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Have You

Wondered What
GDP Means?
An introduction to diagrams of the UK economy
using Arup’s 7see model

Foresight + Research + Innovation 1


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Have You
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Simon Roberts
GDP Means?
Associate Director
simon.roberts@arup.com
An introduction to diagrams of the UK economy
using Arup’s 7see model

13 Fitzroy Street
London W1T 4BQ
arup.com
driversofchange.com Simon Roberts
Author: Simon Roberts
Design: Elisa Magnini Contents
Picture editors: Felicitas zu Dohna, Daniel Imade

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Population and jobs 27
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ISBN 978-0-9562121-8-4 (pbk)


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Introduction

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
Few understand defined and what exactly it describes.
how GDP is defined
and what exactly Starting from a tangible perspective, consider a
it describes 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 offices, 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.

Foresight + Research + Innovation 7


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, first
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 flows. These 7see
Sankey diagrams provide both an overall picture and
7see Sankey close-up views in detail of any particular flow. They
diagrams provide also map relationships. While energy flows are often
both an overall represented by Sankey methods, extending this
picture and approach to the economy and balance of payments
close-up views is novel.

Four 7see Sankey diagrams are introduced in this


booklet with data from the UK economy for 2011.
• Jobs, energy and economic volume flows
• Transport
• Population and jobs
• Balance of payments

Each diagram has an explanation on a fold-out flap


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.

8 Have You Wondered What GDP Means? Foresight + Research + Innovation 9


Jobs, energy and
economic volume flows

The 7see approach to representing the economy


begins by considering the built environment and
other physical assets. Formally known as fixed
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
Fixed capital and structures, fixed capital also consists of plant,
within the economy machinery and transport equipment.
is where inputs
are converted The main role of fixed capital within the economy
to outputs is that it is where inputs are converted to outputs;
in other words, the process of production. The
photos opposite are examples of fixed capital.
electricity Power generation consists of power stations which
from convert fuel inputs to electricity. Manufacturing
combustion industry produces goods. Construction industry
nuclear & manu- consists of construction equipment. Service industry
renewables facturing is a broad grouping, including distribution, hotels,
communications, finance, public administration,
defence, education, health and social work.
construc-
tion In the 7see Sankey diagrams on the following pages,
all fixed capital is represented by yellow boxes
with Sankey lines entering and leaving. Also shown
service
industry opposite is an excerpt from the Sankey diagrams of
how these examples of fixed capital appear. (There is
no significance to the dimensions of the boxes.)

The next pages introduce Sankey line concepts for


economic volume flows, energy and jobs.

p. 14

10 Foresight + Research + Innovation 11


IMPORTS EXPORTS
UK trading border

agriculture The Sankey diagram opposite shows all the fixed


agriculture capital (the yellow boxes) of an economy divided into
six industry groupings and dwellings. Sankey lines
extraction represent what are called economic volume flows,
a good way to quantify goods and services. Their
utilities source, called gross value added (GVA), is always
from fixed capital. GVA is represented by lines
emerging from the fixed capital boxes. Their total is
the output form of GDP.
intermediate consumption
Economic volume
goods
flows are a good The outer rectangle is the system boundary of
tax way to quantify the country’s trading border. Imports enter on the
left and merge with domestically-produced GVA.
goods and services All flows are measured in money units, inflation
corrected to a reference year for comparison
distribution
between years. Imports and GVA are at “basic
manu- & retail manu- prices”.
facturing facturing
tax
Industries supply each other through “intermediate
consumption”. Timber is GVA of agriculture
final
construc- construc- supply and its input for goods is part of the line linking
tion tion “agriculture” to “manufacturing”. Iron ore and other
extracted resources are the line linking “extraction”
service service goods to “manufacturing” for processing. Intermediate

GDP & imports


tax
industry industry consumption is significant between the three larger
construction
industries, so they each have a pair of boxes: GVA
emanates from the left boxes; inputs from other
services
industries enter the right boxes. They are enclosed
services within a dashed box to emphasise that they don’t
rental represent the actual sequence of production
processes at this point. The usual format elsewhere
for intermediate consumption data is as an input-
dwellings output matrix, so the diagrammatic Sankey form here
makes the relative sizes of flows more evident.

