Lies, Damned Lies, and Statistics

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Instrument Failure: Why It Is Hard to Trust Rosstat’s Data on the Recession’s End
Sergei Aleksashenko
RBC
February 6, 2017

Over the last year, Rosstat has ceased publishing a number of important indicators for judging the economy’s real performance.

The other day, Rosstat published its updated assessment of the Russian economy’s performance over the past two years. Strictly speaking, there is nothing surprising about the fact that Russia’s official statistics agency amends its previously published assessments. It happens constantly in other countries, too. The fact is that the initial assessments, which are released a month or a month and a half after the the end of the latest quarter, are derived from on-the-spot information that is subsequently corrected.

A Rubik’s Cube
But what is really surprising is that, according to the updated view of Rosstat’s statisticians, the economy’s performance over the last two years was significantly better than had been thought. Rosstat now claims that, in 2015, Russia’s GDP decreased only by 2.8%, rather than 3.7%, as indicated in earlier assessments, and that 2016 basically saw no decrease whatsoever. This new take has been a surprise to everyone, including the Economic Development Ministry, whose experts have said they don’t understand why Rosstat has so radically revised its own assessments. They have been seconded by experts at Vnesheconombank (VEB), which nowadays employs a large team of macroeconomists led by ex-deputy economics minister Andrei Klepach. Rosstat’s assessement has also been a surprise to the prime minister and president, who have expressed no joy the economy had been doing much better than they thought only a couple of weeks ago.

As in many other cases, the different indicators in GDP figures do not exist in isolation from one another. They are closely linked, and it is almost never possible to change one of them without changing another. In very simple terms, it looks like this. GDP is the sum of the added value produced in different sectors of the economy, such as industrial manufacturing, agriculture, transportation, finance, etc. If the figures for manufacturing have suddenly improved or deteriorated, then, with all other things being equal, the figures for GDP should change just as much. But in addition to a manufacturing element in GDP, there is an end use element in GDP, which shows the level of demand for what the economy produces. In this case, the factors of demand are the populace, the state sector, nonprofit organizations, accumulation (investment and inventories), and net export (the difference between exports and imports). If the figures for manufacturing have deteriorated, not only should the total amount of GDP change but one of the components of demand should change as well, meaning we should be able to understand not only what manufacturing sector produced more added value but also who paid for it.

But that is not all. There is a third component of GDP, sources of income: added value divided by household income, net taxes (on manufacturing and imports), the gross operating surplus, and mixed income. That is, after we have determined from GDP figures for manufacturing who has produced more, and from figures for use who has bought what has been produced, the figures on sources of income tell us who earned money from this. It is a kind of Rubik’s Cube, which has only one correct (objective) combination. We see it clearly at once, just as see clearly when the cube has not been put together correctly.

The Quarterly Maze
There are other subtleties in GDP figures. For example, one of the big problems is calculating GDP in real terms, that is, adjusting it for inflation. Rosstat publishes deflators for individual sectors and, naturally, when they are used with sector-specific nominal data, the grand total should converge. So everyone has a good sense of the state of the economy, Rosstat should assess each quarter’s GDP performance in terms of the previous quarter. We are well aware that the first quarter, in which half of the month of January is taken up by holidays, and cold weather puts a halt to many kinds of work, bears no resemblance to the third quarter, when the weather is warm and the harvest is underway in the countryside. Nor does it bear any resemblance to the fourth quarter, when builders are trying to bring on line as many completed (or almost completed) buildings as possible, and the government spends at least twice as much money from the budget as in other months. When all these things are factored out, we arrive at the most important indicator, which tells us how things stood in the previous quarter.

Don’t laugh, but Rosstat has not published this figure since April 2016. At the recent Gaidar Forum, I needled one of the heads of Rosstat to find out why this had been happening. For fifteen minutes, he tried to persuade me I had simply not been able to locate the right table on his agency’s website. Rosstat’s website leaves a lot to be desired, of course. To fish out the right information, you sometimes have to spend an hour or two figuring out the poorly organized databases. In this case, however, I insisted the information was simply not there. A couple of days later, I received a letter from Rosstat saying that, indeed, Rosstat did not calculate this figure and did not know when it would be doing so again.

That alone is enough to take Rosstat’s published data about the Russian economy’s improved performance at less than face value. If we add to this the fact that Rosstat stopped publishing monthly investment figures in the spring of last year, and announced in November that revised figures for the manufacturing sector’s performance (figures that would, of course, be revised upwards) would be published only in the spring, it becomes obvious that Russia’s official statisticans cannot actually put the Rubik’s Cube together, and they don’t really know what is going on with the Russian economy. Meaning that all the instruments that should be telling us where the ship of our economy is sailing and how fast it is sailing there have failed.

The Secret GDP
I don’t want to argue the problem I want to touch on in my conclusion prevents Rosstat from adding everything up correctly. I suspect there are many more problems, and I fear that even the heads of Rosstat are not aware of all of them. But we cannot avoid talking about the fact that vast amounts of data relating to the work of the military-industrial complex and the security agencies are classified.

