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Government Statistics Need Overhaul

by Lance Oliver

March 10, 2000
Copyright © 2000 THE PUERTO RICO HERALD. All Rights Reserved.

It will never rival the issue of the Navy bombing Vieques in terms of popular appeal, but a steady grumble of complaint can be heard among the professional and business classes about the way Puerto Rico monitors its economy.

The broad complaint is that government information is too hard to get, not fresh enough and too unreliable. The more specific complaint is that some key measures are outdated and not applicable in today's world.

"To begin with, there is a broad consensus that the statistical system is neither reliable nor relevant," wrote José J. Villamil in a commentary in Perspectivas, a monthly bulletin published by Estúdios Técnicos, Inc., and insurer Triple-S, Inc.

Villamil pointed out that the current methodology was established in the 1950s.

Puerto Rico was much different then. A majority of Puerto Ricans still lived in rural areas and a major portion of the economy was based on agriculture. The massive shift of people and capital and the dramatic remaking of the economy had just begun.

Since then, there have been waves of emigration and a shift of the island population from rural areas to the cities, primarily the San Juan metropolitan area. The economy has changed even more. Puerto Rico has ridden the waves through agriculture to labor-intensive manufacturing to capital-intensive manufacturing, through booms and busts of industries such as textiles and tuna processing, from factories to a more service-oriented economy, and so on. Through all these changes, it has used basically the same means for measuring the economy.

The Consumer Price Index, meant to measure inflation, is a particularly good example. For example, food and beverages account for 41% of the CPI's basket of consumer goods in Puerto Rico, compared to 15.4% in the United States and less than 20% in other developed countries, according to a survey by Banco Popular.

Are families in Puerto Rico really spending 41% of their income on food and beverages? Maybe they were nearly half a century ago, but few families have that kind of budget today.

Of course politics is one of the reasons the systems for gathering economic statistics are never overhauled. What could be merely an objective way of measuring the progress or lack thereof of the economy is infected with political meaning.

Political parties use statistics on job creation, unemployment, inflation, etc., to portray themselves as successful or their opponents as failures in managing the economy. Sometimes both do it at the same time.

How can statistics be used simultaneously by both sides? Here's an example. In recent years, the unemployment rate has dropped. On the surface, that looks like pure success. But at the same time, the participation rate in the labor force, a statistic that measures the percentage of working age adults who are either employed or seeking a job, has fallen.

What does this mean? The lower unemployment rate tells us there are fewer people looking for work, but the labor force participation rate tells us that's partially because some people have just given up and are not seeking a job.

One of the fundamental weaknesses of the Puerto Rico economy is that it has a low labor force participation rate (45.6%).

On top of that whole argument, there's the question of whether those who dropped out of the labor force are actually sitting at home or are working "off the books," instead. That is a topic that would require a lengthy study on its own.

Jobs, or lack of them, are a hotter issue than the CPI, though it, too, has repercussions. Officially, inflation is far higher in Puerto Rico than in the United States. But how much of that is due to actual higher prices and how much can be blamed on a basket of consumer goods chosen in the 1950s?

Why does any of this matter?

Economists and planners argue that it matters now more than ever because, economically speaking, no place in the world is an island, even a real island such as Puerto Rico. Capital flows across borders more easily than ever and business competition increasingly comes not just from the company down the street, but from anywhere.

Having reliable information is the first step in planning for existing businesses and attracting new ones.

It's an issue that won't draw thousands into the streets, but it may have a greater impact on the future of Puerto Rico.

Lance Oliver writes The Puerto Rico Report weekly for The Puerto Rico Herald. He can be reached by email at:

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