Products on the right are in their finished form and


measured at “purchasers’ prices”. The Sankey
lines make clear the upstream inclusion of “tax” on
products and contributions from other industries.
inputs finished products For goods at the point of final demand, a significant
contribution is “distribution & retail”.
KEY economic volume flows (£100b[1990]/y)
The expenditure form of GDP augmented by imports
imports at basic prices gross value added (GVA) at basic prices final supply at purchasers’ prices is the total at the point marked “final supply”.

agriculture agriculture goods goods


goods extraction construction construction
services utilities services services
rental (actual + imputed)

12 Foresight + Research + Innovation 13


IMPORTS EXPORTS

UK trading border UK trading border


The more common application of Sankey lines for
agriculture agriculture flows from left to right are a country’s use of energy.
crude These are shown opposite as inputs to the fixed
oil capital yellow boxes introduced earlier for industry
extraction extraction
groupings and dwellings.
petroleum
refining
products transport
utilities utilities Important points for energy transformation are
“refining” for crude oil to petroleum products
and “electricity from combustion”. The types of
other
Just as energy is fixed capital for these are oil refineries (part of
an input, so labour manufacturing) and power generation (part
can be considered of utilities).
other
as an input As with economic volume flows in the diagram
electricity
from introduced earlier, the outer rectangle represents the
combustion extent of the whole economy. Flows crossing this are
coal nuclear & manu- manu- imports of fuels and export of petroleum products.
renewables facturing facturing
Whereas the GVA source of economic volume flows
gas
is shown earlier as emerging from fixed capital
boxes, the fixed capital for domestic extraction of
construc- construc- fossil fuels is simply shown here by square brackets.
tion tion

other All the energy Sankey lines are in energy units. The
other service
service key at the bottom details a different unit name for
industry industry
electricity but it is equivalent in size so that the
energy loss as heat at “electricity from combustion”
is evident.

jobs Just as energy is an input, so labour can be


considered as an input to the fixed capital of
production. This is shown opposite in units of
millions of the economically active population, as
dwellings dwellings
defined in the later section, Population and jobs.

The Sankey formats shown here could be extended


to other inputs, such as water, steel and cement.

products products
inputs inputs

KEY energy (500 PJ/y) energy (200 TWh/y) KEY people (10 million)

crude oil electricity jobs


petroleum products
coal
natural gas

14 Foresight + Research + Innovation 15


IMPORTS EXPORTS
UK trading border
petroleum
products
agriculture (net)
Jobs, energy and economic volume flows
agriculture

extraction
crude The Sankey lines introduced earlier of jobs, energy and
oil refining petroleum products economic volume flows all relate to the same set of fixed
transport
utilities capital. Therefore they are combined here into one diagram.
Products and jobs start as inputs on the left and progress
crude oil other
(net) investment via production at fixed capital to finished forms on the right.

intermediate consumption For the three larger industries, inputs for production into
goods
their left-hand boxes are imports, energy and jobs, and into
tax their right-hand boxes are their intermediate consumption of
other other industries’ products, which include raw materials.
electricity
coal (net) from
combustion distribution
Introduced here are extensions of the Sankey lines at “final
coal
& retail supply” further to the right as lines of “final demand”. One
nuclear & manu- manu-
facturing facturing final destination for products is by households. Their own
renewables
tax purchase is called “household consumption”. Households
gas also benefit from “NPISH” (non-profit institutions serving
final final households) and “government” services, so these are
construc- construc- supply demand household also components of final demand. Another destination
tion tion consumption for products is as exports, which are shown on the right
other
gas (net) crossing the system boundary of the economy.
service service goods

GDP & imports


tax
other
industry industry The remaining component of final demand is “investment”,
construction
the only flow going back to the left. Fixed capital has to
jobs be maintained, replaced and increased. While referred
services
NPISH to here as investment, its formal name is gross fixed
services capital formation (GFCF). It consists of Sankey lines from
rental
manufacturing, construction and service industries that
government
evolve into a single blue line, simply for clarity, before blue
lines enter each of the fixed capital boxes for the industries
dwellings and dwellings.
agriculture
goods
This Sankey diagram provides a high-level view of the
services significant relationships from inputs through to final demand
with investment doubling back to fixed capital. It is an
integration of different flows involving a mixture of units
which are fully detailed in the key.
products
inputs finished products

KEY energy (500 PJ/y) economic volume flows at economic volume flows at purchasers’ prices (£100b[1990]/y)
basic prices (£100b[1990]/y)

crude oil electricity (200 TWh/y) extraction goods agriculture


petroleum products goods construction utilities
coal jobs (10 million) construction services investment
natural gas services rental (actual + imputed)

