"GDP" or "What impacts GDP"?


Press notice: 'Take economic statistics back to the future,' says Charlie Bean

UK GOV: Full story here and here: Take better use of data

The digital revolution and fast technological advancements of recent years, have changed the way many businesses operate (Amazon, Skype), given rise to new ways of exchanging and providing services (Airbnb, TaskRabbit), have muddied the waters between work and leisure, and made it far harder to accurately measure economic output.

The report suggests that if the digital economy was fully captured by official statistics, it could add between one-third and two-thirds of a percent to the growth rate of the UK economy.


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Story / voxEU: 'Take economic statistics back to the future,' says Charlie Bean

WEF on the issue: Do we need to rethink how we measure economic activity?

UK GOV: Full report: Independent review of UK economic statistics: final report


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  • The way we measure the economy has evolved since then in the attempt to keep pace with the changes in the economy, but this has also become increasingly difficult. Recent technological advancements have radically altered the way people conduct their lives today, both at work and play.
  • The gap between what is measured and what is valued grows every time a new good or service is introduced or whenever existing goods or services become available for free – as is often the case in a digitising world.
  • One particular challenge for economic measurement stems from the fact that an increasing share of consumption is made up of digital products delivered at a zero price or funded through alternative means such as advertising or selling information about customers to third parties. While representing a clear value to consumers, digital products available at a zero price are entirely excluded from GDP, in accordance with the internationally-agreed statistical standards.
  • Now is the time to ask ourselves whether the current framework of the national accounts is flexible enough to capture the full extent of the transformation brought about by the digital revolution.

What we are talking about here is: We are talking about the internet and its socio-economic impacts!


Recap: Internet and New Business Models

FT Financial Times / Blog: The internet and the productivity slump

US GOV: 2016 Economic Report of the President

From the US GOV report: Numerous studies show that access to broadband (read: Internet / Digital economy) contributes to local, regional, and national economic growth:

  • A study of Organisation for Economic Co-operation and Development (OECD) countries finds that a 10 percentage-point increase in broadband penetration is associated with per capita income growth rates that are between 0.9 and 1.5 percentage points higher (Czernich, Falck, Kretschmer, and Woessmann 2011).
  • Another cross-country analysis finds that a 1 percent increase in the size of a country’s Internet-using population is associated with 8 to 15 dollars more in GDP per capita (Najarzadeh, Rahimzadeh, and Reed 2014).
  • Kolko (2012), using panel data and instrumental variables approaches, finds that local broadband expansion leads to local employment growth.
  • Kuhn and Mansour (2014) find that unemployed workers who search online for work are re-employed 25 percent faster than comparable workers who do not go online. More recent innovations, such as the on-demand economy platforms, require workers to be connected to the Internet, either via mobile or wireline, so as to sell their goods via a platform such as Etsy or Ebay, or to sell their labor services via Taskrabbit, Lyft, or Uber. Thus, reducing the digital divide not only enables more people (Americans) to take advantage of Internet for educational, health and other needs, it also enables more people (Americans) to access jobs and other employment opportunities.

And the report concludes:

Access to the Internet not only enables firms to increase productivity, but it also provides an opportunity for entrepreneurs to experiment with innovative product ideas and new business models, and scale these ideas and models up quickly and cheaply. For example, on-demand economy platforms would not be possible but for the widespread adoption of Internet and wireless devices (i.e. Etsy, Ebay, Taskrabbit, Lyft, or Uber). Not only do these new business models help lower costs for consumers, leading to greater consumer surplus, but also they may increase business productivity.

And how strong is this connection, how great is the impact practically? Well:


USGOV report / Internet usage earning correlation


"... a strong positive relationship between home Internet adoption and median income. Admittedly, higher income might lead to more Internet use, or vice versa, or there may be a third variable, such as education, that correlates with both outcomes."

No wonder "Internet" - and education - are essential parts of NIC process capital NPC - and education a major component of national human capital NHC.


National intangible capital NIC 2014
  • NPC3: Computer per capita + Mobile subscribers / Impact in GDP formation EU28 = 9.58%. Best performer USA = 18.43%.
  • NPC4: Internet subscribers + Broadband subscribers / Impact in GDP formation EU28 = 10.43%. Best performer USA = 20.05%.
  • NHC11 (example): Years of education / Impact in GDP formation EU28 = 7.67%. Best performer Iceland = 11.79% (USA = 10.85%).

