have you wondered what gdp means? - arup
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Foresight + Research + Innovation 1
Have You Wondered What GDP Means?An introduction to diagrams of the UK economy
using Arup’s 7see model
This booklet is a product of Arup Foresight + Research + Innovation (FRI).
The FRI team identifi es and monitors the trends and issues likely to
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solutions for clients.
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Associate Director
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London W1T 4BQ
arup.com
driversofchange.com
An introduction to diagrams of the UK economy
using Arup’s 7see model
Have You Wondered What GDP Means?
Simon Roberts
An introduction to diagrams of the UK economy
using Arup’s 7see model
Author: Simon Roberts
Design: Elisa Magnini
Picture editors: Felicitas zu Dohna, Daniel Imade
This publication is made available under a Creative Commons Attribution -
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This booklet should be cited as:
• S.H. Roberts (2014). “Have you ever wondered what GDP means?”, Arup,
London, ISBN 978-0-9562121-8-4
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Published by Ove Arup & Partners Ltd,
13 Fitzroy Street, London W1T 4BQ, UK
Copyright © July 2014 Arup
ISBN 978-0-9562121-8-4 (pbk)
ISBN 978-0-9929501-0-1 (ebk)
Contents
7
11
21
27
33
39
42
Introduction
Jobs, energy and economic volume fl ows
Transport
Population and jobs
Balance of payments
Insights
Further information
Foresight + Research + Innovation 7
GDP (gross domestic product) is probably the most
well-known economic statistic. It is a highly effective
measure of economic activity giving insight into a
country’s economy and enabling comparison with
other countries. On the other hand, GDP is also
viewed by many as a poor measure of the standard
of living or welfare. Yet few understand how GDP is
defi ned and what exactly it describes.
Starting from a tangible perspective, consider a
bird’s eye view of a country. Much of what is visible
has economic relevance. A sea border delineates
part of an economy’s limit, with the import and
export trade of goods focused at ports. Next to
these docklands might be manufacturing, large and
small. Progressing into the town where many people
work will be offi ces, retail outlets and other types of
services. Around the urban centre will be the suburbs
of housing. Beyond this, stretching across the
country will be rural areas for agriculture, resources,
recreation and transport networks.
Just as maps effectively capture the physical
geography, this booklet introduces a set of maps to
unpick the components of GDP. The tool for this is
Arup’s 7see framework - a methodology for handling
data about a country. It provides maps for reading
many aspects of how an economy works. It marries
resources, the built environment, goods, services,
international money transactions and people. This
framework is innovative in both its format and the
way it provides insights.
Introduction
Few understand
how GDP is defi ned
and what exactly
it describes
Have You Wondered What GDP Means?8 Foresight + Research + Innovation 9
While a bird’s eye view is good for appreciating the
overall capacity and constraints of an economy,
we also need to capture the detail. After all, a
people perspective is what we each experience. A
microcosm of an economy might be a farmer, fi rst
growing produce then becoming a retailer as he
works at his own market stall, interfacing directly
with the consumer, his customers. The challenge is
to capture this spectrum.
The maps introduced in this booklet are actually
Sankey diagrams in which line widths are
proportional to the volume of fl ows. These 7see
Sankey diagrams provide both an overall picture and
close-up views in detail of any particular fl ow. They
also map relationships. While energy fl ows are often
represented by Sankey methods, extending this
approach to the economy and balance of payments
is novel.
Four 7see Sankey diagrams are introduced in this
booklet with data from the UK economy for 2011.
• Jobs, energy and economic volume fl ows
• Transport
• Population and jobs
• Balance of payments
Each diagram has an explanation on a fold-out fl ap
that can be read alongside the graphic. The booklet
can also be used as a learning resource by folding
closed the explanation to reveal a list of questions.
7see Sankey
diagrams provide
both an overall
picture and
close-up views
Foresight + Research + Innovation 1110
serviceindustry
manu-facturing
construc-tion
electricityfrom
combustion
nuclear &renewables
serviceindustry
manu-facturing
construc-tion
electricityfrom
combustion
nuclear &renewables
p. 14
Jobs, energy and economic volume fl ows
The 7see approach to representing the economy
begins by considering the built environment and
other physical assets. Formally known as fi xed
capital, they are an important starting point because
they are constrained in some way: they take time to
create, they are expensive to build and they are tied
to a location or are long lived. Along with buildings
and structures, fi xed capital also consists of plant,
machinery and transport equipment.
