Following Italy, the United Kingdom is planning on counting illegal drugs and prostitution in its Gross Domestic Product calculations.

United Kingdom

Revenue generating activity used to determine EU budgets

Before you crack the countless “mafia” and “madam” economy jokes that have already been told ad nauseam, there is a logical reason for such recording.  A common standard is required for calculating each countries contribution to the EU budget.  Certain countries have legalized to various levels drugs and prostitution.  The Netherlands, for instance, includes this in their budgets because this is a revenue generating activity for the country.

“As economies develop and evolve, so do the statistics we use to measure them,” Joe Grice, the United Kingdom Office of National Statistics, was quoted as saying in an AP report.  “These improvements are going on across the world and we are working with our partners in Europe and the wider world on the same agenda.”

The United Kingdom’s statistics office estimates that the addition of prostitution and drug usage to GDP might be minimal, adding only 10 billion pounds to GDP in 2009 for instance while the country’s overall GDP stands at 1.5 trillion pounds.

United Kingdom: Drug dealers and prostitutes don’t respond to questionnaires attempting to measure the value of their business activity

The problem for countries where drugs and prostitution isn’t legal is how does one count the activity?  In the Netherlands the activity is taxed just like buying milk or cigarettes.  When the activity is illegal, one might not anticipate a United Kingdom drug dealer or madam to respond to a survey asking how much business they did in illegal activity.

But there is an answer.  In the United Kingdom, a mathematical formula is used to estimate prostitution and drug usage. United Kingdom statisticians measure condom sales, brothel rentals and sales of the type of cloths sex workers often wear and apply a discounting percentage to then arrive at an estimated number. For illegal drugs, statisticians use available information on drug usage to concoct a method to estimate the production and sales of all kinds of drugs, from crack cocaine to cannabis and ecstasy.  Once they have the overall number, the formula then further categorizes the financial activity as either production, much like they would classify a manufacturing company and its income, right along with expenditure, just as they estimate consumer spending.

The practice of measuring the drug and sex economy is more widespread than one might think. In addition to the Netherlands, countries such as Estonia, Austria, Slovenia, Finland, Sweden and Norway measure drug and sex financials to various degrees. Even the U.S. Bureau of Economic Analysis measures prostitution when it considers Nevada’s state GDP.