Indeed: Strong drivers of the Digital economy: Internet and human capital, education. And (we having said all this) the UK GOV raport concludes concerning measuring GDP components:

Measuring the economy has become even more challenging in recent times, in part as a consequence of the digital revolution. ... Disruptive business models, such as those of Spotify, Amazon Marketplace and Airbnb, are often not well-captured by established statistical methods, while the increased opportunities enabled by online connectivity and access to information provided through the internet have muddied the boundary between work and home production.


Intresting part 1: Not well captured

This is a internal accounting problem, not a loophole for "new" GDP. The money is there (if all pay taxes, and even if they don't), e.g. there is no hidden money here to add to the GDP.

Intresting part 2: Increased opportunities

Voila: This is the intangible part, the magic of 1 + 1 being more than 2. The Digital economy creates new opportunities, spur to innovations and activities and creates networks we could not imagine, without the internet. This is the "spillover": Free of charge, whence the engine is running.

And present national accounting notices this all as growing GDP!

Intresting part 3: Work and home production

More magic: Bill Gates (right in picture with Paul Allen) started at home in the garage. You can call this home made "innovation factor" the growing total factor productivity surplus.


Bill Gates and Paul Allen


 

Summary:
  • There can be no doubt about value of the Digital economy, e.g. positive socio-economic impacts of primarily internet and mobile ICT. In addition: The Digital economy embed genuine intangible drivers, such as (i.e.) data sharing, networking and ICT mobility. These genuine "digital" intangible drivers shape the future knowledge economy together with general national IC, NIC.

This is a developing story: Next update 12:00 CET 12/04/2016.

Next: Do we really need to recalculate (redefine) GDP? Do we need "New capital / New work" to explain growth and/or need we find new measures, like the Social Progress Imperative / Index SPI and understand how they impact GDP formation and growth - as national intangible capital drivers?

Stay tuned!


Any questions? Mail a NIC team member or mail your question to: nic research.

NOTE:

Till official release and publication of NIC 2016 Report in April (2016) we elaborate only NIC 2001-2013/14 public data based analysis and results, i.e. data available to all. Customers find latest NIC 2016 data and analysis results on login area. However: Elaborations and results presented here are tried to be in line with results you will find in the NIC 2016 Report and database.


New work, new firms and more GDP


Recap:
  • There can be no doubt about value of the Digital economy, e.g. positive socio-economic impacts of primarily internet and mobile ICT. In addition: The Digital economy embed genuine intangible drivers, such as (i.e.) data sharing, networking and ICT mobility. These genuine "digital" intangible drivers shape the future knowledge economy together with general national IC, NIC.

Gig economy / Freelance economy / Sharing economy / Self employment / On demand economy

The trend toward a gig economy has begun. For one thing, in this digital age, the workforce is increasingly mobile and work can increasingly be done from anywhere, so that job and location are decoupled. And also: The growing number of mobile platforms that effectively connect people who have certain goods, services and/or skills with those who don't, is making it possible for ordinary people to advertise and sell goods and services that used to be provided by full-time businesses.

And what is the value of this new business activity? Value estimate for US in 2025 (accrding to McKinsey&Company):


NIC / Value of US gig economy 2025


That equals 10-12% of US GDP 2025.


Stories of interest

CBS News: Just how big is the gig economy

The Huffington Post: Heres what we can expect

McKinsey: Connecting talent with opportunity in the digital age

WEForum: What does data tell us about the gig economy

Equitable Growth: Trying to get a grip on the gig economy:


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NIC and gig

There are several national intangible capital NIC drivers in the midst of the gig economy (see Monday this week) and its emerging, getting stronger. We just highlight two process NPC and two renewal capital NRC drivers: "Favorable competition environment", "Convinience of establishing new firms", "Entrepeneurship" and "Availability of venture capital". They also highligh how US by far is a forerunner in this process already benefiting significantly from its impacts in GDP and how EU28 is just waking to realize embedded potentials:

  • NPC1  : Favorable competition environment / Impact in GDP formation 2014 EU28 = 7.45%. Best performer Denmark (!) = 15.10% USA = 14.15%.
  • NPC5  : Convinience of establishing new firms / Impact in GDP formation 2014 EU28 = 6.65%. Best performer USA = 15.79%.
  • NRC10: Entrepeneurship / Impact in GDP formation 2014 EU28 = 3.02%. Best performer USA = 8.57% (Close to the McKinsey estimate and we expect it to grow by 2025).
  • NRC12: Venture capital / Impact in GDP formation 2014 EU28 = 5.43%. Best performer USA = 17.73%.

