Is the available information on global business sufficient for economic analysis? - PowerPoint Presentation

Is the available information on global business sufficient for economic analysis? Stefan Zeugner, EC (DG ECFIN)DGINS 2019, Bratislava9 October 2019 The information and views set out in this [report/study/article/publication…] are those of the author(s) and do not necessarily reflect the official opinion of the European Union. 

Globalization issues from a macro-surveillance perspectiveStability and Growth Pact: main issue with GDP (denominator)Macroeconomic imbalance procedure: biases affect major indicators directly:Current account balance, NIIPGross external assetsCorporate debtPrivate-sector credit flowsExport market shares …Analyzing macroeconomic risks requires usable financial and flow of funds dataFollowing slides focus on practical issues with external data

Macro surveillance and globalizationData much better and detailed than five years ago: in particular financial and sectoral accounts. Why do we then now need GNI*, CA* and so on?  Key to assess economic sustainability questionsRecent actions in macro surveillance:Assessing GNI* like variables for surveillance use (IE, CY, etc.) – also by other institutionsLIME Survey to EU Member States (results due this Nov.)A lot more economists reading the BPM6 manual

Example 1: Corporate debt in Germany Did the relevant part of German corporate debt decrease or increase in 2017?NFC corporate debt (consolidated), Germany Source: Eurostat nama_10_f_bs, ECB QSA and ECB BSI

Example 2: Dutch current account – the role of MNEs How much of Dutch surplus explained by MNE/Shell accounting quirks? Source: Eurostat national account; van Limbergen et al. (2020) for AEX Top 9 Euro-area current account NL Net lending/ b orrowing

Data so far not really useable for macro surveillance & analysisHard to define the corporate activity one wants to abstract fromCurrent “FATS ” not really useable: 1) available data way too coarse and late2) what in case of ownership change (e.g Monsanto sold to DE, Alstom sold to US)?Member-state adjustments à la CA* of limited help as there is too little detailFull sectorial data is helpful: e.g. mutual funds in LU, IEConfidentiality ‘overdrive’: NSIs do not talk about individual companies, even when data is public

What is ‘non-core’ / footloose activity?For operational work, we need detailed non-financial & financial data on any sectors that could be defined as ‘ footloose’‘footloose’: Corp. activity susceptible to large shifts across borders, with few ties to dom. demand & labourEmployed because it has not been defined previously – unlike offshore, globalization, …I.e. anything that denotes brass-plates, moveable assets (ships/planes), re-exports etc. And any MNE – whether ‘domestic’ or ‘foreign’  Focus on: MNEs, intangibles, movables, OFIs

Issue #1: problems that could be solved with existing frameworkThere are many other globalization issues affecting the interpretation of statistics, though less pervasive: Moveable tangible assets concern mainly ships and planes that are managed in a particular location (e.g. IE, CY): Can be considered NFC ‘brass-plates’Why not publish detailed satellite accounts for sectors that were not considered resident under BPM5/ESA95?Bilateral asymmetries are major issue: contract manufacturing trade, mutual fund holdings, etc.

Issue #2: Sectoral accounts for MNE NFCs?An first-best solution: detailed sectoral accounts for ‘special’ sectors: Split non-financial corporations into 3 sectors:Multinational NFCs NFCs engaged in moveable asset relocation‘Core NFCs’Financial corporations: Split OFI sector into MNE-ownedSPEsothers: need to distinguish arms-length shadow banking from internal funding operations

Useful MNE sector data requires medium-term investmentIdentifying MNE sector data may run counter confidentiality requirements. Examples: IE, NL, NSIs never mention Apple, Pfizer, Shell,… NSIs treat public data as confidential. Examples: Ownership data, despite public-access UBO registries Listed-firm public data cannot be discussed with NSIs Any scope for legislative improvements?Privacy for legal persons: ‘what is public, can be shared’Open-source cadaster for affiliate holdings à la Adima?Reporting requirements: force companies to report to machine-readable public databases? publication is regulatory requirement after all

Issue #3: Intangibles, and the role of public sector When private company gifts its IP to public domain, is this a disinvestment? Most open source has been funded by (European) public sector and household work – counted as consumption

Intangibles: the biggest problem set to grow biggerTreating information and copyright as capital has major issues that are well known: e.g. household work, zero marginal costTransfer pricing: what is the correct price on such capital? What is the price of expired patents? Add-on question: what is the price and amortization of open source capital, which has become major component of world IT? So far, OS is mostly booked as government consumption and/or household workLong-term: either get rid of intangibles, or be all-encompassing and count open-source?

ConclusionsWhere data is not available/confidential, macro surveillance will guess GNI*, CA* etc. may help for narrow questions, but not for macro surveillance or analysis. But sectoral accounts* would help: Start with splitting NFCs into MNEs and otherRequires addressing data protection rights of legal persons, or at least funding MNE cadastersIf CA*≠CA for one country, then also for othersTransfer pricing on intangibles: so what is the amortization cost on open source information?

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