Thursday, August 11, 2005

A World Deceived By "Numbers/ Facts"

Any "fact", when quoted in numbers, creates its own credibility, and gives a us sense of security, willing us to believe in its magical reality.

Economists, analysts, planners, investors, politicians and media understand this all-too-human (of the urban-elite-educated-kind) phenomenon, and therefore quote numbers to support their ideas and proposals.

But numbers also deceive and distort reality... and such is the power of numbers that we may not even be aware that we are hallucinating the world we (choose to) live in.

Here are some examples:

1. The "Booming" Service Economy of India:
It is agreed - and is true - that around 50% of India's GDP comes from service sector (which has been growing at a phenomenal rate of 10-11%... or whatever)... I mean, look at the growth of IT, software exports, banking, insurance etc., and who can deny this "reality"

...till one looks at the constituents of serice sector with their %age contribution to GDP:

In 2001, service sector contributed 48% to India's GDP. The following are the share of different economic activities that constitute Service Sector:

14.0% - Trade (Wholesale /Retail)
01.0% - Hotels and Restaurants
01.1% - Railways
04.3% - Other Transport & Storage
02.0% - Communication (Post, Telecom)
06.3% - Banking
00.7%- Insurance
04.5% - Dwellings, Real Estate
01.1% - Business Services
06.1% - Public Administration; Defence
01.1% - Personal Services
05.5% - Community Services
00.7% - Other Services
48.0% - Total Services
(IT & ITES, form part of 1.1% "Personal Services")

2. The "Booming" Chinese Economy:
There is no need to quote numbers; we all know how the China has emerged as a global economic superpower:

  • It has a huge positive balance of trade against USA;
  • It is the world's 3rd largest trading nation (it's global trade increased from $20bn in 1980s to $1.15trillions in 2004; exports of trade and services account for 49% of its GDP);
  • China receives around $60bn/annuum as FDI, making it the favoured destination of global investors (compared to that India gets about 1/10th);
  • China's GDP has been growing at an annual rate of around 10% (compared to India's GDP growth rate, which half of this number);
  • China’s economic output is now US$ 1.6 trillion. It will overtake Japan by 2015 and the USA by 2039 if the expected tripling takes place over the next 15 years;
  • In the last 25 years, since the "reforms", 300 million Chinese have been out of poverty and the per capita income has grown four fold - to around US$1000 (double of India)

    There is nothing wrong with these numbers - except what is not said in numbers, e.g.,:

  • More than 50% of Chinese international trade is foreign-direct-investment (FDI)-led, i.e., conducted by "foreign-invested enterprises"

  • More than 50% of Chinese international trade consists of intra-company trade; China is often the last link of the global supply chain—thus, and has trade deficits with almost every economy in East Asia - even though it has large trade surpluses vis-à-vis the U.S. (and to a lesser extent the other developed economies).

  • A large percentage of Chinese international trade consists of trade in raw materials, "intermediate inputs", "semi-finished goods" and "services" rather than finished "products"

  • China defines its poverty line at $76 per year (as compared to the World Bank norm of $365/year - which india also follws);

  • China has the largest income disparity between the rural and urban population

    Some months back, I had posted how the gap in Indian and Chinese FDI is just a function of the way two countries calculate FDI - and am posting it again (sorry for the repetition):
    In terms of comparisons, India attracts less that 10% of the FDI as compared to China. However, such a difference is largely due to the different manner in which india and China calculate what constitutes the FDI.

    The IMF definition of FDI includes 12 different elements:
    -equity capital,
    -reinvested earnings of foreign companies,
    -inter-company debt transactions,
    -short-term and long-term loans,
    -financial leasing,
    -trade credits,
    -non-cash acquisition of equity,
    -investment made by foreign venture capital investors,
    -earnings data of indirectly-held FDI enterprises,
    -control premium and non-competition fee.

    China includes all these in its calculation of FDI, while the Indian FDI reports only equity capital as FDI. Similarly, China reports improted equipments as FDI, while india includes these imports in its trade data.

    Moreover, China also includes domestic money coming through Macau, Taiwan and HK in calculating its FDI inflows (often called "round-tripping" - i.e., domestic money routed through these destinations to be invested in mainland China, to avail concessions, tax breaks etc.). Estimates show that this can be as large as 60% of China's FDIs.


    3. The Employment "Boom" in USA
    According to Bureau of Labor Statistics July '05 payroll jobs release, 207,000 jobs were created in July - which actually is pretty good and assuring...

    ...till, one looks behind these statistics - and as someone pointed out:

    "Of the new jobs, 26,000 (about 13%) are tax-supported government jobs. That leaves 181,000 private sector jobs. Of these private sector jobs, 177,000, or 98%, are in the domestic service sector.

    Here is the breakdown of the major categories:

    - 30,000 food servers and bar tenders;
    - 28,000 health care and social assistance:
    - 12,000 real estate;
    - 6,000 credit intermediation;
    - 8,000 transit and ground passenger transportation;
    -50,000 retail trade; and
    - 8,000 wholesale trade.
    (There were 7,000 construction jobs, most of which were filled by Mexican immigrants.)

    Not a single one of these jobs produces a tradable good or service that can be exported or serve as an import substitute to help reduce the massive and growing US trade deficit. The US economy is employing people to sell things, to move people around, and to serve them fast food and alcoholic beverages."

    Apparently, one does not need a university degree to get a job in USA!!!... What happens to the 65,000 engineers that US universities produce will remain a mystery!!

    Didn't Mark Twain said: "there are lies, damn lies, and stastics."... And almost 50 years back Darral Huff wrote a book called How to Lie with Statistics

    Structure of Indian Service Sector
    Share of Service Sector in India's GDP
    The Economy: Is China Ahead?
    You Don't Need expensive Colege Education to Work in US
    FDI Flow will Increase if Accounting System Changes
    Relevance of China to India
    China in World Trade System
    FDI: China & India - The Difference in Definition
    New York Times: China's great Divide

  • 1 comment:

    Balakumar said...

    Very interesting post. Also proves another common quote "Statistics reveals the obvious and conceals the vital!".