The Strategist

Digital and sharing economies: jokers in the GDP's pack

07/07/2016 - 18:04

The US Department of Commerce and National Bureau of Statistics of China are trying to define activities of Airbnb and Uber.
Uber’s CEO Travis Kalanick in June told Financial Times that the company has achieved profitability in all developed markets. "It allows us to invest <...> in such an expensive place like China." A year ago, The Wall Street Journal wrote that the company hoped to increase revenue in 2015 to $ 2 billion.

Deputy Head of Statistics of Bureau of China said at a conference held on last weekend that the GDP should take into account even free services, such as question and answer site Baidu Knows, writes the FT. The GDP already count in some new economy sectors, in particular green energy and robotics, he said. However, the traditional statistics ignores sharing and digital economies, even though they "allow people to share houses, cars, parking places, books".

US Department of Commerce in June issued a document proposing definition for "digital economy companies". The Department has identified more than 100 organizations that can match it. Among them are famous Uber, Airbnb, (finds helpers to look after children, elderly relatives, pets or home), TaskRabbit (search assistant for daily activities - cleaning, delivery, minor repairs) and even inactive LeftoverSwap (used to swap food leftovers). However, the Ministry has not included online vendors such as eBay. The idea is to try to identify the new branch, not to describe online version of sectors already evaluated by state statistics, said Under-Secretary of Commerce for Economic Affairs Justin Antonipillai to The Wall Street Journal. 

Although digital economy companies are not catalogued by the state statistics, they have attracted attention of the regulators. The US is considering expanding regulation of financial and technology companies, such as LendingClub included in the list of the Trade Ministry (users can lend to each other). Uber’s activity is controlled in dozens of cities and states of the USA, and one of the services was deemed illegal in France,. 

At the request of the Paris authorities, Airbnb previously agreed to notify those, who rent out more than 120 days a year, that they violate the city’s law and are subject to a fine of up to 25 000 euros. The authorities of Rio de Janeiro, in turn, are co-operating with Airbnb in search for accommodation options for guests of the Olympics-2016.

Even in the US, where the major share of economic activity falls on services, the state departments publish only one quarterly review of the services sector, and five monthly reports on production and commodity stocks. In China, according to a chief economist at research firm BBD, many small and medium-sized companies in fast-growing sectors are ignored in the calculation of GDP as opposed to large, often old industrial enterprises. According to him, the non-presented sectors’ share accounts for nearly one-third of economic activity.

"The digital economy is giving rise to new business models and is creating a lot of non-monetary transactions - heu said. - For example, many sites provide services for free or very cheaply. They get most of the revenue through online advertising, rather than from people who use their services. Therefore, value of end services, free to consumers, is often underestimated."

Some economists are skeptical about the Beijing’ intentions to broaden definition of GDP against the background of a slowing economy. In 2015, it increased by 6.9%, which is a minimum of 25 years. "There is a paradigm to never report annual growth of less than 6%, - said Chief Economist at Asianomics Jim Walker. - Given the situation in the industry, creative approach will help to raise the GDP to the desired level. "

In 2005, Beijing started to take into account statistics of the service sector. It enabled GDP to increase by $ 300 billion, which was then equivalent to size of the Turkish economy. And on Wednesday, the statistical office reported that it took up a new method of accounting for R&D, which "would better reflect contribution of innovation to economic growth." As a result of the conversion, size of GDP in 2015 was increased by $ 130 billion, reported the South China Morning Post, although growth is left at the level of 6.9%. Over the decade, size of the economy grew by 1.06% after the recalculation.