The fatal attraction of data massaging

Koh Hyun-kohn
The author is the executive editor of the JoongAng Ilbo.

There is an absolute strength in numbers. Ten is ten and can never be 100. Numbers become the objective basis for evaluation and judgment. No matter how able he or she may be, an employer or manager cannot survive if the company’s revenue and earnings are poor. A government would be troubled if the growth rate in the economy slumps or the number of unemployed increases. But numbers do not always reflect reality correctly, as different interpretation can be made depending on the perspective. When they are approached with a dishonest intention, the truth could be masked or distorted. It is therefore important to handle numbers with the greatest discretion.

The female share of the C-suite at Korea’s top 30 conglomerates hit 6.9 percent this year, doubling from 3.2 percent five years ago. But the share is still very small, suggesting the high glass ceiling for women in Korea. Samsung has the largest number of female executives — 157 — among the top 30 business groups. But their ratio at 7.5 percent is just the average for the top 30. Samsung has a greater number of female executives because it has more executive positions than others. We can easily fall into that fallacy if we only see the numbers as they are or if we arbitrarily interpret their meaning.

Many still play with the numbers. The government and the private sector, which must please the public, can be tempted to play the number game. So, investors must examine the comparative period so as not to be fooled during corporate IR presentations. For instance, if a company’s sales increased against the previous quarter though they decreased against the same period a year ago, the company would highlight the first data.

Governments also tend to skip unfavorable data. In November 1997, Korea had just about $10 billion in its Forex reserves. But the government hid the fact and pointed to the more sound fundamentals to assure that it can fight off the Asian financial crisis. Korea eventually faced a near-default crisis and ended up seeking an international bailout. In early 2019, the Ministry of Economy and Finance reiterated the soundness of our economy by cherry-picking favorable statistics. It left out the 17-year high jobless rate and the facility investment, which turned negative for the first time in 9 years.

The government also likes to defer its announcement of unfavorable data until a major election is over — or decides not to announce it at all. Sometimes it finds an excuse to change the survey methodology or calculation guidelines to tweak the numbers in a more favorable light.

The government can go so far as massage the numbers. In 1990, some city and provincial governments increased their population number to get more subsidy from the central government. The sum of their populations were 500,000 greater than the real population. In 2001, the employment center under the Ministry of Labor inflated the number of employed by adding the number of existing workers on the newly employed or including part-timers in the tally.

In 2006, the government announced that prices of apartments in the three popular districts in southern Seoul fell 14.4 percent from March through June even when their prices soared. The results came from drawing an average of price hikes for two different groups of apartments.

When the Board of Audit and Inspection (BAI) recently raised the possibility of the previous Moon Jae-in administration distorting statistics, some brushed it off, pointing to such precedents in the past. Excusing a fault because it took place before is a dangerous mindset. First of all, such a practice is illegal now. Leaking or sharing data ahead of an official announcement or exercising influence over statistics has been banned since 2016. The amendment was proposed by Rep. Kim Hyun-mee of the Democratic Party at the time. According to the BAI, Kim, who became the land minister in the Moon Jae-in administration, ordered the Korea Real Estate Board (REB) to brief her with housing price data ahead of formal announcement.

Second, the officials under the Moon administration are accused of a broad and systematic manipulation of real estate, income, and employment statistics throughout the five-year term. The wrongdoing was not committed by just a few institutions or officials. The government even threatened the REB that it will stop funding it — or dismantle it — if it did not follow orders. Such a blatant order could only be made under the authoritarian military regime. The liberal administration, which prides itself of having contributed to the democratization of this country, has reversed the clock in history.

The 22 officials under the Moon administration the BAI referred to the prosecution for investigation were mostly economists. Economics is a field of social science based on statistics. Checking on the numbers is the basics. If they orchestrated data massaging, it critically damaged credibility in economics.

A day after the BAI announced the disgraceful finding, former president Moon underscored that the employment rate had been the all-time high during his reign. That’s a baffling response to the accusation. The employment rate during Moon’s term was 60 percent, from 2018 to 2021. The highest rate was 62.1 percent in 2022, which cannot entirely be credited to Moon, as he was elected in May that year. Greece went under an international bailout for nine years due to a default crisis after manipulating fiscal data for years. The statistics from China cannot be trusted. It is hard to find prescriptions to cure its economy when the reality is unclear due to a lack of confidence in data. Government data is the basis for public policies. Using only favorable data can lead to wrong policies, let alone fabricated data. That constitutes a crime of deceiving the people and jeopardizing the economy.