Adaptation of systems of national acounts for use in African development planning

'UNITED NATIONS

AFRICAN INSTITUTE FOR ECONOK

/

DEVELOPMENT AND PLANNING

I

^DAKAR.

IDEP/ ET/ LXVl/ 2118—B 5 O °f)

56

ADAPTATION OF SYSTEMS OF NATIONAL ACCOUNTS FOR USE IN AFRICAN

DEVELOPMENT PLANNING

Mr. G.C. ABANGNU

OCTOBER 1968

IDEP/ET/LXVI/21

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CHAPTER III

ADAPTATION OF SYSTEMS OF NATIONAL ACCOUNTS FOR USE III AFRICAN

DEVELOPMENT PLAINING

III.1 NATIONAL ACCOUNTING REQUIREMENTS FOR DEVELOPMENT PLANTING IN AFRICA In the first two chapters we examined, the basic concepts and defined the notions used in national accounting^ we then showed the methods of

estimating national income or product and finally assessed comparatively

the various national accounting systems from which national accounting practices in Africa developed.

Now we are in a position to survey Africa's national accounting

experiences in the light of national accounting requirements for practical development planning.

The importance of national accounts in development planning can best be assessed by examining the actual procedures for drawing up a national development plan and the various data necessary for such steps.

The technical stages in national plan formulation ^can be theoreti¬

cally decomposed into six stages.

1. SURVEY OF PRODUCTIVE FORCES (NATURAL. HUMAN AND FINANCIAL)

To enable the planners to establish feasible and

consistent.targets,

an inventory must be taken of the existing productive resources so as, to determine where there are slacks

(excesses)

^and critical shortages

(bottle¬

necks)

in the national economy. This first step consists in the assemblage

and analysis of quantitative and qualitative statistical data. This data would inter alia embrace the following;

(a)

Survey of natural and human resources

(population,minerals,

agri.

resources)

(b)

Survey of existing facilities

(port,

electricity, roads, industrial

estates)

(c)

Establishment of a consistent set of national accounts

(d)

Establishment of a consistent set of financial balances.

1

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From the foregoing surveys data are extracted and published in the forms more familiar to us. Such technical documents includes

(a)

National Income estimates.derived by the-output, income and

expenditure approaches

(b)

Agricultural, Industrial and Other Sectorial Surveys

(c)

Family, Regional and National

Budget Studies.

(d)

Manpower Balance.

From the combination of the above studies the planner is able to derive certain technical coefficients which are of fundamental importance

in national development planning. Such coefficients include the capital-

output ratio, the savings ratio, the average and marginal propensities to

consume and import, the elasticity of output with respect to capital, the elasticity of output with respect to labour. Needless to say,

the deriva¬

tion of such coefficients are not possible where a consistent set of

national accounts is lacking. The marginal-capital output ratio is nothing

else but the quantity of capital required to raise national income by one unit. To derive this therefore we must have a knowledge of the contours of the GDP _{and gross} domestic capital formation figures.

Even in areas traditionally thought to be free from requiring national

income data it has actually turned out that such data are indispensable.

Take the problem Of"expansion of port facilities'usually encountered in African development planning. Here it was thought that port expansion should be predicated on the level of exports and imports. Already these

two elements are key elements in the national income formula

(Y

⁼

C+I+X-M)

but in fact the problem is that the port expansion function is actually

determined by the levels of consumption and investment which in turn

determine the levels of exports and imports. It is therefore* "Obvious that the _presence of ^a consistent set of national accounts is indispensable ^even at this first stage of planning.

The purpose of the first stage in the preparation of the national plan

to

is attempt a diagnosis of the total

economic,social

and cultural situation,

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assess the development potential, reveal critical bottlenecks and excess

capacities and establish tentative priorities and objectives for the national development plan.

2. QUANTIFICATION OF NATIONAL DEVELOPMENT OBJECTIVES. PREPARATI OIT OF THE OVERALL PLAN STRATEGY AND PLAN FRAME

In the second stage we now make use of the technical studies, data

and coefficients, derived from the' first stage, for1 the quantification

of the plan frame and plan objectives.

Plan objectives are usually couched in terms of the total set or a subset of the following!

(a)

^{to achieve an annual} growth rate of x

and/or

^{a per} capita growth

rate of x

(b)

to achieve a more even inter-personal and inter-temporal distri¬

bution of income

(c)

elimination of the lop-sided structure of the economy

(agricul¬

tural

dependence)

(d)

balancing the foreign trade sector

(e)

^to avoid inflation

(f)

to liquidate unemployment and underemployment.