The main role of fi xed capital within the economy
is that it is where inputs are converted to outputs;
in other words, the process of production. The
photos opposite are examples of fi xed capital.
Power generation consists of power stations which
convert fuel inputs to electricity. Manufacturing
industry produces goods. Construction industry
consists of construction equipment. Service industry
is a broad grouping, including distribution, hotels,
communications, fi nance, public administration,
defence, education, health and social work.
In the 7see Sankey diagrams on the following pages,
all fi xed capital is represented by yellow boxes
with Sankey lines entering and leaving. Also shown
opposite is an excerpt from the Sankey diagrams of
how these examples of fi xed capital appear. (There is
no signifi cance to the dimensions of the boxes.)
The next pages introduce Sankey line concepts for
economic volume fl ows, energy and jobs.
Fixed capital
within the economy
is where inputs
are converted
to outputs
12 Foresight + Research + Innovation 13
IMPORTS EXPORTS
agriculture
goods
services
tax
intermediate consumption
serviceindustry
construction
goods
tax
manu-facturing
distribution& retail
construc-tion
utilities
dwellings
services
rental
construc-tion
manu-facturing
finalsupply
tax
extraction
agriculture
serviceindustry
KEY economic volume flows (£100b[1990]/y)
inputs finished products
final supply at purchasers’ prices
goods
construction
services
rental (actual + imputed)
agriculture
goods
services
imports at basic prices gross value added (GVA) at basic prices
goods
construction
services
agriculture
extraction
utilities
GD
P &
imp
orts
UK trading border
The Sankey diagram opposite shows all the fi xed
capital (the yellow boxes) of an economy divided into
six industry groupings and dwellings. Sankey lines
represent what are called economic volume fl ows,
a good way to quantify goods and services. Their
source, called gross value added (GVA), is always
from fi xed capital. GVA is represented by lines
emerging from the fi xed capital boxes. Their total is
the output form of GDP.
The outer rectangle is the system boundary of
the country’s trading border. Imports enter on the
left and merge with domestically-produced GVA.
All fl ows are measured in money units, infl ation
corrected to a reference year for comparison
between years. Imports and GVA are at “basic
prices”.
Industries supply each other through “intermediate
consumption”. Timber is GVA of agriculture
and its input for goods is part of the line linking
“agriculture” to “manufacturing”. Iron ore and other
extracted resources are the line linking “extraction”
to “manufacturing” for processing. Intermediate
consumption is signifi cant between the three larger
industries, so they each have a pair of boxes: GVA
emanates from the left boxes; inputs from other
industries enter the right boxes. They are enclosed
within a dashed box to emphasise that they don’t
represent the actual sequence of production
processes at this point. The usual format elsewhere
for intermediate consumption data is as an input-
output matrix, so the diagrammatic Sankey form here
makes the relative sizes of fl ows more evident.
Products on the right are in their fi nished form and
measured at “purchasers’ prices”. The Sankey
lines make clear the upstream inclusion of “tax” on
products and contributions from other industries.
For goods at the point of fi nal demand, a signifi cant
contribution is “distribution & retail”.
The expenditure form of GDP augmented by imports
is the total at the point marked “fi nal supply”.
Economic volume
fl ows are a good
way to quantify
goods and services
14 Foresight + Research + Innovation 15
IMPORTS
serviceindustry
UK trading border
manu-facturing
construc-tion
utilities
other
transport
dwellings
electricityfrom
combustion
nuclear &renewables
other
extraction
agriculture
refining
EXPORTS
inputsproducts
crudeoil
coal
gas
petroleumproducts
other
KEY
crude oil
petroleum products
coal
natural gas
energy (500 PJ/y)
electricity
energy (200 TWh/y) KEY
jobs
serviceindustry
other
UK trading border
manu-facturing
construc-tion
utilities
dwellings
inputsproducts
extraction
agriculture
jobs
people (10 million)
The more common application of Sankey lines for
fl ows from left to right are a country’s use of energy.
These are shown opposite as inputs to the fi xed
capital yellow boxes introduced earlier for industry
groupings and dwellings.
