The Political Economy of Gross Domestic Product Accounting and the Philippine Case

Keynes’ recognition of the importance of national accounting in the circular flow became the main inspiration of the neo-classicists’ construction of a system of national accounting, which was initiated by Simon Kuznets in the 1940’s. Keynes’ advocacy of government intervention through fiscal policies, however, did not have a wide impact among bourgeois economists, and by the late 1960’s Keynesianism has all but waned in the academic and professional world. The free enterprisers, with their old mantra of Say’s law of supply and demand, under the lead of the monetarists of the Chicago School like Milton Friedman, began again lording the economic arena in the 1970’s and influencing government policies in the US. The US Federal Reserve since then has always been the leading economic policy maker in the US, manipulating interest rates to boost up the economy along the line of the free-enterpriser monetarist school.

National Accounting, which became the basis for deriving the gross domestic product (GDP) of an economy, is market-oriented as it presents the prices of final goods and services in the market. To avoid double counting, it deducts as we have seen intermediate inputs in the process of production such as raw materials and supplies, fuels, etc., to arrive at gross value added (GVA). It is blind to who acquires the greater part of the gross domestic product, whether, for instance, only the top 10% of the population gets the largest 90% share of the economic pie while the rest of the population only earns the remaining 10%.

Since the method of calculating GDP relies on the final prices of good and services in the market, it encounters conceptual difficulties. For instance, if a house is constructed in year 1 for a family who previously rented an apartment, its value would be only counted for that year by the costs of constructing that house, that is the prices of construction materials, decorations, etc. But the house of course adds continuing value to the family, who finally had a home, in the years to come since they would not have to rent anymore. Neo-classical economists attempt to solve such a problem, based on their market method of calculating the growth of the national economy, by their introduction of the notion of an imputed cost. Imputed cost, in the case of the house, is its market-value in terms of rent, assuming that the family rent their own house year in and year out. Thus the family are imagined as landlords to themselves!

Another conceptual difficulty of the market-based GDP is concerning government expenditures included in the national account. A road a government built for year 1 is counted for that year as a final product, but obviously to companies whose trucks travel on that road to transport their goods the use of the road is intermediate. Which is which? How about the continued use of the road in the years to come by vacationers? This situation shows a contradiction with the method of GDP accounting by capitalist economics, for while in the case of the house of a family that is imputed to be rented in the years to come, thus assuring its constant inclusion in GDP accounting, this is not applied to government capital expenditures, like roads and buildings, since government is supposed not to profit and not to compete with private business. Talk about the fear of capitalists of the government taking over the business they profit from.

And how about the loss of agricultural lands caused by capitalist ventures like the building of dams, mining and logging?. These lands may have been the sources of incomes for poor families living in their environs, but with the coming of capitalist undertakings, partly funded by the government, these incomes may have been eradicated entirely. While, there may be added value to GDP by the expenditures on these capitalist projects, these would mostly go to the pockets of the owners of mines, logging and construction companies. While such projects may have increased national poverty, displacing thousands of poor peasants and indigenous peoples, GDP may be increasing because of the sales and profits of firms. Thus, this is a case where the growth of GDP and poverty is inversely related. That is why the World Bank has to invent its theory of “trickling down effect” regarding the activities of capitalist firms, which is that the welfare of poor people will eventually improve if they are in the vicinity of capitalist activities as they may be hired, for instance, by mining and logging companies or vendors may sprout up to sell goods to the employees of these firms. This only adds insult to injury to a farmer who may have lost his home because of the construction of a dam, no thanks to the meager payment if there is any made to him for his house and field, which is of-course a one-shot deal compared to his continuing livelihood in the place he used to live. The World Bank’s trickling down effect theory, adopted by many mainstream economists, is just a mere consolation to the already marginalized poor. That is why in the Philippines, it is known as the “momo” (leftover) effects among the poor.

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