The United Nations' System of National Account 2008 (2008 SNA) calls for measuring capital services in volume terms. The term "capital services" refers to the contribution of assets (stocks) to production in each accounting period (flows). Presumably, it is based on this newly introduced concept of capital services that some assets whose use is not necessarily assured—such as research and development (R&D) and defense equipment and systems—have been capitalized.
Capital and labor are used in the production process. In the current Japanese System of National Accounts (JSNA), the number of hours worked by employees is measured. With the forthcoming JSNA benchmark revision, it will eventually become possible to calculate labor productivity covering the entire workforce, as the Economic and Social Research Institute (ESRI) of the Cabinet Office plans to develop data on the number of hours worked by the self-employed and contributing family workers.
The real value of capital stock has traditionally been used by the government as the amount of capital input in measuring the demand-supply gap which represents the difference between potential and actual growth rates. However, economists analyzing productivity have been measuring the volume of capital services as a preferable measure of capital input. Capital stock owned by an entity is used by the entity, and this can be seen as use of capital services and is measured in terms of service volume per year by treating it as if it were a lease transaction with a third party.
The difference between the measurement of capital stock and that of capital services is that the latter takes into account asset-specific contribution to the value added each year. Indeed, while some assets are used over several decades, other assets lose their value over several years. Assets are more likely to be disposed of due to economic factors than due to physical abrasions. Appropriate aggregation on an asset-by-asset basis, which gives due consideration to varying lengths of effective service life of assets, will enable a more accurate measurement of capital services in volume terms.
To that end, it is also necessary to improve the overall data quality, for instance, by developing a new set of measured—rather than estimated—data and parameters to be used for the calculation of capital services. In the past, there were only six asset categories in the JSNA, and the parameters used to estimate stock values (e.g., depreciation rates) were dependent on estimates based on data from the last National Wealth Survey, conducted in 1970. Subsequently, the ESRI developed new capital flow and stock matrices based on data collected in several hundreds of asset categories, and some of this achievement was introduced in the previous revision of the JSNA.
The forthcoming revision will introduce even more precise estimates, such as those calculated by using asset-specific depreciation rates underpinned by empirical evidence (i.e., Survey on Capital Expenditures and Disposals, ESRI). We will have to wait until next year or later before the government starts releasing data on the volume of capital services. However, when such data become available, they will help achieve greater accuracy in estimating potential growth and serve as a basis in developing productivity accounts within the JSNA.
* Translated by RIETI.