MANILA, Philippines?The gross national product (GNP) has a claim to being an indicator of economic welfare not because it aggregates the production of various sectors of the economy, but because it also aggregates the incomes earned by the Filipino people.
It so happens that the GNP is measured from the production side, although that is not the only way of measuring it. It is based on surveys of manufacturing (by the National Statistics Office), agriculture (by the Bureau of Agricultural Statistics), etc. and on direct sources such as the National Power Corp.?s reports on its production of electricity.
Aggregation of production into GNP (the work of the National Statistical Coordination Board) is done by adding up money values. In principle, the total value of something produced is the quantity produced multiplied by the value-added price per unit produced. A value-added price is not the gross selling price of a unit, but only the value added by, say, a factory, to the cost of raw materials used in the unit. The raw materials cost per unit plus the value-added per unit equals the gross price of the unit. Since some firms? outputs are also other firms? inputs, the values of the production of all firms together are properly aggregated by using values-added instead of gross values. Otherwise, there will be double-counting.
Value-added also measures income. A firm adds value to raw materials by applying its so-called factors of production (labor, capital, land, finance) to it. The sum of the wages, profits, rents, and interests received by the owners of the factors of production equals the value-added of the firm.
Thus the GNP could be equally measured by surveying factor earnings instead of surveying production. With separate monitoring of factor earnings, GNP growth could also be examined in terms of the growth of the earnings of people like workers, capitalists, landlords, and renters, and not only in terms of the growth of production sectors like manufacturing, agriculture, mining and finance. Unfortunately, the trends in factor earnings are not being monitored.
If it is true that GNP grew at seven percent per year in real terms (meaning, corrected for inflation), then the aggregate of wages, profits, rent and interest also grew at seven percent, simply as a matter of arithmetic. The growth rate of an aggregate is the same as the average growth rate of its components. If the average is seven percent, and the wages component grew at below seven percent, then the other components generally grew at over seven percent, i.e., earnings were redistributed away from workers and towards capitalists, landowners and financiers.
The reason the government is not generating regular statistics for wages and profits, etc. is, I think, they will show an inconvenient truth of real wages falling and real profits, etc. rising. As of March 2008, the Consumer Price Index (base year 2000) for All Items, at the national level, is 148.6. This means that workers whose money-wages are not at least 48.6 percent higher now compared to 2000 are actually earning less in real terms than before. For such workers, GNP growth is meaningless; I think these are a large proportion of the employed workforce. Those who would dispute it should start estimating what the proportion is.
The GNP also has an expenditure side, and the government is part of it. Value from a producer?s side is the same as value from a corresponding spender?s side. In National Income Accounting, the Gross National Expenditure, which consists of private consumption, private investment, government consumption, and government investment, plus exports (assuming the categories are expenditures of domestic parties only) minus imports (assuming that the categories are expenditures on both domestic- and foreign-sourced items), is also equal to the Gross National Product.
Obviously, the government cannot dictate economic growth. It can directly influence it through good decisions on its public consumption (say, developing teachers? capabilities) and its public investment (say, avoiding wasteful things like the broadband deal), which together presently amount to some 15 percent of GNP?significant, yet puny compared to some 20 percent of GNP in Malaysia or Thailand, and 30 percent in South Korea.
The government should operate as part of the labor market. Attempting to legislate private-sector wages at levels incompatible with supply and demand will also be fruitless. It will lead to unreasonable expectations, and useless frustrations.
But the government is part of the labor market itself. Its own employees, including the staff of state-owned companies, are a significant 10 percent of the employed work force. Rather than try to dictate on the pricing of the labor market, the government should influence the market by active support of the compensation rates of its employees.
First of all, I think the government should protect the real worth of its own employees? salaries, by indexing them to the cost of living. It should not blame all inflation on world prices. It should accept responsibility for the excess of domestic inflation over average world inflation. For certain occupations, especially in science and in health care, which are naturally concentrated in state institutions, here and abroad, the government should end its passivity in upgrading salaries to compete with foreign employers.
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