2.3 SPECIFIC METHODS EMPLOYED
2.3.1 The political economy of national accounts and the question of the nation-‐
The System of National Accounts
Chapters four and six employ sectoral analysis based largely on data from the System of National Accounts (SNA). The SNA is divided into a set of current accounts which detail flows in the current period, and the accumulation accounts which identify investments in real and financial assets whose lifespan extends across periods. The difference between net savings in the current period and investment in real assets must be financed by changes in financial assets (incurring liabilities), with the latter enumerated in the financial accounts4.
The accounts are divided into four domestic sectors (households, financial corporations, non-financial corporations and government) and a sector representing the rest of the world. By construction negative balances for the domestic economy
4While the financial accounts show changes in assets and liabilities by sector, so-called flow-of-funds tables, where sufficient data is available, go one step further to identify for each instrument which sector is the creditor and which the debtor (European Commission, IMF, OECD, United Nations, &
World Bank, 2009).
34 must be offset by positive balances for the rest of the world account (and vice-versa).
Similarly by construction, the sum of the sectoral domestic balances must equal that for the domestic economy as a whole. Each of the four major domestic sectors is further disaggregated into sub-sectors5.
The current account matches, on the one hand, revenues generated by the production of goods and services and, on the other hand, the income received for this production in the form of wages, interest, rent, and profits (and how this income is re-distributed in the form of taxes, transfers, etc.). From this figure for total output/income, final consumption is subtracted to arrive at a figure for net savings.
The capital account next calculates total capital formation as fixed capital investment in construction, machinery and equipment, less consumption of fixed capital (depreciation), variation in inventories, and the acquisition/disposition of assets. The difference between net savings and capital formation gives net borrowing. The financial account describes changes to financial assets, divided into eight categories6; changes in these assets cover both the gap between investment and savings in the current period, as well as additional investment in financial assets as an end in themselves.
The SNA was developed during wartime Britain to provide a basis for the formulation of war budgets (Hartwig, 2006). It took shape at a time when the Keynesian view that output is determined by aggregate demand was dominant.
Hugo Radice (1984) argues that national accounting also in part reflects John Maynard Keynes’ view of the importance of the self-sufficiency of the sovereign state7 – an empirically justifiable view for the period from 1930 to 1950 when trade retreated as a share of output – and therefore its appropriateness as a unit of analysis.
Use of the SNA spread as post-war economic growth unfolded, and has become
5The household sector is divided into households and non-profit institutions serving households;
Government is divided into central, state and local government; financial corporations are divided into nine sub-categories including the central bank and depository institutions; non-financial corporations are divided into private and public corporations.
6Gold, deposits and legal tender, securities, loans, equities, insurance and pension funds, derivatives and other accounts payable.
7Radice quotes from Keynes’ paper National Self-sufficiency: “… economic internationalism embracing the free movement of capital and of loanable funds as well as of traded goods may condemn my own country for a generation to come to a much lower degree of material prosperity than could be attained under a different system.” (Keynes 1933, 762-3)
35 entrenched through the efforts of a number of UN agencies and a series of revisions over the subsequent decades.
The SNA offers a number of significant analytical insights. It provides the analyst a view of the whole economy, the internal interactions of its constituent sectors, and its relationship with the rest of the world. By design it draws attention to both stocks and flows, and both assets and liabilities. This contrasts markedly with neoclassical models which often neglect the impact of financial wealth (or debt) or heterodox theories on the rise of finance which neglect the two-sided nature of the balance sheet. Accounting identities, by definition, provide data which is free from causal inference.
Nonetheless, the SNA is subject to a number of limitations, some of which lie within an orthodox understanding, while others are only revealed by political economy analysis. Dealing first with limitations of the SNA on its own terms, there are important capacity issues which impact upon the availability and quality of the data. This has been aggravated by the fact that different generations of the SNA have required burdensome revisions. Mexico, like many emerging capitalist economies, does not provide the financial account (or for that matter the flow-of-funds) in terms of stocks (levels).
Changes in SNA classification have also introduced concerns over temporal consistency. Generations of the SNA prior to SNA93, for example, witnessed fundamental – and some would argue ideological – revisions to the accounting for the contribution of the financial sector to national output (Christophers, 2011). The analysis herein therefore uses data from approximately 1980 for high-income countries which have had the opportunity to reconcile previous editions of the SNA;
detailed analysis of Mexican data in chapter seven focuses on data from a period for which SNA93 was applied consistently (1993-2009).
There are also issues of consistency and harmonisation in construction across countries, introducing concerns over spatial equivalence. As the level of detail of presentation has increased in each subsequent generation of SNA standards, this has run up against real differences in the way that different economies are organised, and therefore differences in the way that data are consolidated, classified and compiled (Research and Statistics Department, 2000). In this research, these differences will
36 be highlighted where possible, but it has also led to less emphasis on the importance of comparative levels between countries than on the identification of common trends.
Finally, there are technical difficulties, the solutions to which pose additional challenges for temporal and spatial consistency. Large statistical discrepancies in the calculation of the underlying data often result in significant revisions for several years after initial SNA accounts are published. Research has also shown how differences in the choice of deflator (Hartwig, 2006) and methods of capital valuation (Kennedy, 1988; Murinde & Green, 2003) can have significant influences upon the SNA. This can be particularly important in emerging capitalist countries which have suffered from high inflation rates. According to International Accounting Standard 29 on ‘Hyperinflationary Economies’, the last hyperinflationary period for the Mexican peso was in 1998. This recommends caution in the interpretation of trends in the early 1990s in the lead-up to and immediately following the peso crisis.
