More data makes for better economic policy, right? Lessons from 20th-centur y India and Hong Kong suggest the opposite is true.
Sir John Cowperthwaite was Hong Kong’s financial secretary from 196 1-71 and is widely credited for the prosperity Hong Kong enjoys today. An a rdent free-marketeer, Cowperthwaite believed that government should not try to manage the economy. One salient feature of Cowperthwaite’s poli cies: His administration didn’t collect any economic data during hi s tenure. Not even gross domestic product was calculated. When the American economist Milton Friedman asked why, Cowperthwaite replied that once the d ata were made available, officials would invariably use them to make the ca se for government intervention in the economy.
During a Legislative Council debate, Cowperthwaite said there was “ virtually no economic use for national accounts, partly because we cannot b e in control of our economy and partly because our economy has a dynamism w hich outpaces such accounts.”
Without data, busybody bureaucrats had no way of justifying interference in the economy. In Cowperthwaite’s Hong Kong, the government did only the bare minimum necessary, such as maintaining law and order and providin g basic humanitarian aid to refugees from China. The rest was left to the p rivate sector.
Cowperthwaite’s thoughtful and responsible lack of guidance allowed Hong Kong to grow from being only a quarter as rich as the United Kingdom in 1961 to almost 40% richer by 2017. When asked what poor countries should do to emulate Hong Kong’s success, he replied, “They shoul d abolish the office of national statistics.”
Alas, Cowperthwaite’s successor, under pressure from Britain, rever sed his policy on data. Even so, the statistics Hong Kong’s governm ent collects today are limited. India’s government, by contrast, co nducts an economic census every five years, including detailed firm-level d ata (number of employees, source of financing, etc.) enabling micromanageme nt of certain industries. Hong Kong has no such census. Its data isn? ?t as fine-grained and thus doesn’t help officials justify extens ive intervention in the economy.
India’s first prime minister, Jawaharlal Nehru, was enamored by the Soviet Union’s socialist policies. He believed government should p lay a central role in planning the economy and recruited statistician P.C. Mahalanobis to India’s first planning commission to aid him in the task. Mahalanobis designed large-scale surveys to gather all sorts of infor mation: how much tea households consumed, how much land was sown with a cer tain crop, the quantity of goods a particular industry was producing at a g iven time, and so on. These surveys became the bases for five-year plans, u nder which the government picked winners and losers. Some industries? ?such as steel, energy and textiles—received huge investments, wh ile others were starved of capital.
The results were disastrous. Incomes grew at 1.3% a year, mockingly called the “Hindu rate of growth.” Hundreds of millions of people were trapped in grinding poverty because the planners believed that they co uld outperform the wisdom of the crowds.
Planning didn’t work because national economies are highly dynamic. By the time data could be collected and processed, they became outdated. M arket forces, by contrast, work in real time to coordinate economic activit y in a more efficient manner.
Indian officials eventually realized this truth, leading to market-oriented reforms in 1991. Traces of central planning still remain, however, because of the extensive data-collection systems Mahalanobis put in place. For exa mple, new administrations regularly increase state expenditures so they can claim that GDP is growing faster than it was under the previous government s. While the economy grows larger in a purely statistical sense, the well-b eing of citizens, which arises out of private consumption and investment, d oes not. Increased deficits, meanwhile, hamper growth.
Numerous Indian governments have also tried to game the data on poverty all eviation. Instead of pursuing growth-oriented reforms, they shower the poor with handouts, pulling them slightly above the statistical poverty thresho ld. This has little to no material effect on the lives of the poor, but it looks good on paper.
The Indian economy remains among the world’s least free, despite th e abundance of data it produces. Other formerly socialist economies such as China and Russia, which also use data-heavy five-year plans to direct econ omic activity, are in a similar situation. They too have governments playin g favorites, and large, inefficient public sectors that are detrimental to growth.
The vastly different experiences of Hong Kong and India remind us that less economic planning is better than more—and that having more data do esn’t mean better policy-making.
Mr. Devadiga is an economist specializing in public policy and economic his tory.
==============[ALL RESPONSES 22]
Michael Joukowsky, 1 day ago The tyranny of metrics! All they do is destroy our freedom! I for one is sick of the Keynesian economist trying to manage our economy and destroyin g our freedom! We need more supply side economic principals because they u nderstand that economies are created for humans in a free market. Stop dem ocratic socialism proposed by the Democrats! They will only destroy our fr eedom.
James Fallon, 1 day ago Michael Joukowsky: WELL SAID!!
Democrats in Washington could not lead a parade, let alone America. AOC is a bartender, not a legislator.
We need less government not more government and we need everyone to be payi ng taxes not just the top 55%. Those that do nto pay taxes should not be v oting taxes on others but themselves.
D WINN, 1 day ago The Fed should stop trying to manage our economy, and dictating interest ra tes. Just look at what J Powell did to the stock market last December w/ his stupid comments, which he had to basically walk back.
The Fed, and the Federal Government are the two single largest threats to w ealth and prosperity.
James Fallon, 1 day ago D WINN : AGREED! Democrats want to seal the money from the producers and buy the votes of ma rginals. Bernie 'FREE' Sanders should move to Moscow. Losers want everything for f ree, winners just want the opportunity to earn their own success.