Important points for energy transformation are
“refi ning” for crude oil to petroleum products
and “electricity from combustion”. The types of
fi xed capital for these are oil refi neries (part of
manufacturing) and power generation (part
of utilities).
As with economic volume fl ows in the diagram
introduced earlier, the outer rectangle represents the
extent of the whole economy. Flows crossing this are
imports of fuels and export of petroleum products.
Whereas the GVA source of economic volume fl ows
is shown earlier as emerging from fi xed capital
boxes, the fi xed capital for domestic extraction of
fossil fuels is simply shown here by square brackets.
All the energy Sankey lines are in energy units. The
key at the bottom details a different unit name for
electricity but it is equivalent in size so that the
energy loss as heat at “electricity from combustion”
is evident.
Just as energy is an input, so labour can be
considered as an input to the fi xed capital of
production. This is shown opposite in units of
millions of the economically active population, as
defi ned in the later section, Population and jobs.
The Sankey formats shown here could be extended
to other inputs, such as water, steel and cement.
Just as energy is
an input, so labour
can be considered
as an input
1716
IMPORTS EXPORTS
tax
intermediate consumption
serviceindustry
construction
goods
tax
crudeoil
crude oil(net)
jobs
other
coal
gas
gas (net)
coal (net)
petroleum products (net)
services
goods
agriculture
NPISH
household consumption
investment
goods
services
agriculture
KEY
UK trading border
manu-facturing
government
distribution& retail
construc-tion
utilities
other
transport
dwellings
electricityfrom
combustion
nuclear &renewables
services
rental
construc-tion
manu-facturing
finalsupply
finaldemand
GD
P &
imp
ortstax
other
other
inputs finished productsproducts
extraction
agriculture
petroleum productsrefining
electricity (200 TWh/y)
jobs (10 million)
crude oil
petroleum products
coal
natural gas
energy (500 PJ/y)
construction
services
rental (actual + imputed)
agriculture
utilities
investment
goods
economic volume flows at purchasers’ prices (£100b[1990]/y)
serviceindustry
goods
construction
services
extraction
economic volume flows at basic prices (£100b[1990]/y)
Jobs, energy and economic volume fl ows
The Sankey lines introduced earlier of jobs, energy and
economic volume fl ows all relate to the same set of fi xed
capital. Therefore they are combined here into one diagram.
Products and jobs start as inputs on the left and progress
via production at fi xed capital to fi nished forms on the right.
For the three larger industries, inputs for production into
their left-hand boxes are imports, energy and jobs, and into
their right-hand boxes are their intermediate consumption of
other industries’ products, which include raw materials.
Introduced here are extensions of the Sankey lines at “fi nal
supply” further to the right as lines of “fi nal demand”. One
fi nal destination for products is by households. Their own
purchase is called “household consumption”. Households
also benefi t from “NPISH” (non-profi t institutions serving
households) and “government” services, so these are
also components of fi nal demand. Another destination
for products is as exports, which are shown on the right
crossing the system boundary of the economy.
The remaining component of fi nal demand is “investment”,
the only fl ow going back to the left. Fixed capital has to
be maintained, replaced and increased. While referred
to here as investment, its formal name is gross fi xed
capital formation (GFCF). It consists of Sankey lines from
manufacturing, construction and service industries that
evolve into a single blue line, simply for clarity, before blue
lines enter each of the fi xed capital boxes for the industries
and dwellings.
This Sankey diagram provides a high-level view of the
signifi cant relationships from inputs through to fi nal demand
with investment doubling back to fi xed capital. It is an
integration of different fl ows involving a mixture of units
which are fully detailed in the key.
18
IMPORTS EXPORTS
tax
intermediate consumption
serviceindustry
construction
goods
tax
crudeoil
crude oil(net)
jobs
other
coal
gas
gas (net)
coal (net)
petroleum products (net)
services
goods
agriculture
NPISH
household consumption
investment
goods
services
agriculture
KEY
UK trading border
manu-facturing
government
distribution& retail
construc-tion
utilities
other
transport
dwellings
electricityfrom
combustion
nuclear &renewables
services
rental
construc-tion
manu-facturing
finalsupply
finaldemand
GD
P &
imp
ortstax
other
other
inputs finished productsproducts
extraction
agriculture
petroleum productsrefining
electricity (200 TWh/y)
jobs (10 million)
crude oil
petroleum products
coal
natural gas
energy (500 PJ/y)
construction
services
rental (actual + imputed)
agriculture
utilities
investment
goods
economic volume flows at purchasers’ prices (£100b[1990]/y)
serviceindustry
goods
construction
services
extraction
economic volume flows at basic prices (£100b[1990]/y)
Which industry is the largest
employer?
