Undemocratic Data

Mar 3 2017 - Over the past few decades, the performance of governments around the world has increasingly been judged, both internally as well as externally, by notions of how the economy has performed over a relatively short period of time. For democratic governments, this span usually coincides with an election cycle of four to five years.

Given the complexity of judging economic performance over a wide set of measures, the opaqueness of the underlying data, the short span of time for which judgement is being made, and for ease of comparison across different time periods as well as with other countries, the preferred measure used by default for such benchmarking has come to be GDP growth. According to William Davies in a recent piece in The Guardian, despite its obvious drawbacks, `this single indicator … took on a hallowed political status, as the ultimate barometer of a government`s competence. Whether GDP is rising or falling is now virtually a proxy for whether society is moving forwards or backwards`.

The benchmarking of how well a government has done for its citizens by such a narrow, imprecise and opaque measure has engendered a classic agency conflict economic managers have an incentive to not only engage in short-term behaviour that could be detrimental to the long-run interests of `shareholders` (citizenry), but also to fudge the data or `cook the books`. An example of a perverse incentive created by a near-singular focus on a short-term measure such as annual GDP growth is the tendency of governments to over-borrow and under-reform. The availability of additional liquidity from borrowing eases the budget constraint of the government and allows for higher spending, while the postponement of reform avoids pain to the electorate. Both these are potent election-winning strategies, but both are damaging to the longrun health of the economy.

For this reason, some more forward-looking and `progressive` governments have begun to tout their economic success in terms of development outcomes(such as improvement in the country`s Human Development Index ranking) or in terms of their reformist credentials (as measured by the number of reforms introduced or improvement in standing in the World Bank`s Ease of Doing Business survey).

While the long-run health of the economy and the citizenry can be compromised by a short-run focus of economic managers, how is democracy undermined? There are a number of channels through which this can work.

First, as already alluded to, the government both `controls` national statistics as well as has an incentive to manipulate the numbers to show a more favourable (or a less adverse) economic situation than is the case otherwise. The debate since last year over the of ficial GDP growth rate in 2015-16, or the amount of debt taken on by this government in the past three and a half years, amply demonstrate both the stakes as well as the incentives. The debt debate is particularly relevant as well as interesting.

The PML-N government under Finance Minister Senator Ishaq Dar has accumulated an unprecedented amount of both external as well as domestic debt, contracting $34.6 billion of new foreign loans since 2013, according to State Bank data. The cumulative public debt stock has increased from around Rs14,600bn on June 30, 2013, to Rs20,272bn as of end-December 2016, an increase of nearly Rs5,700bn, or 40 per cent. Not surprisingly, the PML-N government has chosen to downplay this increase using a combination of spin-doctoring and outright misrepresentation. (Drs Hafiz Pasha, Salman Shah, Ashfaque H. Khan and myself have jointly issued a response to the finance minister`s article of Feb 1, 2017, on the debt situation).

Second, economic data can be both opaque and complex, and analysing the numbers and drawing out the larger picture is usually beyond the capability of the average voter, especially in a country like Pakistan. Parsing the data and providing context and meaning is left to a handful of experts andcommentators. The media plays a large role in shaping perceptions about the economy as well, but it usually does so from a f airly uninformed, or even outright partisan, prism hence not helping the cause of democracy by allowing voters to make an informed choice.

With an out-sized emphasis on the economy shaping the narrative of the success or failure of a government as it heads into elections, this small group of elite experts, commentators and media persons (mostly TV anchors) can have a disproportionate influence on voters` opinions. This state of affairs has been referred to as an Econocracy in a new book by Joe Earle et al (The Econocracy: the Perils of Leaving Economics to the Experts ). According to their book, `Politics and policymaking are conducted in the language of economics and economic logic shapes how political issues are thought about and addressed. The result is that the majority of citizens, who cannot speak this language, are locked out of politics while political decisions are increasingly devolved to experts.` Catriona Watson has also referred to this recently in The Guardian.

Increasingly in advanced economies, `big data` gathered, analysed and used by a few mega-corporates, combined with the use of `nudges` by marketeers and even government itself (the combination being referred to as `big nudging`) could marginalise citizens from democratic processes. That is a relatively new challenge to democracy that mercifully is one that Pakistan is unlikely to experience for a while.

The bottom line is that a government`s performance in a democracy needs to be viewed through a wider prism than just GDP growth, and the electorate should have access to accurate and credible economic data, as well as the capacity to analyse it for an informed choice. The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.

This story was originally published by Dawn, Pakistan

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