 

Summary:
  • There can be no doubt about value of the Digital economy, e.g. positive socio-economic impacts of primarily internet and mobile ICT. In addition: The Digital economy embed genuine intangible drivers, such as (i.e.) data sharing, networking and ICT mobility. These genuine "digital" intangible drivers shape the future knowledge economy together with general national IC, NIC.
  • There can be no doubt about value of the gig economy. The emerging gig economy is changing the economic landscape and, in fact, gig economy sheds new light on how the digital economy create (economic) value and is part of national intangible capital NIC. Gig economy also shed light on how NIC creates value in the economy.

This is a developing story: Next update 12:00 CET 13/04/2016.

Stay tuned!


Any questions? Mail a NIC team member or mail your question to: nic research.

NOTE:

Till official release and publication of NIC 2016 Report in April (2016) we elaborate only NIC 2001-2013/14 public data based analysis and results, i.e. data available to all. Customers find latest NIC 2016 data and analysis results on login area. However: Elaborations and results presented here are tried to be in line with results you will find in the NIC 2016 Report and database.


Drivers of GDP formation and growth


Recap:
  • There can be no doubt about value of the Digital economy, e.g. positive socio-economic impacts of primarily internet and mobile ICT. In addition: The Digital economy embed genuine intangible drivers, such as (i.e.) data sharing, networking and ICT mobility. These genuine "digital" intangible drivers shape the future knowledge economy together with general national IC, NIC.
  • There can be no doubt about value of the gig economy. The emerging gig economy is changing the economic landscape and, in fact, gig economy sheds new light on how the digital economy create (economic) value and is part of national intangible capital NIC. Gig economy also shed light on how NIC creates value in the economy.

Basic GDP drivers: Work and working hours, Tangible and Intangible capital - working hours

To make a complex story short and simple:

  • Products and services sold and produced generate turnover and GDP. In the centre of this process is work (denoted generally by L = Labor) and capital, plants, property and machinery used to perform the work (generally denoted K = Capital ... K ... Karl Marx "Das Kapital" has something to do with that). So, the basic formula for GDP is GDP = F(K,L) (F= General production function).
  • In early days this was good enough, but as things evolved "investments in research and product development" as investments generating "future earnings" needed to be added (generally denoted N = investments in R&D). So the GDP function expanded to be GPD = F(K, L, N).
  • But more was soon needed to be added: We noticed "Skills and competencies" has monetery value in the production process, "Brand values" promotes sale and "Digitized data, information" speed up processes ... no end.

Latest developments in these assesments is presented by CHS Corrado-Hulten-Sichel definitions of "New capital" to be added to N = Monetized intangible capital:


NIC / CHS Intangibles / Corrado-Hulten-Sichel


These assesments has indeed enlarged our understanding of "intangible drivers" of the knowledge economy. However: There is a danger in monetizing intangibles: What about a (modern) car? How much is iron and steel (physical and tangible) and how much is embodied intangibles, knowledge? We soon come to the conclusion that the car is more intangile than tangile!

To avoid this pitt fall we have introduced the ELSS production function taking a slightly different approach.


The ELSS production function approach

ELSS production function follows the general production function, e.g. GDP = F(K, L, N) and incorporates some, but not all, of CHS intangibles in order to make "clear distincion between, what can be monetized and what not". But: To capture the whole spectra of intangibles we add to GDP a "New" driver, national intangible capital NIC as measured by the 48 NIC indicators, drivers in the categories of human, market, process and renewal (innovation) capital.


NIC 2016 / Intangible capital groups


The production function now becomes GDP = F(G(NIC), K, L, N) with NIC as a major driver (denoted as G(NIC)):

Intangibles disclose new perspectives to explain hidden economic drivers. By introducing the ELSS production function (ELSS: Edvinsson, Lin, Ståhle P. & Ståhle S.), a new theoretically and computationally justified method we have been able to catch and disclose those impacts. By augmenting the Cobb-Douglas production function with a wide range of NIC indicators, we have managed to uncover 77% of hidden economic drivers (TFP, total factor productivity) in developed economies and to calculate the effect of intangible capital on GDP and growth.

introducing ELSS the results of our analysis show that intangible capital NIC accounts for some 45% of world GDP. The figure for the United States is 70.3% and for the European Union 51.6 %. The Nordic countries stand out with a higher figure at 64.7%, with NIC contributing to 72.5% of GDP in Sweden, 69.7% in Finland and 67.6% in Denmark (2014).