What proportion of total
coal used in the country is
imported?
What is (crude) oil used for?
Is the UK self-suffi cient in
petroleum products?
What is the ratio of goods
manufactured to imports?
Which is highest volume
export out of agriculture,
goods and services?
Which industry requires
the most infrastructure
investment?
What proportion of the fi nal
supply of services is tax on
products?
If consumers (households)
buy fewer goods, how is
employment affected?
Jobs, energy and
economic volume
fl ows
19
Foresight + Research + Innovation 21
Transport
Transport is a key function within any economy.
Major modes are illustrated opposite. For passenger
transport they range from private cars through public
transport by bus and rail to air. For freight they range
from light vans through heavy goods vehicles and rail
to marine.
Some economic volume fl ows in the fi rst 7see
Sankey diagram include transport services, such
as distribution and vehicle leasing by the service
industry. Transport equipment is also one of the
types of the fi xed capital that make up industries.
However the full role of transport in an economy is
diffi cult to extract from economic volume fl ow data
alone. Also private vehicles are not normally included
in the measure of fi xed capital of an economy.
Since transport is important, it is represented by its
own 7see Sankey diagram on the following page. This
takes a physical perspective. As with the earlier 7see
Sankey diagram, the starting point is fi xed capital
of transport equipment which converts energy into
travel. While transport equipment is long-lived and
expensive to create, it clearly differs from buildings,
structures, plant and machinery introduced earlier in
not being fi xed in position.
Fixed capital
of transport
equipment
converts energy
into travel
22
petroleumproducts
electricity
vehicle-km/y
FREIGHT
PASSENGER
passenger-km/y
vehicle-km/y
vehicle-km/y
tonne-km/y
passenger-km/y
passenger-km/y
tonne-km/y
car & taxi
bus & coach
rail
domesticair
passenger-km/yinternationalair
military air
tonne-km/y
internationalmarine
domestic marine
rail
van (LGV)
truck (HGV)
KEY petroleumproducts (500 PJ/y)
vehicle travel (50 G vehicle-km/y)
electricity(200 TWh/y)
passenger travel (50 G passenger-km/y)
freight travel (50 G tonne-km/y)
energy mobilitytransport
Transport
This 7see Sankey diagram maps the major transportation
types that need fuel inputs (thus excluding walking and
cycling). The Sankey diagram begins on the left with volume
fl ows of energy use and can be thought of as progressing
to the right via means of transportation to the delivery
of mobility.
The fuels shown here for the UK economy are mainly
petroleum products with a little electricity. Their sources
are shown earlier in the Sankey diagram of jobs, energy
and economic volume fl ows. LPG (liquefi ed petroleum gas)
and biofuels are too small in UK use to include here. Some
economies also use CNG (compressed natural gas).
The yellow boxes represent all the fi xed capital of vehicles.
(There is no signifi cance to their dimensions.) They are
grouped according to whether they serve passengers
or freight.
The formats for quantifying mobility (on the right side) are
varied having been selected according to relevance and
the availability of robust data. For travel by “car & taxi”,
the annual motor test ensures an accurate record of total
travel of the entire car fl eet. Thus the output mobility of this
mode is “vehicle-km/y”. “passenger-km/y” is not used since
actual occupancy data is more diffi cult to assess and is less
reliable than purely vehicle travel.
For freight carried on the roads, data of “tonne-km/y” is
collected for trucks (heavy goods vehicles, HGV) but not
for vans (light goods vehicles, LGV). Data for “international
marine” freight specifi cally associated with the UK has not
yet been sourced.
other
transportpetroleum productsrefining
p. 16
23
24
petroleumproducts
electricity
vehicle-km/y
FREIGHT
PASSENGER
passenger-km/y
vehicle-km/y
vehicle-km/y
tonne-km/y
passenger-km/y
passenger-km/y
tonne-km/y
car & taxi
bus & coach
rail
domesticair
passenger-km/yinternationalair
military air
tonne-km/y
internationalmarine
domestic marine
rail
van (LGV)
truck (HGV)
KEY petroleumproducts (500 PJ/y)
vehicle travel (50 G vehicle-km/y)
electricity(200 TWh/y)
passenger travel (50 G passenger-km/y)
freight travel (50 G tonne-km/y)
energy mobilitytransport
other
transportpetroleum productsrefining
p. 16
Which form of transport uses
electricity?
