ERC Starting Grant for research on economic indicators
Where do all these ‘objective’ economic figures come from?
The economic health of a country is based on figures indicating growth, unemployment, inflation and government deficits. These figures are often far from objective, however. Daniel Mügge has received an ERC Starting Grant to investigate how these indicators are defined and measured, and the political decisions that motivate them.
The key figures used by countries to take stock of their economic situation are not objective, Mügge argues. ‘Figures, such as those for inflation and unemployment, are generated in a certain way – the results are determined by the people who collate them and the underlying algorithms they use.’
The financial sector as a driver for growth?
Some examples of these decisions include whether or not to include unpaid work (such as domestic labour) when calculating the Gross National Product, or officially classifying military expenses not as costs, but as investments. ‘Another striking factor is that the financial sector is often presented as a very positive factor and a genuine driver for growth in the GNP of many countries. But the question remains as to whether this is actually correct, and whether a different underlying formula might perhaps result in radically different conclusions.’
Informal economy
The inclusion or exclusion of the informal economy can also have major consequences, particularly in developing countries. ‘You can choose not to include the informal economy in the key figures of countries such as Nigeria, and then come to the conclusion that the economy is in dire trouble. The question, however, remains as to whether the official figures might not present a completely distorted picture.’
This type of criticism is the starting point of the ERC study. There are no correct ‘formulas’ – but the methods chosen by countries have enormous political, social and economic influence. The goal is therefore not to develop ‘better’ formulas, but to improve understanding of the choices made by these countries.
Global level
Mügge is already conducting a related study in EU and OESO countries. The ERC study will investigate these issues at a global level: which role, for instance, has the United Nations played in the introduction of statistical models into Africa, for example? The underlying formulas, such as those used to measure economic growth or inflation, were actually developed for use in industrialised countries. Could it be that developing countries have based their economic policy on unsuitable or distorted data? Or have they doctored the figures to suit their own interests? Case studies in India, China, Brazil and South Africa will reveal more in this regard.
Relevance to science and society
The study is relevant in both a scientific and social sense, says Mügge. ‘As a researcher, it is interesting to contextualise the formulas used. Macro-economic figures are not immune to politics – on the contrary, they are themselves bandied about by political processes. There is also a lot to be gained within the social and economic sciences: the realisation that not only are these figures not objective but that they also contain a certain bias, is still far from common knowledge. Lastly, I aim to make a contribution to the socio-political debate. Increased knowledge of the significance of and background to certain figures will foster a more well-informed discussion.’