January 13, 2004
From the desk of Jane Galt:Department of Bad Statistics
So I am reading this Fareed Zakaria article on Pakistan, and I come across this passage:
For 15 years now Pakistan has found a cheap and effective way to fight over Kashmir -- by helping Kashmiri militants in their terrorist tactics. Sept. 11 changed that game. It stigmatized terrorism and gave India a crucial ally on this issue: the United States. Suddenly Pakistan found that supporting terror had become costly indeed.But something equally important has happened in South Asia over the past 15 years. India has been transformed by a market revolution. Globalization has come to every part of the country, whether in the form of a call-center job, a Chinese-made toy or American-inspired television shows. Suddenly Indians want to compete. And they are. Last year India's economy was the second fastest-growing in the world, at 7.4 percent. Its business leaders speak confidently of becoming global players in their fields. In this Indian future, a continuing cold war with Pakistan is a drag.
During the same period, however, Pakistan went down a different path, one of radical Islam and domestic dysfunction. The results? In 1985 its per capita gross domestic product was 6.5 percent higher than India's; today it's 23 percent lower. Its birthrate is soaring at a frightening 2.8 percent, while India's is 1.7 percent and dropping. Thirty percent of Pakistan's economy is consumed by its military.
Immediately, alarm bells went off in my head. Bad statistics alert!
What's wrong with this passage? Well, start with this fact: total government share of GDP in the United States is 30% of GDP. Admittedly, it does go higher in other countries -- up to 60% in Sweden at one point. But no developed country is spending 30% of GDP on its military -- we're the spendthrifts in that department, at under 5%.
Well, perhaps Pakistan, a developing country, spends a larger percentage of its GDP on the military than we do. Perhaps so. But 30% is lunatic. A developing country generally spends less of its GDP on government than an industrial nation, because it can't afford to. We can take 30% of our GDP, shovel it into the treasury, and everyone still has plenty of money for food, clothes, and progressive scan DVD players with digital surround sound capabilities. Do that with a country where per capita GDP is, as Pakistan's is, around $2,000 per year, and you'll end up with a lot of dead people. Especially if that 30% is only military consumption, and all the other stuff that government does (even if it's a third world government that doesn't do very much) has to be budgeted for on top of that.
And indeed, when I go to the Economist's extremely handy Countries Section, and look at their Pakistan page, I find a nifty little document with economic data on Pakistan that says indeed, total government consumption in Pakistan is not over 30%; it's more like 10-12% of GDP. Rendering that military figure totally, wildly incorrect, unless someone's shipping Pakistan military supplies worth 20+% of their GDP every year.
I think North Korea tops the list at > 20% GDP on defense - at the expense of food, of course.
Zakaria could be right when he says 30% of the economy is consumed by the military - the Economist's statistics do not cover the involvement of the military in business. The Fauji foundation runs a group of companies that make everything from corn flakes to fertilizers. The military runs a virtual colony of slave labour at Okara Military Farms. It is able to procure land and housing for its serving and retired officers at a pittance. All this causes a big hole in the exchequer and a consequent loss of revenue to the government. More importantly, the participation of the military in the economy is often at the expense of the private sector.
I'm not sure that this adds up to 30% (or more or less), but the Economist's data is not adequate to conclude Zakaria is wrong.
Zakaria could be right when he says 30% of the economy is consumed by the military - the Economist's statistics do not cover the involvement of the military in business. The Fauji foundation runs a group of companies that make everything from corn flakes to fertilizers. The military runs a virtual colony of slave labour at Okara Military Farms. It is able to procure land and housing for its serving and retired officers at a pittance. All this causes a big hole in the exchequer and a consequent loss of revenue to the government. More importantly, the participation of the military in the economy is often at the expense of the private sector.
I'm not sure that this adds up to 30% (or more or less), but the Economist's data is not adequate to conclude Zakaria is wrong.
Part of the discrepancy could be official vs. unofficial GDP...the government can only tax businesses that report income to it, but a lot of business occurs off the books.
Also realize that the cost of living is much lower in Pakistan than in America. Many people get by on what seems like very little, due to discrepancies in exchange rates, so the GDP per capita isn't as alarming as you might think.
The CIA world fact book here quotes USA military spending as 3.2% (FY99 est.) The entry for Pakistan is 4.6% (FY02).
Nitin is right; the military controls a lot more of the economy of Pakistan than the spending on defence.
Quite possibly it does, but 30% still sounds ludicrously high.
And Manish, those are PPP (purchasing power parity) figures, not market exchange rate; the exchange rate figure is quite a bit lower.
...10-12 percent of GDP is nonetheless an astonishing figure for a developing nation..or any nation. The author may be guilty of statisitical hyperbole, but the point is well taken.
What if foreign aid or loans were used for the military? IF GDP is very small this could easily amount to a huge percentage even though the amounts may be modest by international standards.
Doesn't Pakistan have, er, a large private sector military as well?
Mr Drennon -- that's a figure for total government consumption, not military spending.
He may have meant 30% of government expenditure
plus, remember that pakistan's military is an export sector! you can make a lot of money selling nukes to rogue states... so maybe that's where it comes from!!!
and it does have a large privae sector military, as well as lots of disguised military spending (i.e. charity, religious, foreign aid, etc that really goes to the taliban and kashmiris militants)
Immediately, alarm bells went off in my head. Bad reader alert!
WHat's wrong with this post? Well, start with this fact: in the article excerpt it reads "Thirty percent of Pakistan's economy ", not GDP. AFAIK, GDP does not necessarily equal economy.
I don't know who Fareed Zakaria is, but you look like you were reading for a reason to jump on em.
GDP is the sum total of all the goods and services produced in an economy. It is the common proxy for "X is Y% of the economy".
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