Which form of transport is
the largest user of petroleum
products?
For public transport on land,
which type carries the most
passenger-km?
Between the two types of road
freight vehicles, which covers
the most vehicle-km?
How is most freight carried?
Transport
25
Foresight + Research + Innovation 27
Population and jobs
This section covers the population of the economy
and how its activities are categorised.
In the diagrams earlier, the starting point is fi xed
capital. Here the relevant fi xed capital is dwellings.
Shown opposite are examples, from a detached and
terraced houses to an apartment block.
Dwellings are occupied by households which are
defi ned as the consuming unit under the international
System of National Accounts (SNA). Examples of
households are shown opposite. According to the
ONS (Offi ce for National Statistics) in the UK, “a
household is one person living alone or a group of
people (not necessarily related) living at the same
address who share cooking facilities and share
a living room or sitting room or dining area”. The
number of households varies over time. For instance,
it goes down when more young people tend to stay
living in their parents’ home, and increases when
more couples split up.
The third quantity represented opposite (in the right
column) is simply the whole population of a country.
Population has features in common with fi xed capital:
it is a comparatively fi xed resource and changes only
slowly over time.
Households are
defi ned as the
consuming unit
28
student
under 16
unemployed
looking after family or home
under 65 retired
sick
service industry
construction
men over 65women over 60
economically inactive
under 16
manufacturing
other industries
populationlabour force
(economically active) employed jobs
householdsdwellings
residence consuming unit population employment or status
dwellingsdwellings
household consumption
householdconsumption
serviceindustry
manu-facturing
construc-tion
serviceindustryy
manu-facturing
construc-tion
Population and jobs
This 7see Sankey diagram relates “dwellings” on the left
through “population” in the middle to “jobs” and other
activities on the right. Excerpts of the fi rst Sankey diagram
in this booklet, of jobs, energy and economic volume fl ows,
show several points of linkage of quantities between the two
diagrams. In contrast to the other three Sankey diagrams
in this booklet, all the quantities here are stocks or status
measures; none are fl ows with a direction or have per-year
types of units.
If starting at “population” in the Sankey diagram,
progressing to the right fi rst meets division by age. The
next division is by whether “economically active” or not
for the “labour force”. There is then a change of unit from
“employment” in light green for “labour force (economically
active)”, as sourced from household survey data, to “jobs”
in dark green, as reported by industries, the employers. The
industry groupings at the top right correspond to those in
the fi rst Sankey diagram.
Progressing from “population” to the left, population can
be grouped into “households”. This applies to “household
consumption” on the far right of the fi rst Sankey diagram.
Households reside in “dwellings”, which are the fi xed
capital at the bottom of the fi rst Sankey diagram. Dwellings
consume fuel and require investment for improvements as
well as to increase in number. Rental paid by households
for accommodation is one component of GDP. Note that
this rental component is the sum of actual payments made
together with imputed rental. The imputed part corresponds
to the rental value of all owner-occupier dwellings (what
they would have paid if they weren’t owners). This enables
comparison of GDP between countries, independent of the
proportion of owner-occupiers.
The rural proportion is included in some parts of the
diagram because rural areas in the UK are sometimes
disadvantaged for affordable housing, access to services
and economic opportunities.
p. 16
p. 17
p. 17
KEY (10 million) employment jobsdwellingsrural
urban
rural
urbanhouseholds
rural
urbanpopulation
29
30
student
under 16
unemployed
looking after family or home
under 65 retired
sick
service industry
construction
men over 65women over 60
economically inactive
under 16
manufacturing
other industries
populationlabour force
(economically active) employed jobs
householdsdwellings
residence consuming unit population employment or status
dwellingsdwellings
household consumption
householdconsumption
serviceindustry
manu-facturing
construc-tion
serviceindustryy
manu-facturing
construc-tion
p. 16
p. 17
p. 17
KEY (10 million) employment jobsdwellingsrural
urban
rural
urbanhouseholds
rural
urbanpopulation
Why are there more “jobs”
than “employed”?
