Sunday, February 12, 2017

Defective Official Russian Data Leading to Bad Decisions, Scholars Say

Paul Goble

            Staunton, February 12 – Good information does not guarantee good policy, but good policies without good information is at best a matter of good luck. And consequently, governments that distort information to try to make themselves look good and then rely on that information to make decisions make mistake, according to two Russian scholars.

            Grigory Khanin, a professor of the Siberian Institute for Development of the Presidential Academy for Economics and State Service, and Dmitry Fomin, a graduate student at the Novosibirsk University of Economics and Administration, say that in many cases “official data does not correspond to reality” (

                Their comments came in a letter in response to an article in “Ogonyek” that using official figures discussed the lag in productivity of Russian workers behind those in Western countries.  But Khanin and Fomin say that if that article had used accurate figures instead of those the government offers, the real lag would be shown to be far greater than Moscow thinks.

            The two argued that the “Ogonyek” article “strongly understated the size of the degradation of physical capital” in Russia over the last 25 years and completely ignored “the degradation of human capital” as a result of the decay of the educational system in the Russian Federation.

            The magazine’s Aleksandr Trushin has no interviewed Khanin about this letter and asked for his comments as to why the official statistics on which the government and many ordinary people are so defective.

            Khanin said that research that he has conducted with Fomin shows that Russian GDP between 1992 and 2015 did not rise 13.4 percent as Rosstat asserts but fell 10.2 percent and that productivity fell not 9.2 percent, as official statistics claim, but rather by more than three times as much (30.1 percent).

            Further, he continued, productive facilities contracted over the last 25 years but 29.2 percent even as Moscow has continued to claim that they rose by 50.9 percent. The reason official statistics get this wrong is that they incorrectly calculate the size and condition of physical plant.

            “In statistics,” Khanin said, “there is no indicator in the USSR and Russia that is so distorted as this.” Underestimations in this case lead to “exaggeration” of their growth because “new items are rated by various ruble prices, the old in more expensive ones and the newer in less expensive ones.”

            That in turn leads to understatements of amortization and the cost of production and consequently “profit is exaggerated.”  This problem has its roots in Soviet practices, the economist said; but when Russian statistics adopted international standards in the 1990s, new problems were introduced which also distorted the picture of the economy.

            Khanin continued by saying that he and his colleagues had completed their evaluation of the physical capital of the economy over the last 25 years only now. He said he would not insist on its exactitude but his conclusions are that the Russian economy lost half of its basic equipment through age over this time, far more than the Soviet economy did in World War II.

            Rosstat has failed to take this loss of capital into account and thus insists that physical capital has grown 51 percent since 1991, a figure for which there is no justification and which can be modified only if the Russian government creates the conditions for major investments, something it has not done.

            Of course, there have been some sectors where the situation has improved but in industry, the reverse is true, a major reversal of Soviet practice when investment in industry outpaced that in consumer services and almost everything else, Khanin said. And there have been variations over the last 25 years but the overall trend has been downward.

            Khanin added that foreign specialists are in no better position than Russian officials because they rely on Rosstat figures which are quite inaccurate.

            Another place where Rosstat fails to include what it should is in the area of human capital. Russia has suffered seriously and especially among its most intelligent people: Three of Russia’s four Nobelists now work abroad, and education has been in decline since the 1970s. Increasingly, too, he says, Russians aren’t reading on their own either.

            If one examines the situation honestly, Khanin argued, “it is unthinkable” that Russia could overcome its productivity lag relative to the West anytime soon. That would require a massive shift in spending patterns and a display of political will that the authorities don’t think they need to because of the comforting but false information they have.

            It is of course possible to “reduce the lag … but even this will require enormous effort.” If income inequality were cut from 30 to one as it is in Russia today to six to one as it is in most Western countries, that would help; but Khanin warned that “this will require long years” of effort. And while Russia is catching up, the West will be moving further ahead.

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