 

Summary:
  • There can be no doubt about value of the Digital economy, e.g. positive socio-economic impacts of primarily internet and mobile ICT. In addition: The Digital economy embed genuine intangible drivers, such as (i.e.) data sharing, networking and ICT mobility. These genuine "digital" intangible drivers shape the future knowledge economy together with general national IC, NIC.
  • There can be no doubt about value of the gig economy. The emerging gig economy is changing the economic landscape and, in fact, gig economy sheds new light on how the digital economy create (economic) value and is part of national intangible capital NIC. Gig economy also shed light on how NIC creates value in the economy.
  • There can be no doubt about value of the NIC as a driver of the knowledge economy: NIC accounts for some 45% of world GDP (2014) and in EU28 51.6%.

This is a developing story: Next update 12:00 CET 14/04/2016.

Next: Thursday: The ELSS approach.

Stay tuned!


Any questions? Mail a NIC team member or mail your question to: nic research.

NOTE:

Till official release and publication of NIC 2016 Report in April (2016) we elaborate only NIC 2001-2013/14 public data based analysis and results, i.e. data available to all. Customers find latest NIC 2016 data and analysis results on login area. However: Elaborations and results presented here are tried to be in line with results you will find in the NIC 2016 Report and database.


The ELSS approach


Recap:
  • There can be no doubt about value of the Digital economy, e.g. positive socio-economic impacts of primarily internet and mobile ICT. In addition: The Digital economy embed genuine intangible drivers, such as (i.e.) data sharing, networking and ICT mobility. These genuine "digital" intangible drivers shape the future knowledge economy together with general national IC, NIC.
  • There can be no doubt about value of the gig economy. The emerging gig economy is changing the economic landscape and, in fact, gig economy sheds new light on how the digital economy create (economic) value and is part of national intangible capital NIC. Gig economy also shed light on how NIC creates value in the economy.
  • There can be no doubt about value of the NIC as a driver of the knowledge economy: NIC accounts for some 45% of world GDP (2014) and in EU28 51.6%.

The fourth element: Tangible resources in excess

When looking for drivers of GDP formation and growth the fourth element we need to add to capital (K), working hours (L), investments in R&D and intangibles (N) is rather obvious and self evident: Value of natural and financial resources in excess. This addition also includes value of such elements as i.e. "cheap labor" and "extra ordinary tax benefits" etc.. Country vise these resources in excess contribute 20-30% of GDP. Some country examples:

  • NO / Norway: Oil and gas contribute 25% to GDP
  • UK / United Kingdom: Financial system contribute 15 - 20%
  • IR / Ireland: Tax benefits (before crisis 2008) fuelled 20% of GDP
  • CH / China: Early stage (FDI based) cheap labor fuelled 15% of GDP

These are strong country specific drivers of national economy and to account for these properly value of each driver is capitalized (monetized) and added to the ELSS production function as a fourth capital input driver (denoted O = Value of excess resources).

Having gatherd together (all) primary drivers of GDP formation and growth (capital, labor, investments in R&D and intangibles, excess resources and national IC, NIC): What is the explanatory power of the various production functions? How much of GDP is explained? Here is the estimate for developed countries:


NIC 2014 / Explanatory power of ELSS production function


Undisclosed drivers? As to our findings (Paper: Intangibles and national economic wealth – a new perspective on how they are linked. Journal of Intellectual Capital, Vol. 16 Iss: 1, pp. 20 - 57. ) global and domestic market linked TFP (Total Factor Productivity) spillovers account for major parts of these undisclosed drivers.

 

Summary:
  • There can be no doubt about value of the Digital economy, e.g. positive socio-economic impacts of primarily internet and mobile ICT. In addition: The Digital economy embed genuine intangible drivers, such as (i.e.) data sharing, networking and ICT mobility. These genuine "digital" intangible drivers shape the future knowledge economy together with general national IC, NIC.
  • There can be no doubt about value of the gig economy. The emerging gig economy is changing the economic landscape and, in fact, gig economy sheds new light on how the digital economy create (economic) value and is part of national intangible capital NIC. Gig economy also shed light on how NIC creates value in the economy.
  • There can be no doubt about value of the NIC as a driver of the knowledge economy: NIC accounts for some 45% of world GDP (2014) and in EU28 51.6%.
  • There can be no doubt about value of the national natural and financial excesss resources.

This is a developing story: Next update 12:00 CET 15/04/2016.

Next: Friday: GDP wrap up.

Stay tuned!


Any questions? Mail a NIC team member or mail your question to: nic research.