A review of any subset of the above objectives shows that all the objectives are couched in terms of national accounting concepts. The

annual growth rate of x or x mentioned above refers to the annual growth

rate of the GDP. We cannot determine the profiles of inter-personal or

inter-temporal distribution of income without a consistent set of national

accounts being in the first instance available. Agricultural dependence

can be derived through the national income estimates of the share of agricultural production in the GDP. The presence of balance of payments

accounts in the national accounting fra.mework is obvious. Inflationary

forces can easily be extracted from the national accounts data through an examination of government and private consumption budgets, the level of

investment and sources of its finance and the balance of payments. Hence

it appears that the setting of quantitative objectives in development

IDEP/ET/LXVI/2118-BIII

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planning can only be done within the framework of

national

accounting concepts.

It is not therefore surprising that the plan frame itself is predica¬

ted on a national accounting model. The basic equations used in the model

are all familiar national accounting concepts, vizs

Yo = Co + Io + Xo ^- Mo

(1)

Yn = Yo

(l

+

*)n (2)

In = K

(Yn+1

^-

Yn) (3)

Sn = In - Pn

(4)

Xn = Xo

(l+r)n

^...

(5)

Mn = Mo + m

(Yn

-

Yo) (6)

where, Y, C, I, X, M are

dated variables

we

have already encountered above5

K is the capital-output ra,tio, x is the annual rate of growth of Y; S

is

Savings; F is net foreign aid; r is the annual rate of growth of exports;

m is the marginal propensity to import. The above abreviated plan frame

(model)

cannot be constructed without making use

of national

accounts.

The

national accounting franework helps us to determine ex-ante such important aggregates as the level of net foreign inflow of capital

(aid) (M

^- X ^or

I ^-

S),

the level of consumption, etc and thus enables us to ^carry out a macro-economic projection of the whole national economy which is the essence of this second stage of national plan elaboration.

3. PREPARATION OF SECTORAL STRATEGIES ARB SECTORAL PROGRAMMES

The basic balances required for the third stage are as follows:

(a)

Balance of Capital Formation and its financing

(b)

Balance of Public Accounts, Current and Capital

(c)

Balance of Payments

(d)

General Equilibrium of Goods and Services

(e)

Regional Balance

(f)

Manpower Balance

(including

incomes

policy)

It _appears obvious that almost all the above balances ^can be, or are in fact derived from national accounting balances. Even for regional

balances there is ^a family of relationships between the optimal allocation

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Of investment and income between regions and national accounting since the former cannot he determined outside the framework of regional national accounts.

4. PROJECTS FORMULATION AND APPRAISAL

It is now an accepted practice that projects should he chosen and

priorities laid down on the criterion of the maximum contribution of the project to the national income. When we say that if there are Projects

A and B both of the same life _span and requiring the same amount of

investment but Ka, capital-output ratio for Project A, being 4 while Kb is 2.5, Project B should then be preferred to Project A ceteris paribus, we are in fact back to national income or product aggregates. Assuming that

the required investment is 1000 NMU, _w.e are in f-ao-t saying- that since Project A contributes only 250 units to. the national product while

Project B contributes 400 units Project B should be preferred to Project A since Project B contributes more to the national product than Project A

over a given time period. ■ - ■ ■

Even where the criterion is that of

profitability,

labour

intensity,

balance of payments, recurrent budgets, etc, the family of relationships

between these criteria of choice of projects and national accounting is

too obvious to be elaborated further.

5. CONFRONTATION AR D REÇOITGI LI AT I OR OF PROJECTS WITH SECTORAL PROGRAMMES At the fifth stage of the plan elaboration process planned sectoral demand

(e.g.

for the industrial

sector)

derived from the second and third stages are set in confrontation to the sum of the output generated by the

sum of the projects

(from

the fourth

stage)

in the relevant _sector]

sectoral investment allocations are compared with the actual planned investment costs of the sum of the projects in the relevant sector]

employment generated bj all the projects in each sector is compared-"with

the planned sectoral employment targets] the import - export ^- foreign exchange balance is tested, the net foreign investment

(aid)

^and I ^- S

balance are reconciled and adjustments are made for linkages, net external

economies and dynamic complementarities. It is only after these reconci¬

liations that government policy and other measures can be formulated to

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ensure the preservation of plan priorities in the plan implementation pro-

*

cess. Such policy measures include: foreign exchange

allocations,

subsi¬

dies, credit, land reform, etc.

