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#8 - JRL 7026
Date: Tue, 21 Jan 2003
From: Peter Lavelle <plavelle@rol.ru>
Subject: Goscomstat

Prime-TASS: Peter Lavelle, Goscomstat understates, while being underappreciated

Bashing the State Statistics Committee (Goscomstat) is a favorite pastime and even habit for economists and commentators alike. Criticizing it is relatively easy, too - everybody knows that a good part (maybe even the majority) of the Russian economy remains cloaked in the gray area. But few are willing to make virtue out of necessity and cite how Goscomstat actually helps the rest of us when attempting to measure anything related to the Russian economy.

This writer will go out on a limb and say that Goscomstat provides us with the critically important bricks and mortar to demonstrate our prowess and cleverness when attempting to determine what the Russian economy is doing and where it is going. Basically, Goscomstat provides the numbers the rest of us need to make us look smart. And, let's face it: If Goscomstat's reporting of economic statistics were within an acceptable margin of error, most of us would have little to say about the economy.

What, for example, is the size of the consumer market in Russia? Some analysts claim it is 80 percent to 100 percent (or $100 billion) larger than Goscomstat's numbers. This may be true. Goscomstat traditionally tracks industrial and trade companies (and so do most financial analysts and economists, by the way). The activity of the consumer market is, as is well known, underreported. However, one does not have to have a degree in finance or economics to surmise that this sector is booming. Large companies catch Goscomstat's eye, for the obvious reasons, while the small and medium companies and individual entrepreneurs fall beneath its radar screen.

Goscomstat's interest in the larger companies does not mean it finds the right numbers, though. What incentives do large companies have to provide transparent date? Few, if any. These are the same companies that end up determining the overall picture Goscomstat presents to the government, which in turn makes economic policy. It is the government's sole reliance on Goscomstat that is worrying; the rest of us should know better.

How can Goscomstat determine the size of the gray economy? How can it determine what the correct level of tax collection should be? The answer to both questions is simple: It can't. For the past decade, virtually all of us have been obsessed with the activities of Russia's "oligarchic" empires and the government's interaction with them. Well, many of these empires are now becoming huge financial organizations, and they find it worthwhile to pay (some) taxes or have established enough political clout to ward off close state scrutiny. The rest of the economy has, for the most part, been orphaned by the state for a decade. And the rest of the economy likes it that way. America had its yeoman farmer of the 19th century who helped build the economy; Russia has its yeoman entrepreneur doing the same in this new one. The gray economy is Russia's financial black box, in which the vast majority of financial transactions occur. Corruption is, of course, very difficult to measure. The level of bribe-giving/taking can only really be anecdotal, as people admitting to criminal behavior is extremely unlikely. However, we all know it is out there and, probably, have all been participants (in one form or another) in this prevalent activity. Why anyone should expect Goscomstat, of all organizations, to know is a leap of unfair faith.

We should cut Goscomstat some slack. Russia has an economy to be discovered by those who like a challenge. Goscomstat crunches numbers it can use with the least difficulty - it has no incentive to do more. It most probably acts within the law and within its mandate. It is the government that needs to enact better laws and enforce them. When that happens, Goscomstat will become a more reliable institution.

Instead of focusing on Goscomstat's omissions, we should see them as a challenge. Graduate school didn't prepare us for Russia's economy. The Russian economy remains a riddle in many ways, but experiencing it is sometime we do everyday, and the obvious oddities beyond the official reporting are apparent. Showing how Goscomstat gets the economy wrong is easy; demonstrating why we are right is a totally different matter. Goscomstat is the backdrop against which we prove among ourselves who is a good economist and who is not. Bashing Goscomstat is a poor man's exercise, while using it to find a more accurate picture of the economy is professional honesty as well as a mark of ingenuity.

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