Why is the number of
“dwellings” greater than
“households”?
What is the average
household size?
Which is the largest activity/
group of the population?
Which is the larger comparing
children “under 16” to older
people of “men over 65,
women over 60”?
Which category would
housewives come under?
How do the numbers
of “unemployed” and
“economically inactive”
compare in size?
Population and jobs
31
Foresight + Research + Innovation 3332
Balance of payments
This section on balance of payments is about money,
which is an important distinction from volume
measures introduced earlier.
Economic volume fl ows feature in the fi rst 7see
Sankey diagram in this booklet. Volume fl ows are
infl ation-corrected spending on goods, services and
other outputs. Just as energy units are a good metric
for energy fl ows, volume metrics are a good proxy
measure for the amount of these products (goods,
services, etc.) as they progress through all the stages
of production.
In contrast to volume measures, the balance of
payments concerns all transactions at the system
boundary. Examples of trade are shown opposite.
Each trade has an arrow to the right of volume
movement, the “stuff” itself. Its monetary transaction
is to the left. Though they are numerically equal in
size for economic volume fl ows, they are different
ways of viewing the trading process. This is made
clear in the case of energy where the arrow to the
right could be in energy units.
Balance of payments can be considered as being
about ownership. While the trade part of balance
of payments covers all goods and services which
move, what is owned in non-trade doesn’t move.
The examples opposite at the top are ownership
of equities (shares). At top right, a business within
the economy has a foreign buyer (a nonresident) so
funds fl ow into the country while the fi xed capital
(the physical assets) of the business does not move.
In later years, funds fl ow out as dividends to the
foreign owner. At top left, funds leave the economy to
buy shares in a company abroad.
Non-trade ownership also covers borrowing
and debt.
Balance of
payments
concerns all
transactions at the
system boundary
UK-owned shares in
a foreign company
(UK assets)
coal imports
KEY goodscoal
services
new vehicles for export
foreign tourists in the UKcall centre abroad
foreign-owned shares in
a UK-located company
(UK liabilities)
funds leaving country
funds received by country
border of country
border of domestic ownership
34
servicesservicese
KEY (£100b[1990]/y) payable receivable
imports
non-trade transactions
trade transactions exports
Balance of payments
This Sankey diagram shows the monetary fl ows of all
transactions that make up the balance of payments (BoP).
Compared to the fi rst 7see Sankey diagram of jobs,
energy and economic volume fl ows, both diagrams have
the same outer rectangle, corresponding to the country’s
geographical border. The monetary fl ows here go in the
opposite direction to the volume fl ows (of energy, goods and
services) in the fi rst diagram: import volumes entering from
the left in the fi rst diagram have corresponding expenditure,
here all in red, which exit to the left; export volumes leaving
on the right in the fi rst diagram have corresponding income,
here all in green, which enter from the right.
All “non-trade transactions” are along the top. The yellow
and grey boxes for equities represent those items of fi xed
capital relevant to the BoP, with white boxes for “debt
securities” (mostly bonds). The focus here is on the location
and ownership of these assets. “foreign owned” means
the assets are physically located in the UK but the dashed
line around them designates ownership by nonresidents;
monetary transactions in red crossing the dashed lines
leave the economy. The boxes “foreign located…” mean the
assets are abroad but under home ownership (the UK in this
example); monetary transactions in red crossing the solid
line to reach them also leave the economy. Transactions at
the bottom of these boxes correspond to their purchase or
sale (change of liability), while transactions on their sides
are income (dividends or interest) to their owners.
“other investments (net)” from the BoP fi nancial account
are mainly intra-bank transactions across national borders.
“reserve assets (net)” vary between inward and outward
from year to year.