The organic relationship between national accounting and this fifth stage follows from the arguments already put forward when we were discuss¬

ing the preceding four stages. The process of sector - projects reconcilia¬

tion and formulation of policy measures cannot be effected outside the framework of national accounting. In fact it is in this and the sixth and final stage that the importance of the national accounting framework is brought out clearly.

6. CONFRONTATION AND RLCONCILIATION OF SECTORAL PROGRAMMES WITH THE PLAN FRAME

At this final stage projected total demand

(derived

from national accounting

estimates)

in the plan frame is confronted with the stuns of out¬

put and incomes respectively generated by the sectoral programmes5 projected

total investment as in the plan frame is reconciled with the sum of the investment costs of the sectoral programmes! total employment generated by the sectoral _programmes is compared with the employment target in the plan frame.

Thus although in planning we s^art off with broad macro-national accounts' aggregates like GDP, consumption, investment and savings, we nevertheless pass down to the sectoral levels and to the projects

(micro)

and then go back to the aggregative level through the sectoral level. It is through the use of national accounting tools that we are able to perform

this formidable task without loosing our head.

A good plan must possess four qualities: optimality. completeness.

feasibility and consistency.

By optimality we mean that the plan must be the cheapest of all the plan variants — and the yardstick for measuring cheapness in development planning is that of minimum investment which means least capital-output

ratio. We are therefore back to national accounting. By completeness we

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mean "that all "the sectors must he shown to be related to each other so

that the law of equi-proportionate expansion is obeyed. Diagram C shows

us how the national income or product accounting helps us to preserve

completeness in development planning. Thirdly, a good plan must be feasibl

in terms of finance and manpower. The budgetary accounts used in national accounting helps us to achieve financial feasibility, and the income

accounts used in national accounting serve as a guide to labour feasibility By consistency we mean that the ^sum of the results of sectoral programmes, which in turn is the sum of the results of the projects,must be consistent

with the plan targets and objectives. As the latter are usually couched

in national income or product terms, the organic relationship between plan consistency and national accounting is obvious.

Diagram C shows in reality how national accounting serves as a tool

for meaningful development planning and how all the branches of the

national economy can be brought into hierarchical and organic relationships

from the macro-down to the micro-levels and back.

In Diagram C we have presented the national income data in the three economic categories and a fourth functional category

(national

appropria¬

tion)

which merely shows the organizational repartition of resources and

their uses as for either consumption or saving. The organic interrela¬

tionships in the Diagram are very important for planning. In a consistent

set of accounts, for example, S ^- 1 must be equal to X ^- M since C is

common to accounts

(ï)

and

(4)

in the Diagram. In practical planning these

two gaps need not necessarily be equal and it is here the processes of

iteration and successive approximation are applied and the policy implica¬

tions and measures derived. In serious planning also the C in Account

(ï)

is distinguished from the C in Account

(4)

for whereas C in Account

(4)

depends on Account

(3)

^{i.e. on} income, C in Account

(ï)

depends on Account

(Z)

i.e. on the availability of real

resources.-l/

1] For

a

distinction

between the two

C's

see

OECD, Quantitative Models

as

an Aid to Development Assistance Policy,

(Paris, OECD,19^7) P«67«Their

interpretation of the two C's is however different from the one adopted

here.

IÛEP/ET/LXVI/2118-BIII Diagram C

Page 8.

NAIxOL.JJ ACCOUNTING REQUIREMENTS FOR DEVELOPMENT PLANNING;

BALANCE OF Ti E NATIONAL ECONOMY AT THE liACRO-. SECTORAL, AND MICRO-LEVELS

(1) (2) (3) (4)

(ï)

National Appropriation

- D

d- H"

-"D

d;

Private Public Consumption Consump-

Private Savings tion Cn S

Pubîic

Savings S_

Organizational

Breakdown of Con¬

sumption into

deliveries to in¬

dividual Ministries

Corporations, Households, etc.

.

\\

Organizational

Breakdown of Sa¬

vings by indivi¬

dual Ministries, Corporations, Enterprises, Households, etc.