16 17
IMPORTS EXPORTS
UK trading border
petroleum
products
agriculture Jobs, energy and
(net)
agriculture
economic volume
crude
extraction flows
oil refining petroleum products
transport
utilities
crude oil other Which industry is the largest
(net) investment
employer?

goods intermediate consumption


What proportion of total
tax coal used in the country is
other imported?
electricity
coal (net) from
combustion distribution
What is (crude) oil used for?
coal
manu- & retail manu-
nuclear &
facturing facturing Is the UK self-sufficient in
renewables
tax petroleum products?
gas
final final What is the ratio of goods
construc- construc- supply demand household
tion tion consumption manufactured to imports?
other
gas (net)
service service goods Which is highest volume

GDP & imports


tax
other export out of agriculture,
industry industry
construction
goods and services?
jobs
services
NPISH
Which industry requires
services the most infrastructure
rental
investment?
government

dwellings
What proportion of the final
supply of services is tax on
agriculture
products?
goods
services
If consumers (households)
buy fewer goods, how is
employment affected?
products
inputs finished products

KEY energy (500 PJ/y) economic volume flows at economic volume flows at purchasers’ prices (£100b[1990]/y)
basic prices (£100b[1990]/y)

crude oil electricity (200 TWh/y) extraction goods agriculture


petroleum products goods construction utilities
coal jobs (10 million) construction services investment
natural gas services rental (actual + imputed)

18 19
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.
Fixed capital Some economic volume flows in the first 7see
of transport Sankey diagram include transport services, such
equipment as distribution and vehicle leasing by the service
converts energy industry. Transport equipment is also one of the
into travel types of the fixed capital that make up industries.
However the full role of transport in an economy is
difficult to extract from economic volume flow data
alone. Also private vehicles are not normally included
in the measure of fixed 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 fixed 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 fixed in position.

Foresight + Research + Innovation 21


PASSENGER

car & taxi vehicle-km/y Transport

This 7see Sankey diagram maps the major transportation


bus & coach passenger-km/y
types that need fuel inputs (thus excluding walking and
refining petroleum products
transport cycling). The Sankey diagram begins on the left with volume
rail passenger-km/y
flows of energy use and can be thought of as progressing
other to the right via means of transportation to the delivery
domestic of mobility.
passenger-km/y
p. 16 air
The fuels shown here for the UK economy are mainly
international petroleum products with a little electricity. Their sources
passenger-km/y are shown earlier in the Sankey diagram of jobs, energy
petroleum air
products and economic volume flows. LPG (liquefied petroleum gas)
and biofuels are too small in UK use to include here. Some
economies also use CNG (compressed natural gas).
FREIGHT
The yellow boxes represent all the fixed capital of vehicles.
van (LGV) vehicle-km/y
(There is no significance to their dimensions.) They are
grouped according to whether they serve passengers
vehicle-km/y
or freight.
electricity
truck (HGV)
tonne-km/y 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”,
rail tonne-km/y the annual motor test ensures an accurate record of total
travel of the entire car fleet. Thus the output mobility of this
military air mode is “vehicle-km/y”. “passenger-km/y” is not used since
actual occupancy data is more difficult to assess and is less
domestic reliable than purely vehicle travel.
tonne-km/y
marine
For freight carried on the roads, data of “tonne-km/y” is
collected for trucks (heavy goods vehicles, HGV) but not
international
for vans (light goods vehicles, LGV). Data for “international
marine
marine” freight specifically associated with the UK has not
yet been sourced.

transport
energy mobility

petroleum electricity vehicle travel passenger travel freight travel


KEY
products (500 PJ/y) (200 TWh/y) (50 G vehicle-km/y) (50 G passenger-km/y) (50 G tonne-km/y)

22 23
PASSENGER

car & taxi vehicle-km/y Transport

Which form of transport uses


bus & coach passenger-km/y
electricity?
refining petroleum products
transport
rail passenger-km/y
Which form of transport is
other the largest user of petroleum
domestic
passenger-km/y products?
p. 16 air

For public transport on land,


international which type carries the most
passenger-km/y
petroleum air
passenger-km?
products

Between the two types of road


FREIGHT
freight vehicles, which covers
the most vehicle-km?
van (LGV) vehicle-km/y

