau of Statistics announced that China will revise its gross domestic product (GDP) accounting methods in line with new international standards.
The bureau told Xinhua News Agency on Tuesday that China’s current methods are derived from the 1993 version of the United Nations System of National Accounts, which was revised in 2008. The bureau is studying the 2008 version and will gradually revise the system to comply with it.
Why anyone should care about the shift of accounting standards from the largest manufacturer and importer of raw materials in the world and the largest manufacturer of weapons systems should be of significance, and can be found not only in the accounting details of GDP calculation but also in the history and policy within the United Nations Statistical Division.
The 1993 System of National Accounts (1993 SNA) is a comprehensive, consistent, and flexible set of macroeconomic accounts designed to meet the needs of government and private-sector analysts, and policymakers. It was prepared jointly by the International Monetary Fund (IMF), the European Union (Eurostat), the Organization for Economic Co-operation and Development (OECD), the Food and Agriculture Organization of the United Nations (FAO), and the World Bank. These organizations constitute the Inter-Secretariat Working Group on National Accounts (ISWGNA) and have been mandated by the Statistical Commission of the United Nations to oversee international coordination in the development of national accounts.
BACKGROUND
In the planning for post-war reconstruction, it was generally agreed that there needed to be a more global standard to ensure stability in international trade. Proposals drafted for consideration by an International Conference on Trade and Employment addressing these issues included the IMF and the Bank for Reconstruction (World Bank) drafted at the Monetary and Financial Conference at Bretton Woods in 1944, the ratification of the FAO in 1945, and the International Trade Organization (ITO) in 1948. It should be noted that during the post-war planning conferences, the ITO was going to be addressed during Bretton Woods, but planners decided to split the invitation to Bretton Woods between finance ministers and trade ministers. The final ITO conference was held in Havana in April 1948, at the same time that Congress approved the 1948 Economic Cooperation Act (ECA), aka the Marshall Plan.
By 1948, there was a strong reaction in Congress against the ratification of anymore UN international agreements that was led by Senators Bricker and Knowland. In part, because of the insertion of “full- employment” in the ITO– a concept that Republicans deemed controversial and communist– the ITO was rejected and the US-proposed 1947 General Agreement on Tariff and Trade (GATT) remained in effect.
By withholding ITO ratification and implementing the Economic Cooperation Act, the U.S. was essentially drawing the line that created Cold War policy. The ECA gave the U.S. the ability to refuse the delivery of commodity goods to any participating country if they promoted policy outside the approval of the ECA administration. This included the production of any commodity destined for any non-participating country that refused U.S. export licenses. In the 1947 GATT, exchange arrangements and the valuation of goods were not yet pegged to the dollar, and currency trade conversions were still determined by the IMF.
The ECA is significant, because as we approach the subject of trade cooperation, the implementation of the IMF and the World Bank was essentially co-opted by Congress during the Senate hearings in 1947, “A Bill to Provide for Assistance to Greece and Turkey,” and established the process through which funding f or reconstruction would come from the Export-Import Bank of Washington via aid grants. Additionally, the stabilization of Greek and Turkish currencies–a program originally intended for the IMF– would provide for aid-recipient countries by depositing 90% of their investment loan into a special U.S. Treasury account earmarked for “productivity programs” that ultimately benefited U.S. manufacturing and labor. Much like current US Aid projects, the Marshall Plan promoted privatization and deregulation of restrictive business practices. The Marshall Plan also strengthened the International Confederation of Free-Trade Union (ICFTU) as the collective bargaining agency of labor within aid recipient countries. (The ICFTU was created in 1949 by the State Department, AFL, British and Dutch Trade Unions to challenge the progressive Soviet-led World Federation of Trade Unions (WFTU) to which the ILWU belonged.)
In 1951, the ECA program concluded, rather, transformed into the Mutual Securities Act which continued until it was again transformed under Kennedy as the 1961 Foreign Assistance Act, but the ECA continued to be referenced in congressional documents.
In terms of the National Accounting System, in 1953, the Bureau of Economic Accounting (BEA) established GDP as the index that would be used to guide trade between cooperating countries and use the dollar as the international reserve currency. At the same time, under section 115(k) of the ECA, all of the ECA countries (which at the time included Austria, Belgium, Denmark, France, Germany, Greece, Italy, Netherlands, Norway, Turkey, and the U.K.) had deposited a percentage of their currencies into the U.S. Treasury and were measuring their trade economies against the dollar’s status as currency reserve, aligning their national accounts to the GDP statistical index.