National Output

A

+

~T + p

National Income

W •+■

National Expenditure

Consumption of A,T,P, goods and

7 ll\\\ ^///

Output of In- Output of Indi- Output of Indi-

Detailed Break-

dividual rtgri- vidual Industr- vidua! Services, down, of wages, cultural Co— ial Commodities, such as water, salaries and mmodities, such such as textiles,electricity,

bank-0^ep

incoraes by

as wiieat, cocoa, steel, corrugated ing insurance, _{gr0UpS 0f reci_}

groundnuts, yams, iron sheets, etc port facilities, _pjenbs

timber, etc. etc.

Enterprises

Detailed Breakdown of

rent, and gross

profits by

groups of re¬

cipients (pro¬

perty

income)

services

13 It Ip Investment of demand for A,

T,P, goods and and services and services services

Xa Xt Xp Ma Mt Mp Exports of

imports

of h,T,P, Goods A,T,P, goods

///

Detailed classi¬

fication of con¬

sumer expendi¬

tures by commo¬

dities and ser¬

vices

///r> v\

}/\\

ⁱ

Detailed classi- Detailed fication of in¬

vestment demand by commodities

and services and by individual projects

//I

///

/ t ^II \\

Detailed classification of Imports by

Individual Commodities and Services services and and by Source, by destina¬

tion Breakdown of Exports by indivi¬

dual commo¬

dities and

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We may now with the SCI summarize the need for national accounting in development planning. "The acute problem of under-development and the pre¬

ssing need of most African countries to elaborate a development policy spurred these countries to seek analytical tools that would assist them in their _purpose. And experience has shown national accounts to be one of the best adapted and most useful of these

tools.l/

The following major

uses of national accounts in development planning may be mentioned summarily

(a)

Study of the past evolution

(growth

^and

development)

of the national economy. The importance of developing time series of national income

or product has been shown above when we were considering the first stage of the plan elaboration process.

(b)

Elaboration of Short-term Policy Measures. National accounts data

-

are indispensable for government current policy for maintaining dynamic equilibrium of the national economy; Policies relating to Conterinflationary measures, balance of payments stabilization,

allocation of resources among sectors, inter-personal, inter-regional

and inter-temporal distribution of income^ foreign aid.domestic savings -and structure of investment are inconceivable without a

proper set of national accounts.

(c)

Elaboration of Long-Term" Policy measures. In the elaboration, imple¬

mentation and control of development plans ^a set of national accounts is the key tool. The projection of the structure of the national economy, derivation of technical coefficients used in the plan and determination of the long-term optimal mix between the public and private sectors can only be achieved within the framework of national accounts.

1( See. Economic

Bulletin for Africa, Vol.1., No.2, June

1961

^, p.39

Italics mine.

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Nevertheless _{there has} recently emerged, a barrage of criticisms against the use of aggregative national accounting concepts in under¬

developed.

countries.-l/

^{If in African} _{countries, as} the Economic Commission for Africa claims above, "experience has shown national accounts to he one

of""the best adapted and most useful of these tools" designed to assist in

elaborating development policy, then it appears that these polar views relating to aggregative national accounting must be reconciled or at least

examined further. ^-

Objections to the adaptation of aggregative accounting apparatuses or in fact their wholesale transplantation from the "advanced" countries to the underdeveloped are generally based ^on the following grounds;

1. Non-additivity and non-comparability óf"monetary and non-monetary

(subsistence)

^forms of production.

2. due to lack of data the conventional national accounts cannot he

meaningfully prepared in underdeveloped countries.

3. In any case since the economy is itself undeveloped we need not bother ourselves about the collection of economic numbers. The number of

enterprises,

schools, government

facilities,

etc, is so meagre that they may he ignored.

4. Since statistical talents are in such short supply in underdeveloped

countries they should be devoted to the study of key sectors such

as balance of payments, public sector, capital formation and not

dissipated in such aggregative exercises as national accounting.

iySee,

for example, W.J. Barber, "A critique of Aggregative Accounting Concepts in Underdeveloped Areas", Bulletin of the Oxford University Institute_S.H. of Economics and Statistics. Vol.25, November

1963,

^pp

293-308;

Frankel,

"Concepts of Income p„nd Welfare and the

Intercomparahility

of National Income Aggregates", in The Economic Impact of Underdeveloped Societies.

(Oxford; Blackwell, 1953), pp.29-685

Dudley Seers, "The Role

of National Income Estimates in the Statistical Policy of- an Under¬

developed Area", .Review of Economic Studies. No.53 1952-53» PP«159 -

168

and subsequent rejoinders.