John Lindsey, 1 day ago The government is best that governs least ???
Michael Joukowsky, 1 day ago Yes, that is correct!
DWIGHT LAUER, 2 days ago The West is using environmentalism to micro-manage the economy. A tremendo us amount of meteorological data is now collected and used to impose taxes and government control of and/or subsidies to industries. Probably an exam ple of one of the most inefficient uses of capital that does little to solv e a problem, whether it exists or not. Regulations increase to limit our a bility to adapt to changing conditions that actually occur. Example: If drought is supposed to increase in California, why is California doing ever ything in its' power to permanently limit the water supply?
Osgood Carruthers, 2 days ago Worse, Democrats want to use bogus science to push climate alarmism and a c arbon tax -- both to micromanage every aspect of your energy use, and empow er their totalitarian administrative state.
Chaz Miller, 2 days ago Interesting article. It is the lack of data the direct cause of Hong Kong ’s growth or just a correlation?
Mark Simon, 2 days ago 100% related. - Sir John kept an intrusive civil service at bay. No easy task. He told our more senior editors, at Next Media, the inability of th e the civil service to sort data meant he could slow interference.
His faith in the market and the Hk people so strong, he just didn’t think government could help. And of course looking at UK at that time, he had ample data to support his point.
Jack Ma, 3 hours ago this is a courageous compare a city to a vast agricultural nation as India? The big background of Hong Kong's rise is its strategic and historical imp ortance as a free port to China when it closed the door to the West. Sir Co wperthwaite's refusal to census is only a factor here. A better comparison is to Singapore with different policy yet still have fast economy growth a t that time. Is Hong Kong successful? To some degree it enjoyed the prosperity, but look at the riots during his rule, the dramatic inequality in wealth distributi on, lax on investment to education and transportation. it's the very thing the government should take care and moderate through taxation. Just look at the housing problem and compare to Singapore will leads to a different co nclusion.
JUDE SHEARER, 1 day ago Kudos on a spot on article!
James Fallon, 1 day ago Democrats will use the green initiative and national healthcare to legisla te more control of the economy.
Funny, the democrats in Washington collectively have ZERO business, or fina nce experience. A collective of unaccomplished government agents.
THOMAS JOHNSON, 1 day ago Charge: What you can't measure, you can't manage. Cowperthwaite: Exactly.
Jillian Alexander, 1 day ago I agree with Mr. Devadiga that less data and reducing government interventi on would likely significantly improve the economy.
Much of the government data is junk. The methodology for collecting it is f lawed. The collection is biased. The metrics are ill-conceived. -- Seems to be a make-work initiative more than an effective data collection and inter pretation effort.
In light of the ultra-progressives advocating for "transparency" in all sor ts of financial and operational reporting, I have pondered whether true emp loyment and transactional data reported real-time would be useful. -- In th e long-run, it will diminish the competitive dynamism which fuels an econom y. These "social" reporting ideals are ill-conceived unless the desire is curtailing innovation and promoting communism.
Osgood Carruthers, 2 days ago Bernie Sanders, are you listening? Ocasio, hello! Absolutely agree. There is no better system than free market capitalism co mbined with limited government. And there is no better proof of that than the USA. Providing we can hold on to it. And not give the store away to Marxists li ke Ocasio and Berne.
barry milliken, 2 days ago The U.S. constitution called for a census for the sole purpose of congressi onal redistricting. This could instead be done by simply using the number o f votes cast in the previous election. I propose an amendment to abolish th e census.
Harry Mitchell, 2 days ago Love it. I believe I read recently that Elizabeth Warren is now up to abou t 12,000 pages of very small type of how she would mico-manage everything t hat happens in in the country. Stock up on two ply toilet paper as the go vernment will want a copy.
Robert Hutchings, 2 days ago I once attended a lecture by some guy from Israel. He advocated for abolis hing traditional accounting departments. He was pushing project-based acco unting. It made a lot of sense. For example, production purchasing depart ments are usually graded on piece part prices. But all costs associated wi th a given purchase should be added to that. If some cheap parts failed to arrive on time or are rejected for unsatisfactory quality, then the costs of unscheduled line changeovers would be charged to the purchasing departme nt. Many people don't like that kind of thing of course. And accountants choke if they can't calculate costs to a hundredth of a cent.
Susan Corwin, 2 days ago I notice that "some folk" feel that ..government should play a central role in planning the economy.
and they "feel" they are the "best and brightest" ....just like their mommy told them when they were 4.
.and YOU didn't create that small company and .....YOU don't work nearly as hard as the bureaucrats in goberment do. Just because they are "once hired, can't be fired" and have job security, ...just shows how smart they are at tell you what to do.
ROBERT RAY, 2 days ago Local Communist Party officials are graded heavily on how their local econo mies are doing. When they have trouble making enough progress the obvious solution is to create fake statistics, to fool the central government (and foreign experts). People are even hired just to make up the phony numbers.
JAMES CRASKE, 2 days ago An inspiring missive. I feel like leaving my 2020 census form blank and ma iling it back along with a printed copy of this article.