Corruption and Interference

Updated: March 30, 2022

Governments interfere with the production and dissemination of basic economic data in many ways. Attempts in Greece to prosecute and potentially jail the man hired by the IMF to sort out the corrupt mess of Greek economic data is perhaps the most egregious recent example.

The Greek instance might appear to be an extreme special case. But unfortunately there are also many occurrences of serious Government interference in the production of economic data in the Americas.

For example, in the paper (On Measuring Hyperinflation; Venezuela's Episode, by Hanke), records the following:

The Banco Central de Venezuela (BCV), like many central banks, has followed a pattern that Oskar Morgenstern elegantly documents in his classic work On the Accuracy of Economic Observations. Indeed, the BCV has failed to report data that would reflect poorly on the government, and when it has reported inflation statistics, it has lied and doctored the data. Instead of reporting Venezuela’s ‘real’ open rate of inflation, the BCV has attempted to measure suppressed inflation.

Venezuela imposes a thick blanket of price controls and a maze of subsidies over the economy. List prices are artificially held down. Yet these suppressed prices are the ones that, in principle, the BCV attempts to measure and use to construct a price index for calculating the inflation rate. But this metric misses the mark. Arbitrage opportunities prevail under the Venezuelan regime of price controls and subsidies, because there is a gap between the items under price controls and the prices of those goods and services that are actually exchanged on the black market. And it is in the black market and underground economy that most of Venezuela’s economic activity occurs. In consequence, there is a huge gap between the official inflation rate, which is based on artificially suppressed prices, and the ‘real’ open inflation rate.

And similarly, a paper by Ariel Coremberg "Measuring Argentina's GDP Growth; Myths and Facts" makes the following points:

Since 2007, official economic statistics in Argentina, particularly on consumer inflation and GDP, have been subject to political manipulation.

This paper reproduces Argentine national income from 2007 using standard methods and original sector data and finds that declared GDP is 12.2% higher in 1993 prices due to political intervention.

The paper finds that the distortion is mainly due to changes in accounting methodology across industries and not to changes in inflation estimates.

The reproduced GDP data dispels the myth that Argentina has been the fastest growing South American economy in recent years.

Governments and Government agencies manipulate GDP data directly in many ways, for example through the calculation of price indexes such as the GDP deflator which impact on GDP per capita data. They can and do stop publishing important data prior to elections. They try to abolish independent statistics bureaus. They try to add questions that will bias responses to Census data. They leave in place price indexes known to be unreliable and impacting heavily and negatively on crucial pensions systems.

This is not only a problem evident in poor countries, although countries with autocratic systems probably suffer to a greater extent. Sometimes the transgressions are deliberate, and sometimes due to incompetence or lack of resource.

Government corruption also infect all parts of an economy and its accurate measurement in systematic ways. Often a direct result of the government’s concentration of economic or political power, corruption manifests itself in many forms such as bribery, extortion, nepotism, patronage, embezzlement, and graft.

For example, excessive and redundant government regulations provide opportunities for bribery or graft. In addition, government regulations or restrictions in one area may create informal markets in another. As a result, corruption and the informal economy are often correlated.

All these potential ways of corrupting data are difficult to measure directly. We have adopted a general measure of corruption as a proxy for Government interference. The score for this component of the DQR is derived directly from Transparency International’s Corruption Perceptions Index (CPI), which measures the level of perceived corruption in 175 countries.

The CPI score is based on a 100-point scale in which a score of 100 indicates very little corruption and a score of 0 indicates rampant corruption.