Concepts, definitions and classifications

The 2008 SNA defines the production and asset boundaries which determines what gets measured and, more importantly, the level of economic activity and investment. For example, the 2008 SNA stipulates that the purchase of lawn maintenance services from a third party is production while cutting your own lawn is not production, therefore, the purchase of lawn maintenance services would form part of GDP, however cutting your own lawn would not.

The following are the definitions that are used within the infrastructure statistical framework which have been inherited from the 2008 SNA.

Production boundary - “The production boundary of the system of national accounts includes the following activities (a) the production of all goods or services that are supplied to units other than their producers, or intended to be so supplied, including the production of goods or services used up in the process of producing such goods or services; (b) the own-account production of all goods that are retained by their producers for their own final consumption or gross capital formation; (c) the own-account production of knowledge-capturing products that are retained by their producers for their own final consumption or gross capital formation but excluding (by convention) such products produced by households for their own use; (d) the own-account production of housing services by owner occupiers; (e) the production of domestic and personal services by employing paid domestic staff.” (2008 SNA 6.27)

Asset boundary - The asset boundary for fixed assets consists of goods and services that are used in production for more than one year. (2008 SNA 10.33)

Production - Production is an activity, carried out under the responsibility, control and management of an institutional unit that uses inputs of labour, capital, and goods and services to produce outputs of goods and services. (2008 SNA 6.2)

Asset - An asset is a store of value representing a benefit or series of benefits accruing to the economic owner by holding or using the entity over a period of time. It is a means of carrying forward value from one accounting period to another (2008 SNA 3.5, 3.30, 10.8, 11.3)

Output - Output represents the goods and services produced by an establishment, excluding the value of any goods and services used in an activity for which the establishment does not assume the risk of using the products in production, and excluding the value of goods and services consumed by the same establishment except for goods and services used for capital formation. (2008 SNA 6.89)

Consumption - Consumption consists of the use of goods and services for the satisfaction of individual or collective human needs or wants (2008 SNA 9.39).

Intermediate Consumption - Intermediate consumption consists of the value of the goods and services consumed as inputs by a process of production, excluding fixed assets whose consumption is recorded a consumption of fixed capital. (2008 SNA 6.213)

Consumption of fixed capital - Consumption of fixed capital is the decline, during the course of the accounting period, in the current value of the stock of fixed assets owned and used by producers as a result of physical deterioration, normal obsolescence or normal accidental damage. (2008 SNA 6.240, 10.25)

Value Added - Value added is the difference between output and intermediate consumption. (2008 SNA 6.8)

Economic Life - The economic life of an asset represents the period of time (usually measured in years) that an asset provides benefits to the economic owner in the production of goods and services.

Economic Ownership - The economic owner of an asset is the institutional unit entitled to claim the benefits associated with the use of the asset in question in the course of an economic activity by virtue of accepting the associated risks. (2008 SNA 10.5)

Legal Ownership - The legal owner of an asset is the institutional unit entitled in law and sustainable under the law to claim the benefits associated with the entities. (2008 SNA3.21, 10.5)

Market Value - Market valuation of an asset is when the asset is valued at the current market price agreed upon by transactors. (2008 SNA 2.59)

The key concept in the infrastructure statistical framework is the concept of infrastructure. In the existing literature there is general agreement on the functions of infrastructure - that it provides an important foundation that is required to support economic growth, quality of life and security. However, there is no universally accepted definition of what it actually is and neither is it articulated in standard economic and social classification systems. For example, data users will not find the term infrastructure industry in the North American Industrial Classification System (NAICS), nor will a user find an asset called infrastructure within the North American Product Classification System (NAPCS). Therefore the first step in constructing the infrastructure statistical framework is to define what we mean by infrastructure.

Various organizations have developed definitions of infrastructure. The Organisation for Economic Cooperation and Development (OECD) categorises infrastructure as economic assets and social assets(PricewaterhouseCoopers. Financing Options For Regional Infrastructure in Western Australia, prepared for the Western Australia Technology Advisory Council). Economic assets cover both physical facilities (highways, roads, energy generation, and water and sewerage facilities) and services (transportation services and water supply). Social assets are assets that are “regarded as essential to the maintenance of a tolerable standard of living for residents and workers”, including educational and health care facilities, leisure facilities, open spaces, and the infrastructure associated with the maintenance of public health and welfare, law and order and public administration(This OECD definition has been referenced by Australia’s Ministry of Urban Infrastructure Management).

