Getting a Broad View of Constructing the Built Environment

A Satellite Account for Built Environment Industries

 

 

How the built environment is created and maintained through project initiation, design, fabrication and construction to operation, repair and maintenance is an ongoing process. The network of firms involved includes construction contractors and subcontractors, property management and real estate services, manufacturers of fittings, finishings, plant and equipment, suppliers of building materials, and professional services. All these firms belong to industries that are part of the process of producing and maintaining the built environment. 

 

National agencies collect data and present it in tables following the format given in the System of National Accounts (SNA) published by the UN. The national accounts present highly aggregated estimates of expenditure, output and income based on the detailed data collected on the economic activities of households, firms, non-profits and government. That data is collected using the methods, definitions and categories provided in the SNA, ISIC and other publications. Firms and other organizations are assigned ISIC codes on the basis of common characteristics in products, services, production processes and logistics, and collects companies and other organizations into groups with similar characteristics.

 

Industries as defined by SIC classifications cannot capture all their associated economic activities, and when economic activities involve a range of different industries the contribution of a sector is not obvious, despite its importance. Because the ISIC system puts strict boundaries around an industry, what is included or left out of the definition of an industry determines its extent. However, inclusions and exclusions vary greatly between industries and there are many anomalies. Examples are:

·      Health insurance is included in Insurance not in health expenditure

·      Retail sales by chemists is included in Pharmaceutical expenditure as well as manufacturing and R&D

·      Research is classified to industries not by purpose, and often done by institutions

·      Automobile manufacture includes design, Construction does not 

 

The solution to the issues raised by narrow SIC industry definitions is a satellite account that reclassifies expenditures from different industry groupings into a single sector. Satellite accounts have been produced for many sectors that are made up of several industries, such as health, the digital economy, the environment, R&D, the space industry, and infrastructure. They have also been produced for non-profit institutions, volunteering, education and training, and unpaid household activities. They are used to provide more detail on sectors that are not visible in current statistics, following guidelines provided by the SNA for their preparation. The most widely found satellite account is for tourism, so far produced at various times for over 50 countries. This brings together the contributions of industries like travel, accommodation, hospitality, tour operators and entertainment to estimate their total output and employment.

 

The primary purpose of satellite accounts is to improve policy-making by providing better, more granular data, and demand for satellite accounts has increased as their usefulness has been shown. A 2019 survey by the UN found 80 countries had produced 241 satellite accounts covering over 20 different topics, with 148 of those done since 2000, mainly on health, tourism and the environment. The number produced by country varied from one to 15, the median number of satellite accounts in production was 2 and the average was 4. As a result, there are many guidelines for producing a satellite account available, usually produced through international collaboration, and the methodology has been adapted to a wide variety of sectors. 

 

 

Figure 1. Number of satellite accounts by sector

Source: Conference of European Statisticians, 2019: 11. In-depth review of satellite accounting, Paris: UNECE.

 

 

Preparation of a satellite account requires significant research and development. Different data sources have to be harmonized and measurement challenges met. The OECD published A System of Health Accounts in 2000 (updated 2011) after 15 years of development of the concepts and methods needed for a health satellite account, and the US Bureau of Economic Analysis (BEA) worked on their R&D satellite account for over a decade. However, the research is being done and more satellite accounts are being produced, such as the 2020 estimates for The Small Business Economy, and the Space Economy. In 2021 the OECD published the first Working Paper on a Transport satellite account.

 

A built environment sector satellite account would restrict its scope to relevant activities, and would therefore remain within the production, consumption and asset boundaries of the SNA framework, a type of satellite account known as a thematic account. Some examples of thematic accounts are agriculture, tourism, culture, and sport and recreation. Developing a sector based thematic account involves regrouping, re-arranging and re-packaging existing national accounts data by creating definitions of the economic activities, products, suppliers and users involved.[i] In some cases the national accounts data is supplemented by other sources, such as surveys of household activities or expenditure, that collect data on the use of products and supply of services not otherwise available. 

 

Despite issues of data quality and availability, bringing together the range of industries that contribute to the production, maintenance and management of cities, infrastructure and buildings in a satellite account would improve our understanding of both the sector and the wider economy. For example, urban development and city policies involve significant infrastructure spending, which is often their main focus. However, it is the associated induced industrial, commercial and residential development around the new infrastructure that drives longer-term growth. A satellite account captures that activity. 

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[i] In selecting a number of industries of special interest ‘It is common practice to refer to such groupings of industries as “sectors” even though they do not constitute institutional sectors as the term is used in the SNA. The SNA does not try to provide specific and precise criteria for the definition of what identifies a key sector or activity….. in some important cases, such as tourism and environmental protection activities, the process of identification of characteristic and connected products is complex because not all the relevant activities and products appear in the central framework classifications.’ OECD, 2000. A System of Health Accounts, OECD Publishing, Paris. 

     Characteristic products are those that are typical of the field, for construction characteristic products are buildings and structures, project management and other professional services. Connected goods and services includes expenditure on products that are not typical and are classified to other product categories.  In construction quarrying, manufactured products and transportation of materials and components may be considered connected.

Democratizing Our Data

A Significant Contribution to an Important Issue

 

In Democratizing Our Data, Julia Lane argues that good data are essential for democracy. She believes that public policy choices can only be made intelligently when the people making the decisions have accurate and objective statistical information to inform them of the choices they face and the results of choices they make.

“We must rethink ways to democratize data. There are successful models to follow and new legislation that can help effect change. The private sector's Data Revolution—where new types of data are collected and new measurements created by the private sector to build machine learning and artificial intelligence algorithms—can be mirrored by a public sector Data Revolution, one that is characterized by attention to counting all who should be counted, measuring what should be measured, and protecting privacy and confidentiality. Just as US private sector companies—Google, Amazon, Microsoft, Apple, and Facebook—have led the world in the use of data for profit, the US can show the world how to produce data for the public good.”

Lane’s book really only covers the US. It is very focused on the institutional problems there in chapter 3, and features a couple of good case studies on developing useful data sets from disparate sources in chapter 4. While the problems collecting and managing data for national statistics in the US is unique, broader issues around extent and quality are not. Chapter 2 addresses those issues, and looks at why measurement is difficult, and why it is hard for agencies to innovate (no incentive) and develop (no funding) new measures.  Its very much an insiders account. I thought it a big improvement on recent books on GDP etc that tend to highlight the problems, it’s a good read (and quick, at 120 pages).

There is discussion on new data sources, and how the private sector finds ways to use it. However, because public data requires confidentiality agencies need new tools and skills to be able to use it. That is chapter 5, and chapter 6 proposes a new organizational model. Lane makes a compelling argument for building a new public data system in order to safeguard privacy and improve the US government's ability to implement policy initiatives.

I suspect National  Statistical Agencies everywhere are under pressure. Lane emphasises the increasing costs and diminishing returns for surveys, the traditional source of data. However, bureaucratic inertia and vested interests, lack of funding for pilot projects, and privacy and confidentiality issues combine to make developing new sources and products difficult. How difficult in different countries I don’t know. I’d like to think most would have something based on administrative data by now, but am probably being way too optimistic.

As the cover says “A Manifesto”. For those who care about data and the statistics used for policy decisions on the economy, health, education, transport, community and social assistance and so on, this book is a must read.