How is most freight carried?


vehicle-km/y
electricity
truck (HGV)
tonne-km/y

rail tonne-km/y

military air

domestic
tonne-km/y
marine

international
marine

transport
energy mobility

petroleum electricity vehicle travel passenger travel freight travel


KEY
products (500 PJ/y) (200 TWh/y) (50 G vehicle-km/y) (50 G passenger-km/y) (50 G tonne-km/y)

24 25
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 fixed


capital. Here the relevant fixed capital is dwellings.
Shown opposite are examples, from a detached and
terraced houses to an apartment block.
Households are
defined as the Dwellings are occupied by households which are
consuming unit defined as the consuming unit under the international
System of National Accounts (SNA). Examples of
households are shown opposite. According to the
ONS (Office 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 fixed capital:
it is a comparatively fixed resource and changes only
slowly over time.

Foresight + Research + Innovation 27


other industries
manu- Population and jobs
manufacturing facturing

labour force construction This 7see Sankey diagram relates “dwellings” on the left
population (economically active) employed jobs
through “population” in the middle to “jobs” and other
construc- activities on the right. Excerpts of the first Sankey diagram
service industry tion
in this booklet, of jobs, energy and economic volume flows,
dwellings households show several points of linkage of quantities between the two
service diagrams. In contrast to the other three Sankey diagrams
industryy
in this booklet, all the quantities here are stocks or status
measures; none are flows with a direction or have per-year
types of units.
unemployed
If starting at “population” in the Sankey diagram,
p. 16 progressing to the right first meets division by age. The
next division is by whether “economically active” or not
household
consumption for the “labour force”. There is then a change of unit from
economically inactive “employment” in light green for “labour force (economically
men over 65
women over 60 active)”, as sourced from household survey data, to “jobs”
in dark green, as reported by industries, the employers. The
under 65 retired industry groupings at the top right correspond to those in
sick the first Sankey diagram.
looking after
p. 17 Progressing from “population” to the left, population can
family or home
be grouped into “households”. This applies to “household
student
consumption” on the far right of the first Sankey diagram.

Households reside in “dwellings”, which are the fixed


dwellings capital at the bottom of the first Sankey diagram. Dwellings
under 16 consume fuel and require investment for improvements as
under 16 well as to increase in number. Rental paid by households
for accommodation is one component of GDP. Note that
p. 17 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.

residence consuming unit population employment or status 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.

rural rural rural


KEY (10 million) dwellings households population employment jobs
urban urban urban

28 29
other industries
manu- Population and jobs
manufacturing facturing

labour force construction Why are there more “jobs”


population (economically active) employed jobs
than “employed”?
construc-
service industry tion
Why is the number of
dwellings households “dwellings” greater than
service
“households”?
industryy

What is the average


household size?
unemployed

p. 16 Which is the largest activity/


group of the population?
household
consumption
economically inactive Which is the larger comparing
men over 65
women over 60 children “under 16” to older
people of “men over 65,
under 65 retired
women over 60”?
sick
looking after Which category would
p. 17
family or home housewives come under?
student
How do the numbers
of “unemployed” and
dwellings “economically inactive”
under 16 compare in size?
under 16

p. 17

residence consuming unit population employment or status

rural rural rural


KEY (10 million) dwellings households population employment jobs
urban urban urban

30 31
UK-owned shares in
a foreign company
(UK assets)

foreign-owned shares in
a UK-located company Balance of payments
(UK liabilities)

This section on balance of payments is about money,


which is an important distinction from volume
measures introduced earlier.

Economic volume flows feature in the first 7see


Sankey diagram in this booklet. Volume flows are
inflation-corrected spending on goods, services and
Balance of other outputs. Just as energy units are a good metric
payments for energy flows, volume metrics are a good proxy
concerns all measure for the amount of these products (goods,
transactions at the services, etc.) as they progress through all the stages
system boundary 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 flows, they are different
ways of viewing the trading process. This is made
coal imports new vehicles for export 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 flow into the country while the fixed capital
(the physical assets) of the business does not move.
In later years, funds flow out as dividends to the
call centre abroad foreign tourists in the UK foreign owner. At top left, funds leave the economy to
buy shares in a company abroad.

funds leaving Non-trade ownership also covers borrowing


KEY coal goods border of country
country and debt.
funds received border of domestic
services
by country ownership
32 Foresight + Research + Innovation 33
Balance of payments

