[OPE] Operating surplus (for Paul Cockshott)

From: Jurriaan Bendien <adsl675281@telfort.nl>
Date: Tue Jun 02 2009 - 16:38:22 EDT


Because I am not wealthy I can't get a lot of the specialist literature I
really want to get, but anyway I acquired a used copy of Francois
Lequiller/Derek Blades, Understanding National Accounts (OECD 2006) which is
actually quite a useful official story (the OECD still has some pretty good
analysts, writers and economists). I also recommend
http://www.amazon.com/System-National-Accounts-World-Group/dp/9211613523/ref=sr_1_1?ie=UTF8&s=books&qid=1243968841&sr=1-1 I
think there's supposed to be a version on-line, maybe at the UN site. The
2008 UNSNA revision is available in draft form (I have given the links in my
http://en.wikipedia.org/wiki/United_Nations_System_of_National_Accounts_(UNSNA)#The_2008_UNSNA_Revision )

Lequiller/Blades show on p. 198, in a simplified theoretical way, a tidy
reconciliation of the profit figure in the national account and in the
company account, as follows:

UNSNA net operating surplus
plus consumption of fixed capital
equals UNSNA gross operatig surplus
less amortization (company accounts)
plus UNSNA inventory appreciation
less conceptual or practical differences (treatment of software, fraud,
leasing arrangements)
less UNSNA property income paid
plus UNSNA property income received
plus exceptional losses and profits, in particular capital gains and losses
equals pre-tax profit (company accounts)
less tax on profits
equals after-tax profit (company accounts)

This refers only to profit realised from resident enterprises in domestic
territory; MNCs will obviously realise a chunk of profits abroad, a portion
of which is repatriated).

So as you can see clearly formalised here, UNSNA operating surplus and
profits in company accounts "differ". The problem is that if you really try
to do this reconciliation, you need the data to do it, and then you face the
problem that it may, or may not, be available. Sometimes statistics
departments do provide disaggregated company data or flow-of-funds type
data, and sometimes tax data enable you to plug the gaps, but sometimes
getting any aggregate company data is just very hard.

The property income item, as I have emphasized in the past, is ignored in
Marxist analyses but very important for a scientific analysis, since the
FIRE sector realises a lot of it. Thus, when people say that "the FIRE
sector accounts for a third of corporate profits" etc. this can actually be
an underestimate of the actual FIRE sector income, since various items
(property income and various rents) are not included in the total.

There is also e.g. the problem of corporate officer's remuneration. In a
Marxian account, a chunk of that is regarded an appropriation of
surplus-value, of profit (it can take the form of stock-options etc.). But
in fact it appears in the official account as a cost of production which,
although (if tax data is to be believed) it is considerable (since the
directors, executives etc. can earn say 50x, 100x or 250x what ordinary
workers earn), cannot easily be separately identified. You end up having to
strike a fixed ratio between corporate officers's salary and the total
salary bill, using tax data, or estimate totals from labour force data, or
something like that. Anyway, I think the total effect of the official method
of calculation is that the real gross profit volume realised is almost
always larger than the official figure suggests, for many, many reasons.
Profit is not supposed to be a dirty word anymore, but businesses have a
vested interest in overstating profits here and understating them there, for
tax reasons, subsidy reasons, costing and to appease shareholders. Often the
question can be "within what margins you can fiddle the figures".

Often statistics departments simply do not provide the base data for their
calculations, because the components of their aggregates contain imputations
about which they aren't very sure, and they estimate the larger aggregates
using mathematical models which extrapolate figures from "indicative" data.
The reason why they do this is (1) because it is cheaper (you don't have to
survey a whole bunch of things, and your survey budget is limited), and (2)
they think empiricistically that their extrapolation and inferential methods
are actually more accurate and believable. Either the larger flows are, once
estimated, retrospectively apportioned to sub-flows in the account matrices,
or they are simply not available. The OECD often gets the details of base
data calculations from national offices in order to adjust their figures to
their own standard, but they don't necessarily release them, it's sort of
like "the cook's secret".

In general, all accounting which aims to group transactions in analytically
useful ways assumes a system of grossing and netting, which in turn assumes
a system of transactors, which in turn assumes a certain view of the social
and economic relationships involved. As I explain in my paper (which I
haven't ready yet at this particular moment), the last-mentioned is to a
large extent hidden (not explicit), i.e. there are unstated assumptions, and
the reasoning involved in the grossing and netting procedures is not always
very coherent. Once you have fixed your complete accounting system of
concepts, then obviously it is at least conceptually "relatively
straightforward" to do your grossing and netting arithmetic, since you know
what the rules are. But the real problem is with the concepts themselves.

The Stiglitz Commission doesn't really question the accounting system as
such in this sense, rather the thrust of their idea is that to get some
measures of total wellbeing you should deduct environmental and social
"costs" from total income generated or output value produced. It is an
argument about how to do the grossing and netting in society which however
does not really scrutinize or criticize the conceptual framework itself. The
liberal criticism is typically about the "costs", but they hide that for
every cost there is an income, and that "some people" get that income, and
not others. For example the Iraq war costs half a trillion or a trillion
dollars, and then they say this is simply unaffordable or a waste of money,
that it should be spent on something else. But they forget that there was a
whole class of people who were very happy to get half a trillion or a
trillion worth of revenue, it boosted their business. So the liberal
analysis is always a one-eyed (wink, wink, nudge, nudge) social analysis, it
leaves half the story out of the story. They make it look like that the war
is "bad for business", but it's good for business, in fact in a strategic
sense that is why they have the war in the first place.

When I worked on this stuff 20-25 years ago, I concluded that if you are not
interested simply in regurgitating Marx, there is a whole "analysis of
political economy" to be done using the categories of today, rather than the
categories of 1867 or 1857. I didn't finish off what I started back then, I
ran out of money and had to get a job (and nobody will fund this kind of
critical research). I predict that somebody is going to do it however in
some way or other, basically because governments begin to discover that the
real economic relationships in society are simply not adequately reflected
or made explicit in the social accounts. This is not simply an academic
issue, and for two main reasons: (1) for taxation purposes you really do
need to have an accurate and comprehensive view of real incomes, real sales
volume, real costs, real asset and liability holdings, and real transfers,
and (2) you cannot develop any good policy, on the basis of data
categorisations which actually distort or mask what is really going on out

A large part of the "use" of national accounts data today is actually
ideological - people just add and subtract things to show that a total is
not as big as you might think, or that it is really bigger than you think,
or that mine is bigger than yours, etc. It is much more difficult to arrive
at a truly "realistic" portrayal of the real economic relationships in
society, and what they really mean. Actually, serious financial analysts get
exasperated, because all kinds of amateurs pull out figures and make claims
about them, which are actually not meaningful, and ought to be placed in
their appropriate context. For example, the amounts of capital which are
insured for various eventualities via derivatives contracts are certainly
huge, but the actual real earnings from exploiting those contracts are,
relatively speaking, only a rather tiny fraction of the total sums insured.
And it's the total yield of the contract that is really the significant
thing, because that shows what the derivatives business is really worth in
the total of income flows.


When your life is over, you're reaching the end
And the river of Jordan is around the bend
Will you be counting all the trophies you've won
Or will you look back on things left undone

- Paul Thorn, Things Left Undone

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