Sex, drugs and GDP – what’s going on?

 

Drug-dealers and their customers in the UK may be breaking the law, but at least they are making us richer. Illegal activities such as prostitution and drug dealing will add £10bn to the UK economy, the Office of National Statistics said today, as part of an overhaul of how we calculate national gross domestic product.

What?

Yup. Heroin imports. Crack cocaine sales. Home-grown cannabis. And the turnover of the UK’s brothels: all are now part of the UK’s GDP data, and have given it a welcome boost.

Wait, didn’t we laugh last week when Italy did this? Is European economic growth this bad that we have to all start taking drugs?

Yes. Well, not the second question. All EU states are having to comply with new Eurostat guidelines, which have been drawn from The European System of Accounts, a paper drawn up in 1995, and made enforceable now. The EU wants all member states to account for estimates of illegal activities such as prostitution, contraband cigarettes and alcohol, and illegal drug trafficking. In addition to giving national GDP numbers a one-off hit, it will also allow countries with different rules on drugs and prostitution (such as the Netherlands, where a bit of both is allowed) to be compared.

As long as the illegal dealings “are transactions… when all units involved enter the actions voluntarily,” it should go on the national accounts. “Thus, purchases, sales or barters of illegal drugs or stolen property are transactions, while theft is not,” the EU explains.

So is all this important?

Kind of. Factors including the allocation of the EU’s large budget are affected by the size of a each member state’s economy, so technically, we all should be measuring the same things.

Right. So how much money are we talking about?

Well, the ONS reckons that prostitution would add £4.4bn to the UK’s GDP in 2009 and illegal drugs would add £5.3bn. Together, that equates to a roughly 0.7 per cent jump in GDP. Italy’s corresponding agency reckoned the change would add between 1 and 2 per cent to its GDP. So the Italians are probably breaking the law more often than the British – at least when it comes to illegal drugs and sex.

Ok. But wait, how trustworthy are these numbers?

Mixed. The ONS’s breakdown goes pretty micro. Each of the UK’s estimated 60,879 prostitutes gets an average of 25 clients a week, at an average cost of £67.16, apparently. It also estimates that the UK had 38,000 heroin users, while sales of the drug came to £754m at a street price of £37 a gram. .

But here’s the disclaimer. Lots of the numbers are guesses. The ONS uses lots of assumptions and guesswork, and even admits that it “is a weak assumption based on the market for prostitutes’ services… It is necessary because we have no time series data for the number of prostitutes.”

And is that all?

No, there could be more to come. Other illegal activities not covered in Thursday’s announcement but could be future additions to GDP calculations include illegal gambling, illegal employment and things like software piracy.

So even those fleeing the country and breaking the law are helping, in their own way.