Sex, drugs and economic growth

09 June, 2014

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By Yuxin Hou

Apparently prompted by the unsatisfactory 1.8% GDP growth last year, Britain's government has discovered a new means to increase the country's economic output, at least on paper. Last week the Office of National Statistics (ONS) announced that the UK would for the first time include prostitution and illegal drugs in its official national accounts. According to the ONS this would add GBP 10 billion (USD 16.7 billion) to GDP in 2009, or the equivalent of 0.7% of its GDP growth that year. So the Brits have found a new recipe for cooking the books: tarts, hash and coke.

 "As economies develop and evolve, so do the statistics we use to measure them," said Joe Grice, the chief economic advisor to the ONS. "These improvements are going around the world and we are working with our partners in Europe and the wider world on the same agenda." 200 years since the abolition of the slave trade, the British government's ideas of 'improving' its measurement of economic growth is by including counting sales of drugs and bodies.

To many the move smacks of 1987, when Italy started counting its shadow economy in its economic statistics, resulting in a 18% increase in GDP overnight and pushing Italy past Britain to become the West's 4th largest economy. The event applauded as il sorpasso (the overtaking), created much national joy, until the following two decades of economic mismanagement sent the country back down the league tables.

More recently Greece's economy grew 25% overnight after the country's official statistics included illegal drugs and prostitution as part of their estimates of economy. This was in 2006. We all know what has happened since.

Why do such measures have such a troubled past? Possibly because they are a clear reflection of a country addicted to the notion of economic growth over all else. In the current market fundamentalist economic system it is growth that creates jobs, stimulates consumption, and brings in investment. Therefore growth is the key to prosperity and stability. When good and legal businesses cannot fulfill the ravenous appetite for growth, people start to look elsewhere.

But counting illegal business in official GDP measures is a dangerous route. Firstly, it creates bad incentives. Recognizing drug sales and prostitution as economic contributors is, in a sense, giving a thumbs-up to bad behavior. Producing drugs will be classed as "production"; selling one's body, "services"; consuming them, "expenditure"; and selling them, an "income". The underlying assumption is that drugs and sex business are no different from selling corn flakes or providing postal service. This is not true. Drugs and prostitution not only do not provide positive value to society, they harm people and lead to other crimes. Counting these shady industries into GDP neglects their negative social externalities and legitimizing them to the point that others may be encouraged to join. And if governments are dis-incentivized from cracking down on these illegal activities by higher GDP numbers this will also contribute an increase in the number of drug dealers, addicts, prostitutes and pimps. GDP growth goes up but quality of life goes down.

The UK's new measurements demonstrate that we are drifting from having a market economy to becoming a market society. In the former, the market is a tool for organizing productive activities; in the latter the market becomes a way of thinking that guides peoples' lives. This puts other values at risk. In today's world we have seen prisons being privatized, even wars being outsourced to private sub-contractors. Public security, patriotism and even civic duty can now be monetized. Since we have accepted this we surely can't complain about the sex and drugs. And by the same logic, there is much more room for the UK's economy to grow: bribery, contract killing, extortion, fraud… if internet scams are included Nigeria might well have hope of becoming the largest economy in the world.

The real structural problems with capitalism are that it relies on exploiting resources, externalizing costs and a relentless growth in consumption. Prostitutes and drugs might be able to pretty up the numbers but they cannot help a country to strengthen its economy or make its industries more competitive. And in a world where GDP is inevitably used as a guide for economic policy, and even public morality, the ONS needs to revisit its new statistical definitions. Otherwise could the British government please stop decrying the degeneracy of youth who pop pills or visit brothels. After all, they’re just trying to help the economy.