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"Hvt-

A high proportion of population is illiterate

(sometimes

over

96$)

and. therefore they cannot keep accounts nor answer accurately to the statisticians' questions.

African countries' territorial boundaries are still unsettled and therefore given freedom of movement across boundaries and unsettled

political situation, it is difficult to assess gross domestic pro¬

duct on territorial basis.

Economic behaviour in underdeveloped countries ^are irrational

(e.g.

backward bending supply curve for

labour)

therefore economic concepts developed in the "advanced" countries are inapplicable

here.

In underdeveloped countries a distinction cannot be drawn between consumption and investment. For example, due to the low nutritional standards here an increase in consumption which reduces investment

(by

national accounting

definition)

would actually increase

national income since labour productivity is raised thereby. Hence

it might be that heie it is consumption

(not

investment as in the

"advanced"

countries)

that leads to an increase in the GDP.

In any case in these countries it is not possible to draw a dis¬

tinction between capital p;oods and consumer goods. Hence an animal may be a capital ,s:ood when it is used for ploughing or as a resource of fertilizer or a consumer good when it is eaten; groundnuts may be

a capital good when used as seed or a consumption good when consumed bicycles may be a capital good when used as a taxi or carrying loads

to markets for pay or a consumer good when used "privately" in the Western sense.

The term "investment" when transplanted to the underdeveloped

countries still run into deeper troubled waters thus. In developed

countries investment is both capacity creating and income creating

This in fact is the basis of the famous Harrod-Domar model born out of the Keynesian revolution. In poor countries however "land

clearing"

(regarded

^as investment.in.their national

accounting)

is

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Page 12.

usually done to replace old farming sites

(shifting cultivation).

It therefore only serves the purpose of maintaining original level

of productive capacity and does not create any new incomes in the Western sense.

11. Due to the seasonality of production in these countries it is not possible to derive any meaningful market or producer prices for

the purposes of evaluating the GPP.

12. Furthermore the imputation of these

(already discarded)

prices to non-marketed output assumes that they are equilibrium prices i.e.

that those prices would still hold even if the non-marketed out¬

put were to be marketed. Equilibrium prices can only exist

under full employment and since the poor countries are notorious for their degree of unemployment and underemployment it is

meaningless to use equilibrium prices in estimating the values of the aggregates in their national output.

13. In poor countries, illegal practices such as sumuggling, prosti¬

tution, native doctor's fees, blackmarketing form such a signifi¬

cant component of economic activities that to exclude them from national income estimation would do violence to reality. Since

in fact they should be excluded national accounting in poor countries is meaningless.

14» Furthermore in national accounting intra-household services are excluded. But by definition under subsistence practices, a signi¬

ficant component of economic services is done at the intra-house¬

hold level - firewood collection, washing, women shelling ground¬

nuts and cracking palm kernels, hut construction. To include or exclude these services would, either way, make nonsense of national accounting.

1J

See, Navarrete and Navarrete, "Underemployment in Underdeveloped Countries", International Economic Papers

(No.3, 1953)»

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»

15« It is being

increasingly

realized that per capita income is not

a realistic _{measure of the} level of welfare or, in fact, the level

of development,, The ^case of Kuwait with one of the highest per capita incomes in the world and yet underdeveloped is a case in

point.

16. The transplantation of aggregative accounting techniques to poor countries is an attempt to impose the socio-political and economic system of the "advanced" countries on the poor countries. In as much as the poor countries do not conform to the socio-political

and economic structures of the "advanced" countries, the trans¬

plantation of aggregative accounting techniques is an obstacle to

meaningful planning in poor countries since such accounting tech-

.... niques are superimposed on the _wrong system. Thus they serve to blur rather than to illuminate the development problems of the poor countries.

17» Finally it is argued that in most of the poor countries foreign investment is so heavy that national accounting amounts to

enumerating foreign goods and services and therefore-a mere waste of statistical talents and resources.

The above are formidable _array of objections against the use of

aggregative national accounting techniques in African development planning.

While not arguing that no problems actually exist in the computation of national income or product in African countries, ^our view is that most of the above objections and criticisms are out of focus with the actual pro¬

blem and should best be dismissed immediately.

1. Non-monetary and monetary forms of production are no less ^non- additive and non-comparable than the addition of government

services and industrial production in "advanced countries". Impu¬

tation is a general problem of national accounting not necessarily limited to the problems of national accounting in poor countries.