Earlier, in support of the World War II Lease-Lend Act, Nobel laureate, Wassily Leontief revised GDP to account for the post-Depression-era estimates with income, production, and investment into an anti-inflationary wartime economic model, and in 1945, the Commerce Department further refined his efforts and published the 1947 edition of National Income, writing perhaps for the first time, a US-led global economic program whereby GDP was f further defined as an integrated system for international trade.
Later, in 1955, to spur foreign investment, the International Finance Corporation was created as an affiliate of the World Bank to receive capital from participating countries. Taken together, all these proposals augmented the international movement of goods and investment funds, and enlarged the goods and services of U.S. consumers, while opening foreign markets to U.S. products.
During the post-war period, the U.S. rewrote economic history primarily for the benefit of its economic health, advancing trade conditions that favored a matrix of the total import and exports of goods and services, income and consumption, and taxes and subsidies.
These were the primary trade and accounting conditions until 1993 when the UN Statistical Division completed their first systemic overhaul of the National Accounting System . As a reference, the North American Free Trade Agreement (NAFTA) was ratified in 1994, and the WTO replaced GATT in 1995. These were all events that coincided with massive economic growth in the U.S. according to GDP figures, and led to the further disparity of income among working people, as well as changes in the rights of investors and corporations.
This early harmonization between currency stabilization, accounting, aid loans, international labor, shipping and transport, and even colonization, should ring as a precursor to the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP), two massive US-led trade agreements. Although there are many differences, the motivations are such that the U.S. has shown remarkably strong coordination in International Organizations, particularly by exploiting differences between competing economic systems. During the post-war era, competition over the newly liberated “territorial” resources led to divergent labor struggles between the Soviet-led WFTU and the US-led ICFTU. Today the primary struggle is less about what union controls the ports and docks, but between investment procedures in developing and emerging economies; between State-owned investment banks and Wall St; and control over shipping lanes. Perhaps coincidentally, but reminiscent of the Cold War, BRICS economies are also excluded from the TPP/TTIP cooperation because of its rejection of the dollar as the sole international trade currency.
This continued domination of rewriting economic history has blowback that proves that whatever benefits this coordination has gained, it has only perverted and obscured whatever idealism there may have been during the postwar era by creating vast economic disparities and greed that obscures the idea of economic health and well-being, and threatens the entire biodiversity of this planet.
Future
At the turn of the millennium, the Genuine Progress Indicators of Sustainable Well-being Accounting (GPI) challenged the GDP hegemony and offered a cohesive route towards fundamentally changing the ecological andeconomicbarriersfortheglobalSouth.In 2001, GPI advanced the possibility of creating a deficit to unsustainable policies that include resource extraction, depletive industrial fishing and farming practices.
In 2003, the SNA, arguably building upon the GPI, produced the Integrated System of Environmental and Economic Accounting (SEEA2003) to complement, if not replace the current GDP formulation. Details of this proposal were discussed and rejected during the 2008 SNA revision process, yet in 2012, the central framework of the SEEA, was adopted at the 43rd session by the United Nations Statistical Commission with the aim of being integrated with the SNA.
Unfortunately, what was adopted in this 2012 SEEA was only the central framework, and the Commission failed to include the alternative well-being indicators that were in the previous SEEA drafts. Ecological issues that account for resource depletion and environmental degradation, food security, democracy, and the revision of outdated economic boundaries to include women’s rights, household labor, and child-care, were deemed experimental. However, the Statistical Division has provided us with a detailed working template—the 2003 SEEA—that could be used to revise national accounts despite its rejection by the current investment regime.
Currently, there may be a very small window of opportunity to assert a new kind of accounting integration: one that is inclusive of free prior and informed consent and develop a new integrated ecological standard that does not reward environmental degradation or resource depletion. As new climate change reduction ideas have already been embraced by APEC, ADB, the TPP, Wall St, and the investment regime, these initiatives have no rules, because, at this time, it is just a framework.
There are many GPI-based working groups and commissions established by universities and governments– perhaps most notably, the 2008 Commission on the Measurement of Economic Performance and Social Progress by Joseph E. Stiglitz, Amartya Sen, Jean-Paul Fitoussi, commissioned by the outgoing French president Sarkozy.
If we continue to wait for advanced economies and the investment regime to allow the large global transnational corporations to define ecological change, it will likely be too late. We need to participate in a progressive harmonization strategy that is inclusive of all people and global bio-diversity now.