This Sankey diagram shows the monetary flows of all


transactions that make up the balance of payments (BoP).
reserve assets (net)
NON-TRADE
Compared to the first 7see Sankey diagram of jobs,
TRANSACTIONS other energy and economic volume flows, both diagrams have
foreign located income investments the same outer rectangle, corresponding to the country’s
UK owned receivable (net)
geographical border. The monetary flows here go in the
assets opposite direction to the volume flows (of energy, goods and
capital
account (net) services) in the first diagram: import volumes entering from
income the left in the first diagram have corresponding expenditure,
foreign located receivable
transfers debt here all in red, which exit to the left; export volumes leaving
(net) securities on the right in the first diagram have corresponding income,
here all in green, which enter from the right.
IMPORTS located within UK foreign owned EXPORTS
investment lending
income All “non-trade transactions” are along the top. The yellow
abroad abroad
payable and grey boxes for equities represent those items of fixed
UK
liabilities capital relevant to the BoP, with white boxes for “debt
petroleum securities” (mostly bonds). The focus here is on the location
products (net) income
payable and ownership of these assets. “foreign owned” means
crude oil (net) debt
securities the assets are physically located in the UK but the dashed
line around them designates ownership by nonresidents;
agriculture
& goods monetary transactions in red crossing the dashed lines
inward inward
lending investment
leave the economy. The boxes “foreign located…” mean the
coal (net) agriculture assets are abroad but under home ownership (the UK in this

balance of
payments
& goods example); monetary transactions in red crossing the solid
gas (net)
line to reach them also leave the economy. Transactions at
services
the bottom of these boxes correspond to their purchase or
services
sale (change of liability), while transactions on their sides
are income (dividends or interest) to their owners.

agriculture “other investments (net)” from the BoP financial account


services
e
goods are mainly intra-bank transactions across national borders.
services
“reserve assets (net)” vary between inward and outward
from year to year.

The remaining components of “non-trade transactions”


trade transactions p. 17
payable receivable are one way. They include foreign aid and remittances by
p. 16
foreign workers back to their own countries.

KEY (£100b[1990]/y) non-trade transactions payable receivable


trade transactions imports exports

34 35
Balance of payments

What are the three largest


receivable transactions
reserve assets (net)
(incoming funds) for the
NON-TRADE economy?
TRANSACTIONS other
foreign located income investments
(net)
What are the three largest
UK owned receivable
assets
payable transactions
capital (outgoing funds) for the
account (net)
income economy?
foreign located receivable
transfers debt
(net) securities Ignoring all the non-trade
transactions, is the balance of
IMPORTS located within UK EXPORTS trade positive (more in credit)
investment lending foreign owned
abroad abroad
income or negative?
payable
UK
liabilities How does the total trade in
petroleum
products (net) income energy (in monetary terms)
crude oil (net)
payable debt compare to the overall
securities balance of payments?
agriculture
& goods inward inward The UK earns from assets
lending investment abroad while income from
coal (net) agriculture
domestic assets in foreign
balance of
payments
& goods
gas (net) ownership must be paid to
their nonresident owners.
services services
Which income stream
is larger?

agriculture For lending (“debt securities”),


services
e
goods has the net amount lent to
services foreigners (nonresidents) and
the net amount borrowed
from foreigners gone up or
trade transactions p. 17 down over the year 2011?
p. 16 payable receivable

Can you suggest why the UK


might both lend to and borrow
from foreigners?

KEY (£100b[1990]/y) non-trade transactions payable receivable


trade transactions imports exports

36 37
(assets
included
within utilities
industries)
investment

intermediate consumption

p. 17
UK trading
tax
x
Insights
agriculture
PASSENGER

transport extraction There are many benefits to using the Sankey format
car & taxi vehicle-km/y for country-wide data. Widths of lines show what is
(assets
included important. Lines linking boxes enable dependencies
within utilities to be traced back upstream to inputs. System
industries) coach
bus & coa ch
h passenger-km/y
passen
passenger
ger-km
-km//y richness is emphasised by the array of colours
p. 23
representing different entities.