The remaining components of “non-trade transactions”
are one way. They include foreign aid and remittances by
foreign workers back to their own countries.
capital account (net)
transfers(net)
services
NON-TRADE TRANSACTIONS
crude oil (net)
agriculture& goods
IMPORTS EXPORTSlocated within UK
bal
ance
of
pay
men
tsservices
agriculture& goods
foreign owned
UKliabilities
foreign located UK owned
assets
other investments(net)
reserve assets (net)
incomepayable
incomepayable debt
securities
inwardlending
inwardinvestment
lendingabroad
investmentabroad
foreign locateddebt
securities
income receivable
income receivable
gas (net)
petroleumproducts (net)
coal (net)
payable receivabletrade transactions
services
goods
agriculture
services
services
goods
agriculture
p. 16p. 17
35
36
servicesservicese
KEY (£100b[1990]/y) payable receivable
imports
non-trade transactions
trade transactions exports
capital account (net)
transfers(net)
services
NON-TRADE TRANSACTIONS
crude oil (net)
agriculture& goods
IMPORTS EXPORTSlocated within UK
bal
ance
of
pay
men
tsservices
agriculture& goods
foreign owned
UKliabilities
foreign located UK owned
assets
other investments(net)
reserve assets (net)
incomepayable
incomepayable debt
securities
inwardlending
inwardinvestment
lendingabroad
investmentabroad
foreign locateddebt
securities
income receivable
income receivable
gas (net)
petroleumproducts (net)
coal (net)
payable receivabletrade transactions
services
goods
agriculture
services
services
goods
agriculture
p. 16p. 17
What are the three largest
receivable transactions
(incoming funds) for the
economy?
What are the three largest
payable transactions
(outgoing funds) for the
economy?
Ignoring all the non-trade
transactions, is the balance of
trade positive (more in credit)
or negative?
How does the total trade in
energy (in monetary terms)
compare to the overall
balance of payments?
The UK earns from assets
abroad while income from
domestic assets in foreign
ownership must be paid to
their nonresident owners.
Which income stream
is larger?
For lending (“debt securities”),
has the net amount lent to
foreigners (nonresidents) and
the net amount borrowed
from foreigners gone up or
down over the year 2011?
Can you suggest why the UK
might both lend to and borrow
from foreigners?
Balance of payments
37
Foresight + Research + Innovation 3938
intermediate
serviceindustry
UK trading
manu-facturing
dist
construc-tion
utilities
transport(assets
includedwithin
industries)
extraction
agriculture
intermeddiaa
serviceindustry
manu-facturing
construc-tion
utilities
extraction
agriculture
economically inactive
labour force(economically active) em
economically inactive
labour force(economically active)
vehicle-km/y
PASSENGER
passenger-km/y
car & taxi
bus & coach
vehicle-km/y
PASSENGER
paspassensengerger-km-km//y
car & taxi
bus & coa hch
construction
goods
services
rental
finalsupply
finaldemand
GD
P &
imp
orts
t ticonstructionconstruction
goods
services
rental
finalsupply
finaldemandd
GD
P &
imp
orts
bal
ance
of
pay
men
tsb
alan
ce o
f p
aym
ents
tax
intermediate consumption
investment
utilities
(assetsincluded
withinindustries)
taxtaxtaxtaxxtaxtax
intermediate consumption
investment
utilities
(assetsincluded
withinindustries)
Insights
There are many benefi ts to using the Sankey format
for country-wide data. Widths of lines show what is
important. Lines linking boxes enable dependencies
to be traced back upstream to inputs. System
richness is emphasised by the array of colours
representing different entities.
Extracts from the set of 7see Sankey diagrams
introduced in this booklet are shown opposite.
• Investment is the part of “fi nal demand” essential
for maintenance and growth of all fi xed capital.
• GDP appears in two forms: output and expenditure.
• Energy is represented in two ways. As a small
economic volume fl ow it is production from the
extraction and utilities industries. The other way is
in actual energy units.
• Transport appears in two ways, as for energy. Part
of transport is included in economic volume fl ows
of the fi rst 7see Sankey. The other way is a more
physical perspective focusing on its fi xed capital of
transport equipment which converts energy inputs
into the output product of mobility.
• Jobs are inputs for each industry’s production,
alongside energy and other inputs.
• A key aspect for population is the way it divides
between economically active and inactive parts.
The defi nition of unemployed is only those of the
economically active who don’t have jobs.
• Balance of payments is about monetary fl ows
themselves, and is required to balance.