In fact, if this secrecy keeps anyone from understanding anything, it is the Russian authorities and Russian society. When it receives classified information, Rosstat has to hide it amidst its tables in such a way that not a single spy will guess it is there. To do this, Rosstat inevitably distorts the performance indicators for different sectors, adding something here, and trimming something there. But since hiding the truth from spies is much more important than telling the truth to Russian society, don’t shoot the piano player, as they say, for the poorly assembled Rubik’s Cube. He is playing as well as he can.

If you think about it, it is obvious the financial figures for the military-industrial complex’s performance are no state secret. The technical specs of weapons, the technology used to produce them, and, maybe, their locations can be secrets, but not the amount of money spent on their procurement (the classified section of the budget) or the amount of added value generated by the military-industrial complex.

I am confident that under the current Russian president we should not expect any progress in declassifying these figures. That was not what he was taught at the Higher School of the KGB. Since that is so, we are unlikely to find out in the coming years what is up with the Russian economy.

Sergey Aleksashenko is a senior fellow at the Brookings Institution in Washington, DC. Translated by the Russian Reader. Image courtesy of liketotally80s.com

Ilya Matveev: The New Putinist Stability?

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Events are unfolding in plain sight, and strange as it might seem, the flood of disinformation cannot prevent us from seeing a quite simple picture.

The subway workers’ union had long warned of the danger, and there had generally been a lot of reports in the press on the growing number of accidents in the Moscow Metro, and now there has been a new fatal accident.

The last couple of weeks, Russian media had reported constantly about how deftly the separatists had learned to use the Buk surface-to-air missile system and how many Ukrainian airplanes had been shot down. Just before news of the Malaysian airliner broke, reports had managed to surface—in “Strelkov’s dispatches,” in the media, everywhere—that the militants had shot down another Ukrainian transport plane. The plane turned out to be the civilian jetliner.

Recent articles in Vedomosti newspaper and especially leaks at b0ltai.wordpress.com make it easy to piece together the fiscal and economic situation in Russia. The country is in an “autonomous” recession, meaning one caused by internal factors. The resources for growth have been exhausted, and there is no money for Crimea or for executing Putin’s May 2012 presidential decrees. The government is preparing to respond with austerity measures: the abolition of free medical care for nonworking citizens, tax increases, and another raid on retirement savings. For now the situation is rough but not catastrophic. At the same time the overall trajectory is clear: there will be less and less money, and it will be ordinary people who pay the bills.

However, there is no one to protest: all the country’s internal contradictions, which were somehow politically articulated in 2011-2013, have been crushed by the Crimean steamroller, and the opposition is divided and marginalized. The population has closed ranks around the new Putin “geopolitics,” becoming an aggressively frightened mass. Any possibility of electoral protest has been completely blocked off: with stunning cynicism, the field has been purged in the run-up to municipal elections in Moscow and Petersburg.

We can see that the new system is closed upon itself: the geopolitical adventures are needed, ultimately, only to strengthen Putin’s personal power, to maintain his sky-high rating. The exact same role is performed by mega-events like the Olympics and the 2018 World Cup. Yet the economic cost of the geopolitics and mega-events will be huge, and people themselves will foot the bill (for sanctions, for Crimea, for kickbacks). However, the imperialist ideology surrounding the events for which they are paying out of their pockets will prevent them from articulating their protest politically. It is a paradox, but a paradox that has already been observed in history. Recall, for one, Marx’s remark that Louis Bonaparte ruled in the name of the peasant masses (who supported him at elections) but against the interests of these masses.

This new period of stability might last as long as the previous one. No, it is no longer the apolitical period of stability of the noughties, but it might prove no less stable.

Ilya Matveev is an editor of OpenLeft.Ru, a member of the PS Lab research group, a lecturer in political theory at the North-West Institute of Management (Petersburg), a PhD student at the European University (Petersburg), and a member of the central council of the University Solidarity trade union.

Ivan Ovsyannikov: Russia’s Welfare Chainsaw Massacre

Russian President Dmitry Medvedev holds

Welfare Chainsaw Massacre
Ivan Ovsyannikov (Russian Socialist Movement)
September 30, 2013
anticapitalist.ru

A “welfare chainsaw massacre” is exactly what we might call the government’s actions and statements over the last few months. The ruling class is once again attempting to pay for the latest uptick in the economic crisis from out of the pockets of workers.

On September 1, while speaking to students at the Far East Federal University, Putin announced the transition to a policy of austerity and reduced social spending. “The world economy has slumped a bit, and ours is hunkering down behind it,” the president said in his typical manner by way of explaining the upcoming unpopular measures. And he supported an earlier proposal, voiced by Minister of Finance Anton Siluanov, to replace the “maternity capital” program with “targeted assistance to poor families.”