intermediate
intermed
dia
a GDP appears in Extracts from the set of 7see Sankey diagrams
two forms: output introduced in this booklet are shown opposite.
labour force and expenditure
(economically active) em • Investment is the part of “final demand” essential
for maintenance and growth of all fixed capital.
dist
manu- • GDP appears in two forms: output and expenditure.
final final
facturing supply demandd
• Energy is represented in two ways. As a small
economic volume flow it is production from the
goods extraction and utilities industries. The other way is
GDP & imports

construc-
construction
t ti in actual energy units.
tion

services • Transport appears in two ways, as for energy. Part


service
industry
of transport is included in economic volume flows
of the first 7see Sankey. The other way is a more
rental
economically inactive physical perspective focusing on its fixed capital of
transport equipment which converts energy inputs
into the output product of mobility.
p. 17
p. 28 • Jobs are inputs for each industry’s production,
alongside energy and other inputs.
p. 16
• A key aspect for population is the way it divides
between economically active and inactive parts.
balance of
payments

The definition of unemployed is only those of the


economically active who don’t have jobs.

• Balance of payments is about monetary flows


p. 34 themselves, and is required to balance.

38 Foresight + Research + Innovation 39


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
(fixed capital) and all the flows. 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 firmly grounded in physical constraints
The 7see of energy thermodynamics and material flows for
framework infrastructure. Since any model can only be as good
provides a firm as the data put into it, a 7see model has complete
foundation for data integrity and audit trails to all its data sources.
discussion of
Insights into GDP:
sustainability • GDP should be unpicked into its principal
component flows (goods, construction, services
and rental).
• The component flows 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


firmly 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 financial, social and environmental
performance translate into the economy, jobs and
carbon emissions, as covered by the Sankey diagrams
in this booklet.