GDP appears in
two forms: output
and expenditure
p. 17
p. 23
p. 28
p. 17
p. 16
p. 34
Have You Wondered What GDP Means?40 Foresight + Research + Innovation 41
The purpose of the 7see framework isn’t just to
produce Sankey diagrams of one year. A 7see model
has data from 1990 to the present that calibrate time-
varying relationships between the built environment
(fi xed capital) and all the fl ows. Using a Systems
Dynamic approach, a 7see model can be run forward
to, say, 2030 to generate a business-as-usual base-
case scenario.
A 7see model enables the testing of alternative
investment options, such as for a low-carbon
development strategy. These future scenarios are
physically and economically feasible because the
7see method is fi rmly grounded in physical constraints
of energy thermodynamics and material fl ows for
infrastructure. Since any model can only be as good
as the data put into it, a 7see model has complete
data integrity and audit trails to all its data sources.
Insights into GDP:
• GDP should be unpicked into its principal
component fl ows (goods, construction, services
and rental).
• The component fl ows are not substitutable in
the short term, but need time and investment to
substitute over the longer term.
• The drive for growth in developed economies can
be interpreted as maintaining employment given
an ongoing trend of fewer jobs needed per unit of
output.
The coverage of economic aspects within 7see is
fi rmly grounded in the international System of National
Accounts 2008. Combining this rigorous coverage
with jobs, energy and travel means that the 7see
approach provides a lingua franca across government
departments and their policy overlaps. It also aids
international comparisons.
The 7see framework provides a foundation for
discussion of sustainability. The triple bottom line
measures of fi nancial, social and environmental
performance translate into the economy, jobs and
carbon emissions, as covered by the Sankey diagrams
in this booklet.
The 7see
framework
provides a fi rm
foundation for
discussion of
sustainability
Have You Wondered What GDP Means?42 Foresight + Research + Innovation 43
Follow-up resources:
• 20-minute TEDx talk by Simon Roberts describing how the 7see project started:
bit.ly/TEDxNWS-SimonRoberts
• 3-minute animations exploring the Sankey map of jobs, energy and economic volume
fl ows with sub-titles in English, vimeo.com/66060261, or in Chinese,
vimeo.com/68367291
• Technical paper on characterizing an economy by its socio-economic and energy
activities: research.insead.edu/2013/07/RobertsAxonForanGoddardWarr.html
In addition to the UK 7see model shown here, work is in progress on models for the
economies of Australia, Bangladesh, Colombia and the Republic of China (Taiwan).
For more information and answers to the questions, please contact:
Acknowledgements
This booklet is based on an academic research paper written in collaboration with
Colin Axon (Brunel University), Barney Foran (Charles Sturt University), Nigel Goddard
(University of Edinburgh) and Benjamin Warr (INSEAD Social Innovation Center).
Feedback for this booklet was gratefully received from Eike Sindlinger, Felicity Davies,
James Thonger, Jennifer Greitschus, Kim West, Mark Pearsall, Martin Shouler, Ricky
Tsui and Tooraj Arvajeh.
Sources of data: ONS (UK Offi ce for National Statistics), DECC (UK Government
Department for Energy and Climate Change) and DFT (UK Government Department
for Transport).
Also available
This publication is also available in electronic format.
ISBN 978-0-9929501-0-1
www.arup.com/gdp
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Have You Wondered What GDP Means?44
13 Fitzroy Street
London W1T 4BQ
arup.com
driversofchange.com
The measure GDP (gross domestic product) receives a mixed
press. Politicians, the business community and economic
commentators hang on each quarterly release. With emotive
descriptors, all yearn to get out of a depression and into growth.
Contrast this with GDP’s critics who vilify its focus only on
monetarised transactions, saying it ignores unpaid work, activities
in the home and nature’s contributions. Worse still, an increase in
GDP extracts more of the earth’s generous bounty and pollution
clean-up counts as production.
This booklet takes neither position but simply sets out to explain
what GDP means. Behind the single metric is a fi rmly established
methodology of data collection. Whether you are interested in
economics or not, the defi nitions in this methodology provide a
useful language to access a rich data resource and discuss its
implications. This booklet complements the GDP components with
energy, jobs, travel and balance of payments.
Have You Wondered What GDP Means? is a door to understanding
data so they can be used the right way, appreciating both their
qualities and limitations. It is only from such a position that we can
progress with the big questions, such as cutting carbon dioxide
emissions while maintaining economic viability.
9 780956 212184
ISBN 978-0-9562121-8-4