The political economy of national accounts and the nation-‐state
In terms of consistency with the broader methodological framework, first, it must be readily conceded that the SNA and similar data sources use orthodox economic categories, which are conceptually distinct from Marxian categories8. This means, for example, that categories such as output, wages, fixed capital and profits include what, in Marxian terms, would be considered non-capitalist production, such as peasant agriculture, as well as the unproductive functions of supervision, circulation and distribution, and social maintenance. However, the conception of distinct Marxian categories remains an issue of much debate within Marxist scholarship itself (for example Moseley, 1992; Shaikh & Tonak, 1994), and poses significant challenges in terms of estimation, particularly in the context of emerging capitalist countries such as Mexico (Mariña-Flores & Moseley, 2000). Therefore,
8 Thanks to Professor Jan Toporowski for pointing out that the understanding of the economy as a circular flow originates in François Quesnay’s ‘tableau économique’ (economic table) (1972 ), and travels via Marx’s reproduction schema (1992) and Kalecki’s ‘Essays in the theory of economic fluctuations’ (1939), before informing the work of Keynes and the creation of the System of National Accounts.
37 conventional categories are analysed for the trends which they reveal over time, keeping in mind their conceptual basis in epistemological nominalism.
Second, use of the SNA poses a challenge in terms of the level of disaggregation. Important dynamics within sectors may be obscured from view.
Distribution within the household sector between different classes, or even between a proxy for class in the form of income groups, is unavailable. For non-financial corporations, the SNA does not allow the analyst to draw out differences between firms of varying structural characteristics. For these reasons, SNA analysis is complemented in this thesis with survey data, wage data and industrial data where available and appropriate. Teasing out these important differences in the non-financial corporate sector has demanded recourse to the analysis of firm-level data (see discussion below). This requirement to change the level and vantage point of abstraction is illustrative of how an investigation can lead to its own logic of analysis.
Finally, the use of the SNA raises a more profound theoretical debate about the acceptability of the definition, measurement and analysis of macroeconomic aggregates over a given geographical-political space. As earlier alluded to, it was only in the inter-war period that this practice became broadly accepted. Radice (1984, p. 122) points out that subsequently economists could make, “… theoretical propositions about economies defined empirically in geopolitical terms – which have the same theoretical status, the same measurability, the same behavioural foundations, and the same methods of testing and proof, as the more conventional theoretical propositions about markets.” That is, the characteristics of a national economy may be understood through its internal dynamics, and the influence of
‘external’ factors on those internal dynamics.
The positivist tradition embodied in neoclassical analysis has unquestioningly taken the nation-state as a self-evident unit of analysis. This neglects the fact that neoclassicism’s analytical premises are rooted in markets, not states. Markets which, in neoclassical terms, clear supply and demand functions which are themselves aggregations of the maximising behaviour of individual firms and consumers; firms and consumers which increasingly operate across borders. Since the end of the era of relative national self-sufficiency, the world market has undergone rapid
38 internationalisation in terms of not only commodity exchange and capital flows, but also in the ownership of assets and the organisation of production.
This poses a challenge not so much to the national accounts data themselves, but to the inferences that are drawn from them. Charles Gore has argued that the key defining feature of what he terms methodological nationalism is that “… it isolates and separates the influence of internal factors from external factors.” (1996, p. 81) More sophisticated explanations, he suggests, interrelate the ‘internal’ and the
‘external’ to such an extent that these terms become virtually meaningless.
Dialectics provides precisely this kind of penetrating insight into the complex relationship between the national and the global, without resorting to a complete dissolution of the distinction. Marx argued in the Grundrisse (1993, p. 408) that “…
the tendency to create the world market is directly given in the concept of capital itself. Every limit appears as a barrier to be overcome.” The question of the relation between the nation-state and the world market was a preoccupation of the first generation of Marxist theorists of imperialism (Bukharin, 1966; Hilferding, 1981;
Kautsky, 1970; Lenin, 2010). While divisions remained on the question of whether the world market or the nation-state was the proper unit of analysis, the particular form of the world market was understood not as a teleological corollary of the workings of capitalism, but as a hard-fought creation of the capitalist classes of the imperial nation-states.
More recently, as part of the German state derivation debate, von Braunmühl argued that capitalist relations of production emerge on the basis of a world economy
“… within which statehood arises and consolidates itself”(1978, p. 167). Only after Great Britain’s development of industrial capitalism and imperial expansion, does the tendency of nationalisation emerge predominant. That is, the world market shapes the formation of capitalist nation-states, only then to have the actions of those nation-states become constituitive of the world market. The important corollary of von Braunmühl’s argument is that the historical development of class relations and the state apparatus within the nation-state "… bear in a specific manner the imprint of that country's position on the world market." (1978, p. 171)
This dialectical understanding of the relationship between the nation-state and the world market is essential to: the theory of subordinate financialisation elaborated in chapter five; the empirical case for subordinate financialisation in
39 Mexico in chapter six, where foreign capital has played a key role; and to the historical examination of class relations in Mexico in chapter seven. The argument has a number of key implications. National data must be seen in the context of the international processes out of which they emerge. This is accomplished by moving the vantage point of abstraction from countries in the core to those in the periphery, and then moving back to an understanding of global processes unfolding through the specificities of the nation-state. At the national level, it demands a sophisticated understanding of the evolution of both the qualitative and quantitative interaction of Mexican capital with ‘foreign’ capital, and stresses the importance of seeking out data sources which capture this interaction9.