40 Have You Wondered What GDP Means? Foresight + Research + Innovation 41


Further information Photo credits
Key to license definitions:
• CC0: Public Domain (creativecommons.org/about/cc0)
• CC-BY: Creative Commons - Attribution (creativecommons.org/licenses/by/2.0/)
• CC-BY-ND: Creative Commons – Attribution – No Derivatives (creativecommons.org/licenses/by-nd/4.0/)
• CC-BY-SA 2.0: Creative Commons - Attribution - Share Alike Generic
Follow-up resources: (creativecommons.org/licenses/by-sa/2.0/)
• CC-BY-SA 3.0: Creative Commons - Attribution - Share Alike Unported
• 20-minute TEDx talk by Simon Roberts describing how the 7see project started:
(creativecommons.org/licenses/by-sa/3.0/)
bit.ly/TEDxNWS-SimonRoberts
• 3-minute animations exploring the Sankey map of jobs, energy and economic volume The references below indicate:
flows with sub-titles in English, vimeo.com/66060261, or in Chinese, Page number: subject (image link) by creator (creator’s link) license
vimeo.com/68367291 6: aerial shot - © Webb Aviation (www.webbaviation.co.uk) photo/2752455) by David Wright (www.geograph.org.
• Technical paper on characterizing an economy by its socio-economic and energy 9: market - (www.flickr.com/photos/ uk/profile/1782) CC-BY-SA 2.0
activities: research.insead.edu/2013/07/RobertsAxonForanGoddardWarr.html fairerdingo/1775342236/) by raider of gin (www.flickr. 26: elderly couple - (www.flickr.com/photos/
com/photos/fairerdingo/) CC-BY joshuarothhaas/1971145369) by Joshua Rothhaas
10: power station - (commons.wikimedia.org/wiki/ (www.flickr.com/photos/joshuarothhaas/) CC-BY
In addition to the UK 7see model shown here, work is in progress on models for the File:Nuclear.power.plant.Dukovany.jpg) by Petr Adamek 26: crowd - (blog.ideascale.com/2013/03/19/
economies of Australia, Bangladesh, Colombia and the Republic of China (Taiwan). (commons.wikimedia.org/wiki/User:Petr.adamek ) CC0 learn-from-ideascale-engagement-behaviors-to-
10: factory - (www.flickr.com/photos/ cultivate/613445810_95f712caa1_o/) by ideascale,
For more information and answers to the questions, please contact: widnr/6549889343/in/photostream/) by Wisconsin CC-BY-ND
simon.roberts@arup.com Department of Natural Resources (www.fli ckr.com/ 26: terraced house - (www.flickr.com/photos/
photos/widnr/) CC-BY-ND beglen/151374385/) by David, Bergin, Emmett and
10: crane - (commons.wikimedia.org/wiki/File:Tower_ Elliott (www.flickr.com/photos/beglen/) CC-BY
crane.jpg) by Nebrot (commons.wikimedia.org/wiki/ 26: single man - photographer Elisa Magnini © Arup
User:Nebrot) CC-BY-SA 3.0 26: flats - © Stewart Bale Ltd.
10: hospital - © Daniel Imade 26: family - (www.flickr.com/photos/
Acknowledgements 20: traffic - (www.geograph.org.uk/photo/1441129) by fdevillamil/5674635631) by Frédéric de Villamil (www.
Lynda Poulter (www.geograph.org.uk/profi le/12912) flickr.com/photos/fdevillamil/) CC-BY-SA 2.0
CC-BY-SA 2.0 32: chinese investment - photographer Elisa Magnini © Arup
This booklet is based on an academic research paper written in collaboration with 20: van - (en.wikipedia.org/wiki/White_van_ 32: Scottish Power - photographer Elisa Magnini © Arup
Colin Axon (Brunel University), Barney Foran (Charles Sturt University), Nigel Goddard man#mediaviewer/File:Mercedes_sprinter_2_v_sst. 32: coal ship - (commons.wikimedia.org/wiki/
(University of Edinburgh) and Benjamin Warr (INSEAD Social Innovation Center). jpg) by Sven Storbeck (commons.wikimedia.org/wiki/ File:Loading_a_freighter_with_coal_at_one_of_the_
Feedback for this booklet was gratefully received from Eike Sindlinger, Felicity Davies, User:SSt) CC-BY-SA 3.0 three_coal_docks_owned_by_the_Pennsylvania_
20: bus - (www.flickr.com/photos/ Railroad1a34819v.jpg) by Jack Delano (en.wikipedia.
James Thonger, Jennifer Greitschus, Kim West, Mark Pearsall, Martin Shouler, Ricky
brianac37/7489993072/) by brianac37 (www.flickr. com/ org/wiki/Jack_Delano) CC0
Tsui and Tooraj Arvajeh. photos/brianac37/) CC-BY 32: car export - (commons.wikimedia.org/wiki/
20: truck - (www.flickr.com/photos/ File:Car_carrier_Cepheus_Leader.jpg) by Tvabutzku1234
Sources of data: ONS (UK Office for National Statistics), DECC (UK Government sludgeulper/3298931141/) by Sludge G (www.flickr. (commons.wikimedia.org/wiki/User:Tvabutzku1234)
Department for Energy and Climate Change) and DFT (UK Government Department com/photos/sludgeulper/) CC-BY-SA 2.0 CC0
20: train - (www.flickr.com/photos/15462727@ 32: call centre - (commons.wikimedia.org/wiki/File:An_
for Transport).
N07/2226814310/) by Ingy The Wingy (www.flickr.com/ Indian_call_center.jpg) by Sonamsaxena (en.wikipedia.
people/ingythewingy/) CC-BY-SA 2.0 org/wiki/User:Sonamsaxena) CC0
20: rail freight - (www.flickr.com/photos/ 32: tickets - photographer Elisa Magnini © Arup
duncharris/4033673305/) by Duncan Harris (www. 41: manufacturing - (en.wikipedia.org/wiki/
flickr.com/photos/duncharris/ ) CC-BY-SA 2.0 Geely#mediaviewer/File:Geely_assembly_line_in_
Also available 20: terminal - © Nic Lehoux Beilun,_Ningbo.jpg) by Siyuwj (commons.wikimedia. org/
20: cargo ship - (www.flickr.com/photos/40322276@ wiki/User:Siyuwj) CC-BY-SA 3.0
N04/5369581593) by NOAA’s National Ocean Service 41: construction site - photographer Mike Cribb © Arup
This publication is also available in electronic format.
(www.flickr.com/people/usoceangov/) CC-BY-SA 2.0 41: office - (www.flickr.com/photos/
ISBN 978-0-9929501-0-1
26: detached house - (www.geograph.org.uk/ philliecasablanca/3344142642) by Phil Whitehouse
www.arup.com/gdp (www.flickr.com/photos/philliecasablanca/) CC-BY

42 Have You Wondered What GDP Means? Foresight + Research + Innovation 43


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 firmly established
methodology of data collection. Whether you are interested in
economics or not, the definitions 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.

ISBN 978-0-9562121-8-4

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44 Have You Wondered What GDP Means?