NOTE:

Till official release and publication of NIC 2016 Report in April (2016) we elaborate only NIC 2001-2013/14 public data based analysis and results, i.e. data available to all. Customers find latest NIC 2016 data and analysis results on login area. However: Elaborations and results presented here are tried to be in line with results you will find in the NIC 2016 Report and database.


We need GDP, but also other measures


Recap:
  • There can be no doubt about value of the Digital economy, e.g. positive socio-economic impacts of primarily internet and mobile ICT. In addition: The Digital economy embed genuine intangible drivers, such as (i.e.) data sharing, networking and ICT mobility. These genuine "digital" intangible drivers shape the future knowledge economy together with general national IC, NIC.
  • There can be no doubt about value of the gig economy. The emerging gig economy is changing the economic landscape and, in fact, gig economy sheds new light on how the digital economy create (economic) value and is part of national intangible capital NIC. Gig economy also shed light on how NIC creates value in the economy.
  • There can be no doubt about value of the NIC as a driver of the knowledge economy: NIC accounts for some 45% of world GDP (2014) and in EU28 51.6%.
  • There can be no doubt about value of the national natural and financial excesss resources.

Little or nothing wrong with GDP

Do we really need to recalculate (redefine) GDP? Do we need "New capital / New work" to explain growth? In fact, in our oppinion: There is little or nothing wrong with present GDP calculations - questions are mostly only about accounting accuracy (to capture "all" work, "all" business like activity etc.) and questions like " how are we to aggregate the national account".

But what we need to understand is that: Drivers of the economy and GDP is increasingly "value-drivers", e.g. what we value drives the economy. The question about "creating new job opportunities" should be formulated as "creating new opprortunities for value creation" or "creating new opportunities to exploit present values".Once value is created, reveald or reqognized jobs and firms will emerge.

Simple: The more we value "On demand services", "Freedom to work from home", "Mobility", "Recycling and sharing" etc. the more they are potential drivers of "New" GDP formation and growth in the knowledge economy. Only restrictive and reactionary national policies can hamper these positive economic prospects.

In this sence we need to find new measures, like the Social Progress Imperative / Index SPI measuring what we value and understand how these values increasingly impact GDP formation and growth - as national intangible capital drivers.



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So: To boost the economy we once more need to focus on values and value creation:

We need to disclose and reqognize already present "New" values in our daily life (society) and we also need to refocus on value creation through innovations and the broad spectra of national intangible capital NIC.

 

Summary:
  • There can be no doubt about value of the Digital economy, e.g. positive socio-economic impacts of primarily internet and mobile ICT. In addition: The Digital economy embed genuine intangible drivers, such as (i.e.) data sharing, networking and ICT mobility. These genuine "digital" intangible drivers shape the future knowledge economy together with general national IC, NIC.
  • There can be no doubt about value of the gig economy. The emerging gig economy is changing the economic landscape and, in fact, gig economy sheds new light on how the digital economy create (economic) value and is part of national intangible capital NIC. Gig economy also shed light on how NIC creates value in the economy.
  • There can be no doubt about value of the NIC as a driver of the knowledge economy: NIC accounts for some 45% of world GDP (2014) and in EU28 51.6%.
  • There can be no doubt about value of the national natural and financial excesss resources.
  • There can be no doubt about value of the value identification and creation as driver of GDP.

NIC on the week: Next update 12:00 CET 18/04/2016.

Week 16: Storyline pending. Suggest a storyline?

Stay tuned!


Any questions? Mail a NIC team member or mail your question to: nic research.

NOTE:

Till official release and publication of NIC 2016 Report in April (2016) we elaborate only NIC 2001-2013/14 public data based analysis and results, i.e. data available to all. Customers find latest NIC 2016 data and analysis results on login area. However: Elaborations and results presented here are tried to be in line with results you will find in the NIC 2016 Report and database.


The Nordic Frugal Innovation Society / InnoFrugal 2016



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innoFrugal 2016: Official website

innoFrugal 2015: InnoFrugal 2015 report

 

NIC on the week: Next update 12:00 CET 18/04/2016.

Week 16: Storyline pending. Suggest a storyline?

Stay tuned!


Any questions? Mail a NIC team member or mail your question to: nic research.

NOTE:

Till official release and publication of NIC 2016 Report in April (2016) we elaborate only NIC 2001-2013/14 public data based analysis and results, i.e. data available to all. Customers find latest NIC 2016 data and analysis results on login area. However: Elaborations and results presented here are tried to be in line with results you will find in the NIC 2016 Report and database.