I. INTRODUCTION
E. Concepts and classifications
| 1.19. | The contents of the SNA depend not only on the accounting structure itself - that is, on the type and format of the accounts - but also on the ways in which the items included in the accounts are defined and classified. The issues involved are not simply of a technical nature but raise fundamental questions of economic theory and principles. The concepts and classifications used in the System have a considerable impact on the ways in which the data may be used and the interpretations placed on them. |
1. The production boundary
| 1.20. | The activity of production is fundamental. In the System, production is understood to be a physical process, carried out under the responsibility, control and management of an institutional unit, in which labour and assets are used to transform inputs of goods and services into outputs of other goods and services. All goods and services produced as outputs must be such that they can be sold on markets or at least be capable of being provided by one unit to another, with or without charge. The System includes within the production boundary all production actually destined for the market, whether for sale or barter. It also includes all goods or services provided free to individual households or collectively to the community by government units or NPISHs. |
Household production
| 1.21. | The main problem for defining the range of activities recorded in the production accounts of the System is to decide upon the treatment of activities that produce goods or services that could have been supplied to others on the market but are actually retained by their producers for their own use. These cover a very wide range of productive activities, in particular:
(a) The production of agricultural goods by household enterprises for own final consumption;
(b) The production of other goods for own final use by households: the construction of dwellings, the production of foodstuffs and clothing, etc.;
(c) The production of housing services for own final consumption by owner occupiers;
(d) The production of domestic and personal services for consumption within the same household: the preparation of meals, care and training of children, cleaning, repairs, etc.
All of these activities are productive in an economic sense. However, inclusion in the System is not simply a matter of estimating monetary values for the outputs of these activities. If values are assigned to the outputs, values have also to be assigned to the incomes generated by their production and to the consumption of the output. It is clear that the economic significance of these flows is very different from that of monetary flows. For example, the incomes generated are automatically tied to the consumption of the goods and services produced; they have little relevance for the analysis of inflation or deflation or other disequilibria within the economy. The inclusion of large non-monetary flows of this kind in the accounts together with monetary flows can obscure what is happening on markets and reduce the analytic usefulness of the data. |
| 1.22. | The SNA is a multi-purpose system. It is designed to meet wide a range of analytical and policy needs. A balance has to be struck between the desire for the accounts to be as comprehensive as possible and the need to prevent flows used for the analysis of market behaviour and disequilibria from being swamped by non-monetary values. The System therefore includes all production of goods for own use within its production boundary, as goods can be switched between market and non-market use even after they have been produced, but it excludes all production of services for own final consumption within households (except for the services produced by employing paid domestic staff and the own-account production of housing services by owner occupiers). These services are consumed as they are produced and the links between their production and market activities are more tenuous than for goods production, such as agricultural goods which households may produce partly for own final consumption and partly for sale, or barter, on the market. The location of the production boundary in the System is a compromise, but a deliberate one that takes account of the needs of most users. In this context it may be noted that in labour force statistics economically active persons are defined as those engaged in productive activities as defined in the SNA. If the production boundary were extended to include the production of personal and domestic services by members of households for their own final consumption, all persons engaged in such activities would become self-employed, making unemployment virtually impossible by definition. This illustrates the need to confine the production boundary in the SNA and other related statistical systems to market activities or fairly close substitutes for market activities. |
Other production boundary problems
| 1.23. | Certain natural processes may or may not be counted as production depending upon the circumstances in which they occur. A necessary condition for an activity to be treated as productive is that it must be carried out under the instigation, control and responsibility of some institutional unit that exercises ownership rights over whatever is produced. For example, the natural growth of stocks of fish in open seas is not counted as production: the process is not managed by any institutional unit and the fish do not belong to any institutional unit. On the other hand, the growth of fish in fish farms is treated as a process of production in much the same way that rearing livestock is a process of production. Similarly, the natural growth of wild, uncultivated forests or wild fruits or berries is not counted as production, whereas the cultivation of crop-bearing trees, or trees grown for timber or other uses, is counted in the same way as the growing of annual crops. However, the deliberate felling of trees in wild forests, and the gathering of wild fruit or berries, and also firewood, counts as production. Similarly, rainfall and the flow of water down natural watercourses are not processes of production, whereas storing water in reservoirs or dams and the piping, or carrying, of water from one location to another all constitute production. |
