Why can comparisons of nations and industrial firms by GNI and total sales, respectively, produce

misleading results? In your Element Three, include two examples of how this comparison might lead to
misunderstandings.

Element 1: The comparison between nations and transnational corporations using

GNI and total sales causes a shocking effect. Apparently everything started with a
misleading paper from the Institute for Policy Studies which is an anti-globalization
think-tank. The truth is that both numbers are not comparable. GNI is the sum of
the values added by each economic agent. While in total sales each time there is an
intermediary in the value chain, we are counting double the value added up to that
moment.

In order to illustrate the point, let’s assume that we are comparing the sizes of two
men. Imagine that one is located in the top floor of the Andreas Building while the
other is inside AN110. Then we ask Mr. Cavanagh, the author of the mentioned
paper, to measure both men. He measures the one in the classroom from feet to
top, and the second one ― from the ground floor all the way up to the head (around
48 feet!) So he promptly declares that he found a giant in Barry’s campus and
sadly everyone believes him and runs away.

Element 2: “Sales and GDP, however, are not comparable. The GDP of a nation is
the sum of the values added by each producer... The reason why one does not want
to add the total sales of all producers is that this would lead to a lot of double
counting. To give a few examples. Bethlehem Steel sells steel wire to Bridgestone.
During the same year Bridgestone sells tires to Ford Motor Company. The latter
then sells cars to final consumers. If we add the sales of the steel, the tire and the
car companies we will count the steel wires three times.” Grauwe, P. & Camerman,
F. (2002). How big are the big multinational Companies?, 3

Element 3: In the textbook is mentioned the case of Venezuela and Wal-Mart. If we

compare Wal-Mart’s total sales versus Venezuela’s GNI, Wal-Mart seems to be twice
as large as Venezuela. But when we measure Wal-Mart by value added, Venezuela’s
economy is more than twice the size of Wal-Mart. Reading Grauwe & Camerman’s
paper we can find many examples. For instance Saudi Arabia and ExxonMobil are
similar in sizes if we use GNI and total sales. But after the authors calculated
Exxon’s value added, the Exxon’s size shrinks to around a third of Saudi Arabia.

The links of the mentioned papers are:

Anderson, S. & Cavanagh, J. (2000). The Rise of Corporate Power.

http://bit.ly/dUfoM1

Grauwe, P. & Camerman, F. (2002). How big are the big multinational Companies?.
http://bit.ly/m9uZJv