According to the World Bank, infrastructure is about delivering essential services that are the foundation for development and refers to energy (including oil, gas and mining), information and communication technology (ICT), transportation, water supply and sanitation, and urban services. This implies that typical urban services such as police, fire and emergency services are also included, in addition to parks, recreation facilities, immigration settlement services, public housing, libraries and natural capital such as urban forests and wetlands.

The Canadian infrastructure statistical framework borrowed from the above definitions. For the purposes of the Canadian infrastructure statistical framework, infrastructure will be defined as:

"the physical structures and systems that support the production of goods and services and their delivery to and consumption by governments, businesses and citizens."

A critical element of this definition is that infrastructure assets are tangible assets, this means that in order to be included within the ‘infrastructure boundary’, an infrastructure asset needs to be a good that is used repeatedly in the process of production or provision of services to its ‘users’ for more than one year.

Another important feature of this definition is that infrastructure is an enabler or performs a support function. For the most part, infrastructure represents a set of assets that are used by other factors of production (labour and capital) in the production, distribution or consumption of goods and services. Infrastructure’s contribution is mainly indirect. For example, in order for a firm to manufacture widgets, parts need to be delivered to the factory plant. These parts are delivered via a transportation system - the transportation system is a supporting infrastructure asset that enables the production of widgets.

In order to properly capture the role of infrastructure in the Canadian economy and society the above definition requires further disaggregation. This disaggregation will improve the overall usefulness of the accounts and increase the level of analysis that can be undertaken with the resulting data. The key ‘disaggregating’ concepts contained in the infrastructure statistical framework include the concepts of:

• Role
• Function
• Product
• Industry

The concept and classification of assets in the infrastructure accounts is critical given infrastructure by its nature is an asset.

The statistical framework classifies infrastructure assets according to function or purpose. The international classification of the functions of government is used to identify the specific function of the asset. The classification of the functions of government (COFOG) is an official United-Nations-approved classification system, developed by the OECD that enables government expenditures to be compared functionally among different countries. The following is the list of functions used within the Infrastructure economic accounts:

Two other key classification systems used within the infrastructure statistical framework are the North American Industry Classification System (NAICS) and the North American Product Classification System (NAPCS). Statistical classifications are comprehensive structured lists of mutually exclusive categories and means that objects can be classified in only one category.

The North American Industry Classification System (NAICS) is an industry classification system developed by the statistical agencies of Canada, Mexico and the United States. NAICS is based on supply-side or production-oriented principles, to ensure that industrial data, classified to NAICS, are suitable for the analysis of production-related activities.

Economic statistics describe the behaviour and activities of economic transactors and of the transactions that take place among them. The economic transactors for which NAICS is designed are businesses and other organizations engaged in the production of goods and services. They include farms, incorporated and unincorporated businesses and government business enterprises. They also include government institutions and agencies engaged in the production of marketed and non-marketed services, as well as organizations such as professional associations and unions, and charitable or non-profit organizations and the employees of households. NAICS is a comprehensive system encompassing all economic activities. It has a hierarchical structure. At the highest level, it divides the economy into 20 sectors. At lower levels, it further distinguishes the different economic activities in which businesses are engaged.

The North American Product Classification System (NAPCS) Canada is a classification of products (goods and services) designed primarily for use in statistical programs. It is Statistics Canada's official standard for the collection, processing and dissemination of economic data. This includes, for example, statistics on the value of exports and imports by type of product, the value of industry production and consumption by type of product, and industrial product price indices.

Similar to NAICS, the structure of NAPCS Canada is also hierarchical. This type of classification system enables the collection, analysis and publication of data at different levels of detail, in a standardized way.

While each of the four classification systems noted above provide significant insight into the role of infrastructure in Canada, the power of these systems is demonstrated when items are cross classified. For example, a power generation infrastructure asset can be classified as both core and for the purpose of protecting the environment. This is best illustrated using an example.

Assume that the current investment in wind turbines is $1 billion. According to our classification system/definitions, this asset would be classified as core infrastructure given the role it plays in the health and safety of Canadians. In addition, since wind turbines serve to reduce polluting emissions its function is to protect the environment. The infrastructure economic accounts are therefore able to say something about Canada’s investment in core infrastructure towards protecting the environment.

Assume that there is also a $2 billion investment in arenas over the same period. According to the definitions above, an arena would be considered as non-core infrastructure. As an illustration, instead of simply having the asset and corresponding investment:

The imposition of the infrastructure classification systems on that data will provide unique perspectives on that investment:

The detailed asset classes used by the infrastructure statistical framework can be found in the appendix.