Operating Surplus - Criticism of UNSNA Concept

Criticism of UNSNA Concept

As stated, operating surplus is a residual item in national accounts of gross product. It is "analogous" to what is "left over" when a business deducts its costs from sales revenue in order to arrive at its profit total. However, the analogy is somewhat deceptive, insofar as the operating surplus in national accounts, as a component of value added, is not truly equal to real generic pre-tax profit receipts.

The main reason for that is simply that, in calculating this aggregate, various items are added and deducted from an initial surveyed (or tax-declared) gross profit figure in a way that is consistent with the concept of value added.

Or, to put it a different way, the definition of operating surplus is dependent on the general definition of Gross Output from production. To obtain a measure of value added in production, all those income flows considered to be unrelated to production (mainly, property income and transfer income) are excluded from the valuation of Gross Output. Therefore, this is one reason why the operating surplus cited in national accounts is likely to be lower than real generic pre-tax profit income. An additional problem is the practice of shifting the declaration of profit income to another country where taxes are lower, by means of various financial manipulations. Again that leads to an understatement of domestic profits.

The trend in operating surplus over time will normally be similar to the general trend in gross business profits, but in Marxian economics operating surplus is rejected as an adequate proxy for total gross profit or surplus value.

The main reason is that in Marxian economics the official concepts of Gross Output and value added are not accepted as an adequate definition of the value of production. Among other things, a fraction of profit, interest and rent income which is payable from the gross income of producing enterprises is excluded from value added in the official accounts, on the ground that it is unrelated to production. Marxian economists however argue that fraction is part of the value of production and the value product, insofar it has to be paid out of current revenues of producing enterprises.

This Marxian interpretation implies a somewhat different view of the real cost structure of production, and the real composition of product values, and to obtain alternative measures, the official accounts must be substantially reaggregated to make explicit the sources and receipts of income from salaries, profits, interest, rent, taxes and social insurance levies, subsidies, royalties and fees, and their contribution to the valuation of gross product (see also value product).

In the Marxian view, obtaining generic profit income from sales is precisely the prime motivator of capitalist business activity, and therefore to present this income as a "generic residual balancing item" in national accounts without making its components explicit does no justice to the real economic relations involved.