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Page 14.

2. The lack of data argument is not an objection hut in fact an advise to the poor countries to embark on ambitions collection of data for national income estimation. That-many African coun¬

tries

(see

next

section)

^now have developed systems of national accounts shows that the task is feasible.

3. Underdevelopment is in fact an argument in favour of ambitious national accounts compilation to determine the foundations of

underdevelopment and determination of expansionary policies. In fact if argument

(objection)

3 carries any weight at all it is

an advise to the "advanced" countries not to bother themselves about national accounts since they are developed anyway. The

contradiction between objections 2 and 3 must be noted. If the number of establishments are so small in poor countries, then

this simplifies the task of data gathering and this incidentally

further removes the sting from objection 4 - further considered below.

4. Besides the above reply, if scarce statistical talents must be deployed to the key sectors such as balance of payments, public sector, capital formation, one needs ask what else is national accounting about? Nevertheless even if we leave aside this sur¬

prising ignorance, the problem is that entries in the balance of payments or public sector accounts, for example, are related

to other entries in the whole set of national accounts. Therefore if we devise a policy measure based only on single "key" account it is bound to mis^fire since the effect on the corresponding

second - entry ^- account has hot been taken into consideration.

—Hence if import restriction policies are based on just only the balance of payments account without reference to the corresponding

accounts showing the balance of production and expenditure, ^it

is clear that such policies are incomplete since their effects on gross production, consumption and Investment have been ignored.

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Page 15.

The classical method of balancing the gap of the two gaps

(

i.e. 1 - S and M -

X)

is a case in point.

For practical

development planning therefore all the set5of accounts are necessary.

5. For objection 5 ^°ne doubts whether it

is impossible to

construct national accounts without asking for the' "opinion"

of "illiterate" people. The author is not aware of any set

of national accounts existing anywhere in the world which was worked out by an assemblage of the individual accounts sub¬

mitted by -every member of the

populace.

6. Unsettled political boundaries and

political tension around

national boundaries are so insignificant that ^one wonders why

the point was raised at all. At any rate

if

there

is political

tension along the boundaries that is a good reason

to believe

that significant production is not

taking place there. And if

it is5 since the eyes of

the administrators

are

usually focused

"on such troubled spots, production

therein would usually be

recorded promptly for political reasons. At ^any

rate

one

wonders why a country should concentrate its

production along

political boundaries.' The freedom of

movement of factors

across boundaries constitute ^no less an argument against

national accounting as economic integration in

Europe result¬

ing in the European Common

Market is

an

argument against

national accounting in Europe.

7. Statements alleging economic

irrationality in

poor

countries

have been proved to be false and no further

comments

are

necessary

here.!/

_1/ See, Bauer and Yamey, The Economics of Under-developed Countries,

(Cambridge:

Havard

University Press, 19^0), pp.82-101.

IDEP/ET/LXVI/2118-BIII

Page

16.

I11 fact the difficulty involved in distinguishing between investment and consumption is more " ronounced in "advanced"

than in poor countries as is now : t ^. ealized although belatedly,

l/

Objection 9 is so naive that there is a feed back answer.

When an animal or seed or bicycle is used as a capital good

record it as a capital good.' When used as a consumer

good record it as a consumer good .' It appears obvious that universally almost all consumer goods can be used as capital goods and almost all capital goods can be used as consumer

goods.

10. In fact the whole _purpose of the Keynesian revolution and the

Harrod-Domar model is to prove that the "advanced" economy does not work in a perfectly proportionate style ^as described by objection

10,

unless the economy is balanced on a razor's

edge. If a perfect balance between capacity creating and income creating functions of investment is an unacceptable proposition in "advanced" economies it is unfortunate to look for such a balance in poor economies. Secondly, the argument

about "land clearing" assumes that population is not growing

and that there is no technical _progress. Experience proves the contrary in poor countries.

11. Prices need not be constant before values can be estimated in national accounting. In any case two other points must be made.

In most cases producer prices are fixed by the

authorities~*and

secondly, imputed prices have nothing to do with market fluc¬

tuations. The prices of stocks in advanced countries may vary one million times in one market day, yet..this hps nothing to

•: ;l

J_/ See, for example,

Bonner and Lees, "Consumption and Investment", Journal

of Political Economy,(February.

1963)

and T.W. Schultz, "Investment in Human Capital", American Economic Review.

(March 1961)

8.

