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GNP has expenditure sectors, too

By: Mahar Mangahas - @inquirerdotnet February 04,2023 - 08:00 AM

The gross national product (GNP) of the Philippines is the money value of all goods and services produced in a given time period by Filipino entities. As a measure of aggregate economic activity, it works; more GNP definitely means more activity. As a measure of general economic well-being, it’s clumsy; it is notably silent on distributive justice.

The latest quarter’s growth in GNP was a decent 7 percent (annualized) but had no special economic effect on two of every five Filipinos. Thankfully, about one-third got better off, and fewer, about one-fourth, got worse off (“Net Gainers reach +8,” 1/28/23).

Restoring a growth rate won’t restore its base right away. Going from 100 to 50 is a drop of 50 percent. Returning from 50 to 100 is a rise of 100 percent.

The collapse of production from the pandemic reduced per capita gross national income, in real terms, back to what it was in 2015. At present, general economic well-being has recovered only partially to pre-pandemic 2019.

GNP is primarily based on data from producers. The 7 percent growth rate is the average overall production sectors, such as agriculture, fishing, forestry, mining, manufacturing, trade, private services, government services, and so forth. Some sectors grow faster than others. Some sectors shrink.

To generate GNP numbers quarterly, the government needs quarterly surveys of production units: farms, firms, self-employed individuals, and itself as a producer too. It has sectoral surveys of firms, particularly the large ones. It does sample surveys of farms. There is the Labor Force Survey, recently graduated from quarterly to monthly, which I think asks for the earnings of the self-employed (but doesn’t publish them).

Production involves a value chain, as a producer purchases inputs from other producers. To compute GNP without double-counting, national income accountants need to know the value-added by a production unit, net of the payments to other production units. This value-added includes the compensation to the workers and owners of the production unit. Even government production should be valued at its own internal costs, excluding purchases from outside.

Government can direct its own production activity, but can only try to influence private production.

GNP also equals consumption plus investment spending. Consumption is for things used up in the time period. Investment is for new capital goods, or durable things that are the basis for production in the future.

Private consumption by households is a good basis for people’s current well-being; its growth deserves to be targeted. Government consumption includes the overhead spending for maintaining its bureaucracy, military, and police. They are regrettable but necessary expenses: a peaceful society allows the production sectors to function properly.

Government can direct its own investments and can try to influence private investments for the public good. Government spending for public education and public health are investments in the people’s human capital, and therefore should be well targeted. In particular, the undernourishment of young children can’t be allowed, or else their mental capacity will be permanently damaged.

The government can’t command economic growth. It can only direct its share of the economy—as to what and how much it produces, and on what and how much it spends. If the 7 percent GNP growth capacity could be allocated across types of spending, how should it be done?

GNP growth keeps bankers happy. If there’s a special sector that benefits from growth in general economic activity, regardless of the type of production and type of spending, it must be banking and finance services.

More business means more financial transactions: more bank deposits, more borrowing, more lending. No wonder every big bank does its own forecast of the GNP growth rate. Their bottom lines must be very highly correlated with GNP.

GNP growth keeps international banks happy. More GNP means more tax collections for the government. It assures the World Bank, the International Monetary Fund, and other institutional creditors, of the government’s capacity to pay its debts. It lessens foreign investors’ concern for the safety of their money in Philippine companies. It assures the Philippine government and private sector of continued access to international finance.

But does faster GNP growth make the Filipino people happier?


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