| 1.24. | These examples show that many activities or processes that may be of benefit to institutional units, both as producers and consumers, are not processes of production in an economic sense. Rainfall may be vital to the agricultural production of a country but it is not a process of production whose output can be included in GDP. |
2. The consumption boundary
| 1.25. | The coverage of production in the System has ramifications that extend considerably beyond the production account itself. The boundary of production determines the amount of value added recorded and hence the total amount of income generated by production. The range of goods and services that are included in household final consumption expenditures, and actual consumption, is similarly governed by the production boundary; for example, these expenditures include the estimated values of the agricultural products consumed by households that they have produced themselves and also the values of the housing services consumed by owner occupiers, but not the values of "do-it-yourself" repairs and maintenance to vehicles or household durables, the cleaning of dwellings, the care and training of children, or similar domestic or personal services produced for own final consumption. Only the expenditures on goods utilized for these purposes - e.g., cleaning materials - are included in household final consumption expenditures. |
3. The asset boundary
| 1.26. | Balance sheets are compiled for institutional units, or sectors, and record the values of the assets they own or the liabilities they have incurred. Assets as defined in the System are entities that must be owned by some unit, or units, and from which economic benefits are derived by their owner(s) by holding or using them over a period of time. Financial assets and fixed assets, such as machinery, equipment and structures which have themselves been produced as outputs in the past, are clearly covered by this definition. However, the ownership criterion is important for determining which naturally occurring - i.e., non-produced - assets are included in the System. Naturally occurring assets such as land, mineral deposits, fuel reserves, uncultivated forests or other vegetation and wild animals are included in the balance sheets provided that institutional units are exercising effective ownership rights over them - that is, are actually in a position to be able to benefit from them. Assets need not be privately owned and could be owned by government units exercising ownership rights on behalf of entire communities. Thus, many environmental assets are included within the System. Assets that are not included are those such as the atmosphere or open seas, over which no ownership rights can be exercised, or mineral or fuel deposits that have not been discovered or that are unworkable - i.e., incapable of bringing any benefits to their owners, given the technology and relative prices existing at the time. |
| 1.27. | Changes in the values of naturally occurring assets owned by institutional units between one balance sheet and the next are recorded in the accumulation accounts of the System. For example, the depletion of a natural asset as a result of its use in production is recorded in the other changes in volume of assets account, together with losses of fixed assets due to their destruction by natural disasters (floods, earthquakes, etc.). Conversely, when deposits or reserves of minerals or fuels are discovered or previously unworkable deposits become workable, their appearance is recorded in this account and they enter the balance sheets in this way. |
4. National boundaries
| 1.28. | The accounts of the System are compiled for resident institutional units grouped into institutional sectors and sub-sectors. The concept of residence is the same as that used in the Balance of Payments Manual of the International Monetary Fund (IMF). An institutional unit is said to be resident within the economic territory of a country when it maintains a centre of economic interest in that territory - that is, when it engages, or intends to engage, in economic activities or transactions on a significant scale either indefinitely or over a long period of time, usually interpreted as one year. As an aggregate measure of production, the GDP of a country is equal to the sum of the gross values added of all resident institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs). This is not exactly the same as the sum of the gross values added of all productive activities taking place within the geographical boundaries of the national economy. Some of the production of a resident institutional unit may take place abroad - for example, the installation of some exported machinery or equipment or a consultancy project undertaken by a team of expert advisers working temporarily abroad. Conversely, some of the production taking place within a country may be attributable to foreign institutional units. |
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