International indicators of development in transforming economy and society

Jan Fischer Czech Statistical Office Na padesátém 81 100 82 Prague 10, Czech Republic [email protected]

If we are to explain the influence of the worldwide movement for the implementation and dissemination of international indicators of development on the situation in the Czech Republic, we should mention at least in a nutshell the substantial changes that occurred in last 15 years. The Velvet Revolution of 1989 made it possible to launch a rather quiet and general process of transforming the socialistic system into a democratic society with market economy. Of this process in the area of the State Statistical Service the following is worth mentioning in particular: − transition from balance aggregates of the planned economy (mostly not revealed to public) to national accounting macro-aggregates brought out broadly on a regular basis, − respecting of “fundamentals”, especially the introduction of the protection of individual data provided to statistical service authorities, − abandonment of the uniform system of socio-economic classifications (conforming to the former Comecon’s system of classifications and only indirectly convertible to UN classifications) and step-by-step introduction of the direct use of the classifications recommended to the EU member states (i.e. including classifications of international organisations such as ILO, FAO, WHO, etc.), − replacement of industrial (branch) output indicators (and follow-up ones) from the era of planned economy with indicators inherent to market economy, while distinguishing between short-term statistics and structural statistics, − development of price statistics with the use of sample surveys for all types of prices (consumer, producer, agricultural and construction output, import, and export prices), − implementation of quarterly labour force sample surveys, − transformation of income surveys (“micro-censuses”) into the harmonized surveys of income and living conditions (EU-SILC), − development of regional statistics, − involvement of the Czech Republic in the UN Comparison Project on Purchasing Power Parities. It can be said that the whole process of the transformation of the State Statistical Service started in 1989 was actually a process of permanent convergence of the national statistics results with the results presented according to international standards by other states; this process cannot be considered as completed because to master the standards fully calls for rather a long time and some projects were not launched until recently (EU-SILC).

From the history of international comparison in the CR

Until the disintegration of the Soviet Bloc, the national economy development in the countries of the Bloc was coordinated by the Comecon (the Council of Mutual Economic Assistance) based in Moscow; the practical coordination of planning was implemented by a department of the Soviet State Planning Commission. In the framework of this coordination, used national income of individual Comecon member states was compared for size and structure at five-year intervals, always in relation to the Soviet Union (pair comparisons). Hence, the satellite countries of the Soviet Union could only obtain synthetic mutual comparisons of their economies indirectly, through the relation of the economy of their countries to the economy of the Soviet Union (the star principle). Results of the comparisons were limited in significance also because of the fact that they exclusively stemmed from Soviet price relations and relied on specific, virtually narrowed concept of national income1 based on the Soviet concept of the material product system (alternative to the system of national accounts). The former Czechoslovakia also took part in other international comparisons from time to time. For instance, labour productivity of the manufacturing industry in Austria, France, Hungary, and Czechoslovakia was compared in the late 1960s on the initiative of France and Hungary. The results obtained were not widely published in our country because they were replaced by events of the Prague Spring 1968 and, moreover, were not favourable for the Czechoslovak industry. In early 1989, the last communist government consented for Czechoslovakia to get involved in the fifth stage of the PPP Comparison Project implemented under the umbrella of the UN. It was a big breakthrough then, because up to that time the Czechoslovak State Statistical Service did not dare permit their staff to carry out parallel computations of macro-aggregates according to the UN standards, which was common not only in Yugoslavia, but in Hungary and Poland, too. It is worth mentioning that calculations made for the UN at that time – especially of net national product for determining the membership contribution – were sometimes a confidential check activity in nature for which the ministry of finance was responsible. Other publication needs of the UN, e.g. in the area of demographic statistics or the dynamics of industrial output itemized by ISIC, were satisfied in part by immediate uses of available information, mostly by its reclassification and recalculation, though. Results of the use of bridge conversion schemes developed by international organisations so that alternative national accounts could be derived from the material product system did not become available in the Czech Republic until around 1989.

The complex international comparison of the Czech economy

This comparison was made by a team of the University of Economics, Prague (V. Nachtigal, V. Tomšík, M. Votavová)2. It is based on the assumption that it is useful to make a graphic confrontation of four objectives of the economic policy, namely real gross domestic product growth rate (G), unemployment rate (U), inflation rate (I), BoP current account balance to GDP ratio (B). It applies in assessing numerical values, of course, that rather high growth rates of GDP, low rates of unemployment and inflation and a positive BoP current account balance are desirable. Which of the possible combinations of the mentioned values should be preferred is disputable, though, because these indicators are not mutually commensurable. This is why a graphic representation is sometimes resorted to. Of course, this assumes that there is a general agreement on optimal values of each of the four indicators dealt with, which can be placed in the corners of an equilateral triangle standing on one of its corners:

G

U B

I

1 The sphere of economic activities was limited to productive industries, i.e. industries making tangible products and services that brought this output to consumers (part of transport, communications and trade). The other, so-called non- productive services were taken for users only. 2 Nachtigal V., Tomšík V.: The convergence of the countries of Central and Eastern Europe to the European Union. Linde, Praha, 2002. The optimal values find themselves in corners from where partial scales lead horizontally or vertically to the centre on the one hand (see the U for undesirable values) or out of the circle on the other hand (see the G for better values than optimal). As the indicators become better or worse, the area defined by their numerical values enlarges or diminishes, respectively. In the optimal development of economy, the individual corner angles are approximately the same and the quadrangle is not flattened. The sum of the apical angles is fixed, by which the mutual limitation of the objectives, which can be set by means of the four mentioned indicators, is accentuated. The total visual perception of how the situation of economy can be seen is thus critically dependent on the determination of optimal values, which cannot be virtually cleared of subjective influences. Such graphical representations are rather of benefit provided they are prepared for a time sequence or international comparison when a deviation, if any, of values chosen as optimal can be corrected during assessment. The quoted authors used the idea of the graphic confrontation of the size of the values of selected indicators to characterize the convergence of the Czech and other transition economies to the level of the EU member states. However, they supplemented the above-mentioned four- indicator variant with another twenty indicators classified to four groups. I will mention the breakdown of the first two of them as an illustration:

G – the area of economic dynamics G1 – efficiency of investment in fixed capital (GDP change (t)/GFCF (t-1)) G2 – macroeconomic labour productivity rate (GDP/worker) G3 – unit labour costs rate (compensation of employees/real GDP) G4 – real domestic demand rate G5 – real gross fixed capital formation (GFCF) rate G6 – real goods and services exports rate B – the area of external economic equilibrium B1 – real goods and services imports rate B2 – nominal relations of payments for imports of goods and services and revenues for exports of goods and services B3 – gross external debt of the economy as a percentage of revenues for exports of goods and services B4 – economy openness rate [0,5(exports+imports)/GDP] B5 – foreign exchange reserves as a percentage of payments for imports of goods and services B6 – terms of trade of exports and imports of goods and services.

The total list includes 24 items among which we do not find the basic four indicators (G, B, I, U). However, the last item of each group is also the first item of the following group – hence, without the repetition there are 20 indicators in the list (the doubling of the end items contributed to the clarity of graphic representations using breakdown by quadrant according to the four basic indicators). In the graphic representation, the indicators of the original magic quadrangle – i.e. (G) real GDP dynamics rate, (B) BoP current account balance to nominal GDP ratio, (I) inflation rate expressed by consumer price index, and (U) registered unemployment rate (U) – are placed in the centre of “their” groups. In principle, we can say that what occurs is certain introduction of details or deepening or relativizing of the orientation of the original indicators; no additional demands were made on the Czech State statistical Service in connection with the discussed project. It should be noted, however, it is special-purpose transformation which is to serve graphic representation objectives and then to the assessment of the degree of reached convergence by comparing areas and shapes of twenty quadrangles of transitive economies with similar parameters of the EU or, as the case may be, Eurozone. Nevertheless, if we consider a presentation of 24 indicators as a possible starting point for compilation of a set of indicators with the help of which results of the Lisbon process can be assessed, we should say that such a set is primarily oriented to convergence of economies (including the level of unemployment, inflation and debt) and, therefore, its concept is not sufficiently wide (it misses a rather deep insight into not only (un)employment and, consequently, into the problem of social exclusion, but also the environment). The assessment method, which relies on comparing sizes of areas of 24-angle polygons where each of the 24 indicators under consideration is ascribed the same significance (weight).

Structural indicators of the European Union

Since 2003, the Czech Republic has been transmitting to the Statistical Office of the European Communities about 40 indicators in yearly periodicity, according to the list of structural indicators of the EU. The list groups the indicators into six areas, namely general economic background, employment, innovation and research, economic reform, social cohesion, and the environment. The Statistical Office of the European Communities always publishes in spring a new survey of structural indicators for all the member states on its web pages, and now for the Czech Republic, too. The Czech Statistical Office has not yet used these surveys to make a comprehensive assessment of the position of the Czech Republic – it focuses on effective acquisition of needed indicators. It is worth mentioning in this connection that after 1990 the newly outlined system of the State Statistical Service has been ready to satisfy the hitherto-made requirements on the whole because the process of adapting the contents of the Czech State Statistical Service to international standards has not yet been firmly anchored. So the problem of reprioritisation is not virtually felt. Sometimes, however, certain survey-related difficulties arise. The examples include the measurement of the requested breakdown of gross expenditures on research and development, and of some other innovation and research indicators, average age of transition to the economically inactive (unless it is tied with retirement), percentage of urban population exposed to elevated air pollution levels, etc. So far we have not recorded any domestic users’ requirements for changes in the concept of the EU structural indicators. Given the fact that the building of our system designed to calculate expenditures on individual items or groups of outputs has not yet been completed, we miss information on demands that some additional specifications make: this is, along with missing domestic demand for innovations, of the set of presented, internationally comparable development indicators, one of the reasons why we are reserved as far as the enlargement of the existing set of the abovementioned indicators is concerned.

REFERENCES Nachtigal V., Tomšík V. (2002). The convergence of the countries of Central and Eastern Europe to the European Union. Linde, Praha.

RÉSUMÉ La procédure de transformation du contenu de la statistique nationale, démarrée en 1990, ne s’est pas enracinée encore du fait de son vaste étendue et l’évolution progressive. Dans chaque phase et chaque secteur de la transformation, nous étions guidés par le besoin du respect de la comparabilité internationale, et grâce à cette approche, elle n’est pas perçue comme un élément neuf et supplémentaire et nous épargne la nécessité d’une nouvelle définition des priorités. L’Institut Statistique Tchèque (CSU) privilégiant la production efficace des indicateurs préconisés par l’EUROSTAT ne produit pas, à présent, ses propres analyses de la position internationale de la République Tchèque. L’Ecole des Hautes Etudes Economiques de Prague a publié récemment l’étude comparative, basée sur le soi-disant quandrangle magic, cependant, ses conclusions étaient contestables.