9-

IDEP/ET/LXVl/2118-B

Page 17-

do with the valuation of national income there .'

12. Full equilibrium prices only exist in the imagination of classical and neoclassical economists. No "advanced"

country can claim to have a full employment of its produc¬

tive forces at any material time. At _any rate the incidence of monopolies and State subsidies and taxes has so distorted prices in "advanced" countries that if imputation is an

objection at all it applies _{with equal} force to both poor and "advanced1 _countries.

13» Illegal practices such as smuggling, prostitution, black- marketing, ^{are no} less a problem in _poor than in "advanced"

countries. Since there are no statistical estimates to show whether or not they form a significant _{component of national} income in both areas any statement on the comparative _magni¬

tude of both is purely hypothetical and therefore cannot be considered seriously.

14. It is _wrong to assert that all intra-household services

should be excluded from national income estimation. The U.N.

recommendation _appears to be clear on this point. According

to the

SNA,although

non-monetized services should be excluded non-monetized tangible outputs should be included in the estimation of GDP whether or not they are of the intra- household categories. Nevertheless intra-household economic activities are not restricted to poor countries. It is an

observable fact that at present there is a boom of do-it-

yourself intra-household economic activities in the "advanced"

countries and the problem of their inclusion

and/or

exclusion

from the GDP estimates is as serious as in the poor countries'

case.

15. The problems of welfare comparability of per capita incomes and international comparability of per capita are universal

IDEP/ET/LXVI/21 18-Bm

Page

18.

■ and do not apply only to the poor countries, IJhile not denying

that these problems do exist it must be poinded out that the citing of the case of Kuwait does not prove anything. The profile of the entire population of over 150 cannot "be predi¬

cated on the structure of just one element in the universal set 16. The argument that poor countries should not "blindly imitate

the. accounting techniques of the "advanced" countries is a

valid one hut unfortunately it is no argument against national accounting in the poor countries. It is a mere advise to the poor countries to adapt .and develop their own systems of

accounting responding to their own economic and socio-political systems. Since however others go on to argue against estima¬

ting national accounts in its totality in poor countries, one must go on to observe that although the capitalist and socia¬

list "advanced" countries claim to possess violently different

economic and socio-political systems national accounts are nevertheless prepared

(sometimes

on comparative

terms)

^{in both}

systems.ll

Secondly, even those who mildly caution us against aggregative accounting techniques emanating from the "advanced"

countries are always ambiguous as to the target variable. Ko

one is clear as to whether it is the Socialist, British, American, French, OECE or SUA system of accounting that is to be avoided or whether it is all or a subset of these accounting techniques that constitute the dangerous demonstration object.

1/

See the United Nations Yearbook of National Accounts

(published

annually;

for presentation of national income data on comparative basas for coun+r\

with allegedly differing

socio-pcliticafL

and economic systems.

IDEP/ET/LXVI/21 18-Bm

Page 19»

17. Objection 17 does not constitute a real objection ipso f^aflo.

In fact in countries where foreign enterprises predominate,

there is indeed an added incentive for

national/domestic

income or product estimation. For here the policy maker

is interested in knowing the share of domestic product

accruing to the nationals and the share accruing abroad. The concepts of GDP and GNP and the difference between these two categories would, under these circumstances, indeed make

an interesting reading for the policy maker.

By refuting the standard arguments used against national accounting and its application to planning in poor countries

we do.not mean to underrate the inherent problems involved

in national income or product estimation in African

countries!/

Our main purpose has been to show that this form of accoun¬

ting is replete with problems both in developed and in poor countries and therefore the problems inherent in national accounting in the later countries do not constitute an

argument for abandoning the technique.

We conclude therefore that there are no insurmountable con¬

ceptual or theoretioal impediments to the construction and utilization of aggregative accounting frameworks adapted to the conditions and needs of poor countries. Sweeping state¬

ments like "that the conventional aggregative accounting framework is not an ideal instrument for promoting an under¬

standing of the essential properties of underdevelopment" -'

are too general to be taken seriously especially when no alternative tool or method is suggested except

that"it

^is

w For problems of national

income or product estimation in these countries

see ECA, "Some Problems of National Accounts Estimation in African

_Cojjntries", E/.CN. 1.4/CAS. 4/WAC/-I-O,

Addis ^■

Ababa-6

November

1964, "(Mimeo¬

graphed).

2/

W.J. Barber, opus cit. ^. p.

308