Tuesday, June 9, 2009

Malaysia's Problems II: Services

Is it good when an economy's growth is caused mainly by its services sector?

Technically, the answer is in the afirmative - because the economy can grow despite the doldrums in the agricultural and industrial sectors.

But what if the economic growth numbers have been strengthened by growth numbers for the services sector?

Then you have a serious problem at hand - because the economy is in fact in serious trouble but you cannot see it as a result in inaccurate growth estimates.

Inaccurate growth estimates can come not necessarily as a result of a deliberate attempt to mislead the public, but innocently by policy makers to "do good" for public confidence.

The services sector is targeted because it is a very hard sector to understand and to measure - in real terms.

Government Services

How do you measure growth in the output of the government in real terms?

Is it by the number of speeches they give? Or the number of runarounds they give you?

Well, you may never guess - the output of the government services is measured by the salary increases they get, deflated by the consumer price index.

So, if the government keeps increasing the salaries of its servants, then we have real GDP growth.

Financial Services

The output of banks is measured by the amount of profit by earned, deflated by the CPI. So, the growth of the banking sector in real GDP may mean that the banks have been increasing their fees or interest rates on you.

The output of the stockbroking business is measured in a number of ways that may seem to be counting the same thing - the increase in the profits of stockbrokers as they churn stocks in the market, the increase in share trading transactions, the increase in the stock market index.

In other words, when the market is "hot," the contribution of the stock trading to GDP will be thought to be large. When the market is "boring," its contribution to GDP may be small - but is it often "negative"?

Are the losses of the general public in punting stock taken into account? Or are we only counting the good side.


Is the growth of the communication sector measured by the number of ohone calls made, or the number of times people google in Malaysia? Hard to measure, but we may try to estimate it by the growth of sale of the number of units of ICT. Be are sales equal to profits?


The transport sector is quite interesting because of its variety. Is the growth of the sector measured by the profits they made or is it measured by the volume of goods that passed through sea ports and air ports and roads and rails?


Is the growth of the healthcare measured by the number of patients who have been cured? Or, is it measured by the amount these private hospitals bill their poor dying patients, deflated by CPI?


Is it measured by the number As scored by students in one year over the last? Or, is it a measure of the poor state of public education system such that parents may resort to private education - and for those who cannot afford, they may make do with private tuition.


Do we measure the profits of mega shopping malls and hypermarkets or do we measure their sales? Do we ignore the poor little neighbourhood shops that may to close down as a result of these newfangled modern concrete of mass consumption?

Professional Services

Do we count the number of lawyers and accountants and other consultants, or do we count the amount they charge for the work they have done?

If one clever consultant charges RM100 million for one word of advice and never worked again, what is the growth rate here?


I think you get my drift.

The services sector is a very difficult sector to measure.

And it is therefore very easy to bluff in the services sector.

The problem is further compounded by the underfunding the Department of Statistics.

With insufficient data collected, we all really do not know the real situation in the services sector.

We have therefore set a trap for ourselves to bluff ourselves that everything is going to be all right in the best of all possible worlds.


de minimis said...

You have given a sound warning to all and sundry about the risk of self-deception in measuring an abstract area of economic activity. It appears to be fertile ground for miscalculation or, as you call it, "bluffing".

Mr. X said...

Can economics resolve English illiteracy problem or not?


hishamh said...

Sales should never be used as a metric, as that would introduce double-counting into the national accounts.

And your point about finance is highly pertinent: moreso if you consider what has happened in the US and UK, where so much of "profits" over the last few years were gained through sales of CDOs and the like.

I am not comfortable with overly pushing finance as a growth engine. While the rest of the services sector arguably contributes something real to the economy, finance just facilitates. At no point should the intermediation function overtake real activity in importance.

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