However, a few days later, Dmitry Medvedev said that the maternity capital program would not be cancelled. “But it will be modified,” Minister of Labor and Social Affairs Maxim Topilin added in a whisper.

The fact that public opinion has been probed on such a sensitive point is quite significant. The maternity capital program is almost the only widely publicized social achievement of the Putin era. Putin has repeatedly stated it was his idea. And now this essential element of Putin’s social populism has been openly questioned.

No less provocative looking are the experiment with introducing social norms for electricity consumption (see Andrei Zavodskoi, “Cruel Economy”) and the de facto raising of the retirement age, which has long been discussed and is today closer than ever to realization. According to Deputy Primer Minister Olga Golodets, “We are not discussing raising the [retirement] age for any category of workers. We’ve gone another direction by promoting voluntary postponement of retirement. That is our principled position, and the government’s position.” However, such tricks are unlikely to mislead anyone.

The most scandalous revelations, however, are the statements made by government officials concerning labor relations. If, until recently, Mr. Topilin based his ministry’s decision not to index Russia’s penny-ante unemployment benefits on the fact that “at present there remains a high probability of finding employment in the labor market,” Mr. Medvedev has now said the exact opposite. He argues it is time to get away from the policy of preserving employment at all costs and not be afraid of cutting inefficient jobs: “The times all of us now face are not the easiest. […] Some people—perhaps a significant portion of the population—will have to change not only their jobs but also their professions and place of residence.” There is no doubt we have fallen on hard times, but the Prime Minister is clearly disingenuous when he talks about “all of us.” Russia’s ruling elite has no intention of depriving itself of jobs and handsome profits. So, in a conversation with François Fillon, Mr. Putin elegantly hinted that he would “not exclude” the possibility of seeking a fourth term as president.

But has the Russian economy “hunkered down” badly enough to warrant such painful experiments on the population? Isn’t “stagnation” only a plausible excuse for implementing the longstanding plans of the gentlemen from the Russian Union of Industrialists and Entrepreneurs?

As was reported in late August, the Ministry of Finance planned to save 1.1 trillion rubles [approx. 25 billion euros] over three years by eliminating the maternal capital program and reducing expenditures on pensions. At the same time, federal and regional budget expenditures on preparations for the 2018 World Cup should amount to 438 billion rubles, that is, almost half a trillion. The mass protests and riots in Brazil, sparked by excessive government spending on the 2014 World Cup, are still fresh in everyone’s minds. Russians could learn a lesson or two from Brazilians.

But maybe massive sports venue construction projects will generate many new jobs and return the taxpayer money spent on them? No, they will not. Unlike the great construction projects of the Soviet era, when funds were invested primarily in developing production, Olympiads, Universiades, and World Cups are, by definition, loss makers for national governments. Many analysts trace the current economic disaster in Greece to the 2004 Summer Olympics, which enriched transnational corporations while depleting public finances. The London Olympics have also been declared unprofitable. As for the 2014 Sochi Winter Olympics, its unprofitability has been recognized by nearly all serious experts, including Vnesheconombank chair Vladimir Dmitriev, who said in an interview with Vedomosti newspaper that “a serious percentage of [Olympics-related construction] projects are calculated to make a loss.” According to Dmitriev, “Given the current model and market trends, there are big problems with returns on investments. For example, one million square meters of hotel space are being built in the Imereti Lowland. When this space goes onto the market after the Olympics, a sixty percent occupancy rate will be hard to achieve. The costs of many projects have seriously risen as they have been implemented. […] For many sites, there is no complete project documentation or confirmed cost estimates. All this confirms our doubts.”

As for jobs, they really will be generated—for thousands of migrant workers. Federal Law No. FZ-108, adopted specifically for the World Cup, leaves no doubt about that. First, the law establishes special lightweight entry requirements for foreign workers involved in preparations for the World Cup. Second, it limits the applicability of a number of existing labor laws, effectively legalizing slavery. As the Confederation of Labor of Russia (KTR) declared in their statement on the subject, “The potential for runaway importation and recruitment of cheap labor, undermining the national labor market, and leading to a decrease in wages and legal guarantees in the area of labor relations, and an increase in the level of unemployment among the population, has been legally enshrined in the Russian Federation.”

The government could not care less about the fortunes of workers during the crisis, and it does almost nothing to hide it. How else can we account (to cite just one example) for Mr. Topilin’s proposal to deny free health care to all informally employed and unemployed people not registered with an employment bureau?

In light of the foregoing, the Kremlin’s actions aimed at reconciliation with the liberal opposition also become intelligible, as do unexpected initiatives to put the “against all” option back on voting ballots. The authorities fear that public discontent will grow and want to channel it in a direction that presents no danger to the ruling elite. Whether this political maneuver succeeds depends in part on the willingness of leftist political forces and trade unions to win over public opinion and make the fight against austerity measures as much of a mobilizing factor as it has been in Greece, Spain, and other countries facing the consequences of the capitalist system’s crisis.

Translated by the Russian Reader. Photo courtesy of deviantart.net