WORK-LIFE BALANCE / JUN. 11, 2014
version 3, draft 3

Illegal Activities Contribution to GDP Finally Being Assessed

All illegal activities will soon be assessed to work out what their contribution to GDP is. Every EU country is now assessing the contribution that these activities make to their GDP. This move should have a very good outcome for all the countries involved. In the face of the economic problems many countries have been facing, any kind of boost to GDP is going to be welcome. Of course, many people are worried that this could lead to further legitimisation of illegal activities.

New EU Rules

Under new EU rules, all member states are required to assess the contribution that illegal activity is making towards GDP by 2016. Illegal activity of any kind is included, but it primarily focuses on prostitution, illegal drugs and smuggling of cigarettes and alcohol. The rules were drawn up by Eurostat, the EU’s statistical organisation. It is assumed that the new directive is an attempt by the EU to keep an even closer eye on their member states economies. Further scrutiny and control would be ideal given the problems that occurred due to the recent economic crash. There are some serious problems with calculating these contributions. According to Italy’s statistical body Istat “{It is} very difficult for the obvious reason as these illegal activities are not reported.” Despite this, Eurostat still expects the move to have positive results. Here are some of their projections for the increases in GDP that the new measures will have.

0%-1% Hungary, Latvia, Lithuania, Poland, Romania

1%-2% Czech Republic, Estonia, Ireland, Italy, Malta, Portugal, Slovakia, Slovenia, Spain

2%-3% Belgium, Denmark, Germany, France

3%-4% Austria, Netherlands, UK

4%-5% Finland, Sweden

Source: Eurostat    

Spain

Spain is well known as a country with a large amount of crime and prostitution. Roughly 39% of the male population has admitted to having paid for sex. It has also long been the entry point into Europe for drugs from South America and Morocco. Spain’s National Statistics Institute (INE) has taken the EU’s directive head on and even began phoning brothels. The statisticians asked brothel owners questions such as how many prostitutes were needed for a brothel to be viable, (50), and what the standard charge was, (€40 - €70). It is estimated that Spain may have as many as 300,000 prostitutes and that it could be worth as much as €10 billion per year. The drug trade alone is estimated to be worth €5.7 billion per year to the Spanish economy. Although hard to calculate, if even half of this money was added to the GDP it would be a huge boost to the financially struggling nation.

The UK

The UK is also expected to get a huge boost from adding illegal activities to its GDP calculations. Activities such as prostitution and illegal drugs are estimated to be worth £10 billion per year to the economy. The Office of National Statistics (ONS) estimates that this should help to boost the GDP by up to £65billion. However, some in the UK are rather skeptical. Alan Clarke, Economist at Scotia Bank said, "On paper the economy is £65bn bigger – which is massive. But it is purely an accounting treatment. These activities have always been there – particularly research and development activities – they just weren’t necessarily taken into account in GDP previously.”

Many people may view this as a very progressive move forward by the EU, but others could see it as further legitimisation of industries that they see as wrong or immoral. The biggest problems, however, come from the countries themselves. Within the EU, the directive is viewed as an accounting trick based in unreliable information. 

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