Criminals should not be part of Europe’s GDP calculations

As part of an EU-wide accounting overhaul, criminal activities will now play a part in GDP calculations. However, the cost to accuracy may be too great

 
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From September, EU member states will be allowed to include illegal activities, such as prostitution and drug trafficking, in their GDP calculations. The move is likely to give GDP figures a substantial boost

The European economy could soon be enjoying the benefits of prostitution, drug trafficking and stolen goods. From September, the EU’s 28 member states will factor illegal activities of various sorts into their GDP calculations, all in accordance with new and – some would say – untoward accounting recommendations laid out by the European Commission in December last year.

‘Illegal economic actions shall be considered as transactions when all units involved enter the actions by mutual agreement. Thus, purchases, sales or barters of illegal drugs or stolen property are transactions, while theft is not,’ said the 688-page document, which went on to classify prostitution as part of the ‘non-observed economy’.

The controversial recommendations have been met with discomfort by many who have found the inclusion of illegal activities morally objectionable, to say the least. Entitled – quite ordinarily – the European System of National and Regional Accounts, or ESA 2010 for short, the framework is an unsubtle attempt at converting hard-to-quantify illegal doings into much-needed GDP points.

£10bn

UK GDP gain from criminal transactions

Grey areas
No matter the moral objections to the system, some member states will be celebrating the additional percentage points they will gain from the overhaul. The UK, for example, will add £10bn (€12.54bn) to its GDP – equivalent to approximately one percent of its total, and an annual increase of four or five percent. Of the £10bn in question, £5.3bn (€6.65bn) is attributable to Britain’s sex trade, and most of the rest to the production, sale and consumption of illegal drugs.

Although Britain, along with Spain and Belgium, has already agreed to comply in full with the ESA 2010 framework, other member states are wary about the implications of doing the same. For example, Greece, Austria, Germany and Hungary already include prostitution in their national account calculations, although each country stops short of counting drug revenues, for a number of reasons.

The main issues are that individuals with a dependence on drugs cannot, by definition, be considered consenting consumers, and that the specifics of what constitutes an illegal substance varies from country to country. However, these grievances could just as easily apply to prostitution, which is again subject to legal inconsistency and ethical uncertainty.

An issue with accuracy
What has been overlooked, quite aside from the document’s moral implications, are the ruling’s practical considerations. Granted, the underground economy in some member states constitutes a considerable chunk of the total GDP, but these are sectors that by their very nature take pains to obscure their existence.

The central issue is not that including illegalities in the GDP count is morally unacceptable, but that calculating the criminal economy in itself is prone to wild inaccuracies. It’s true that criminal transactions fuel the economy in much the same as any others, but surely GDP calculations should not be subject to such – frankly put – guesswork.

The fact that the framework has such obvious flaws can only mean the reforms are nothing more than a desperate attempt to squeeze every last drop of productivity possible from an austerity-stricken union. And while, on paper, the framework might inject life into some of the EU’s poorer performers, the menial productivity points gained are not worth the legitimacy lost.