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Statistics Can't Be Damn Lies Any Longer


Cover Story

STATISTICS CAN'T BE DAMN LIES ANY LONGER

Data! Data! Data! I can't make bricks without clay.

--Sherlock Holmes, The Adventure of the Copper Beeches

In the poorer countries of the world, investment and commerce are blossoming. From emerging capitalist nations of the former Soviet empire to the developing countries of Latin America and Asia, new opportunities are tantalizing and economies booming.

But by how much? Officially, China's economy has been expanding at an average 12% rate over the past several years. Yet a recent Chinese government investigation uncovered more than 60,000 cases of falsified and mistaken figures. Gross statistical errors were found in a slew of major economic sectors: industrial output, grain yield, farmers' per capita income, capital construction investment, inflation, and birth rates. These mistakes call into question whether Beijing has an accurate picture of just how fast its economy is surging ahead.

MASSAGING DATA. China isn't alone. The official numbers for the Czech Republic's gross domestic product and industrial production portray a weak economy, but strong growth in the country's entrepreneurship belies that picture. Some developing nations have suspiciously permanent 2% unemployment rates, and figures on education and labor skills are

frequently unreliable. From Moscow to Caracas, local officials and

corporate executives alike twist data to meet bureaucratic objec-

tives or to avoid paying hefty taxes.

Still, statistical shenanigans are becoming much less pervasive than before. In much of the world, there are genuinely impressive efforts under way to improve the quality of economic statistics, often with the advice of outside consultants and international agencies. And for good reason. It takes accurate numbers to institute free-market reforms. When rigid command economies crumble and highly decentralized markets take over, governments suddenly need sound data to run their fiscal and monetary policies, says Jan

Svejnar, economist at the University of Pittsburgh and economic adviser to Czech President Vaclav Havel.

And as foreign investors and multinational corporations expand their presence in developing countries, they require better guideposts on wages, prices, and other critical variables before committing millions in equity investments or in new factories. "Countries which develop a reputation for not having reliable statistics may pay a price in the international capital markets," says William Sterling, international economist at Merrill Lynch & Co. Adds Carlos Jarque, president of Mexico's National Institute of Statistics, Geography & Informatics (INEGI): In today's world, "we think a country without statistics can't develop."

Indeed, when free-market technocrats gain power in an emerging capitalist country, one of the first things they do is overhaul data collection. Mexico's President Carlos Salinas de Gortari, for example, made modernizing

INEGI a priority when he came to power in late 1988. The institute has gone from 30 personal computers to 4,000, revised much of its methodology, and is busy compiling numbers on previously neglected parts of the economy. A top priority for the Chinese government is improving its data on everything from population to industry. Russia and the East European nations are working on better capturing emerging private-sector activities. Says Rudi Dornbusch, economist at Massachusetts Institute of Technology and BUSINESS WEEK columnist: "In the 19th century, the great effort was to draw up a map of a country. The 20th century equivalent is to get a good set of economic statistics."

Clearly, the stakes are high. Economic statistics are not only a barometer of current conditions. They can play a vital role in increasing the future wealth of nations.Christopher Farrell in New York, with Joyce Barnathan in Hong Kong and Elisabeth Malkin in Mexico City


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