Pretty Woman

As Mark Twain told us: “There are three kinds of lies: lies, damned lies, and statistics.” And on the assumption that lies are an example, albeit mild, of moral turpitude, we have now have the prospect of Twain being proved correct. Why? Because prostitution, drugs and smuggling are now included in Poland’s gross domestic product calculation and contributed a whole 0.1 per cent to Poland’s GDP in 2013, according to official data released for the first time in compliance with the new EU guidelines. Who said statistics were boring?

This new method to calculate GDP has been called for by the EU to standardize and broaden GDP figures across the EU which is itself following a “best practices” directive issued in 2008 by the United Nations. Needless to say, some economists question the merits and the methods of measuring these more shadowy activities. Understandably, criminals typically go to great lengths to hide transactions – many cash based – and since such activities are beyond the easy reach of tax authorities, they cannot be used to raise revenue to help a nation pay off its debts. This complicates measurement and the trade-off between trying to gather as much information as possible and accuracy may well end up make GDP figures as whole less accurate.

Take one example, prostitution. Not only is this not illegal in Poland (but pimping, recruiting, or luring persons into prostitution certainly is) but prostitutes do not have to pay tax on their activities. While a tax free occupation may appeal to some, the concomitant exclusion from the social benefits of legitimate work is less attractive. And on top of that there is the necessity of having to prove – if asked – to the authorities that the source of the money is from prostitution to avoid tax. The mind boggles.

Meanwhile, the UK will adopt a pragmatic, if not wholly statistically accurate, approach. The statisticians will begin with an estimated number of on-street prostitutes from the London Metropolitan Police and an estimate of off-street prostitutes from a non-government group that studies violence against women and girls. The number of prostitutes will then be assumed to rise or fall along with the male population. The assumed cost of prostitution services will fluctuate along with the prices of lap dances and escort agencies, “the closest activities we have to prostitution” that are already measured. Really?

Needless to say, the France, the last bastion of European civilisation, has once more taken exception. Its national data agency has refused to include the value of sex work in its GDP calculations since the value of prostitution is often controlled by trafficking illegal immigrants and, in the words of the agency, “is not a voluntary commercial activity.” Bravo and vive la France!

Of course, some EU governments do have an interest in inflating GDP by whatever means possible. If a country’s deficit must remain below 3 per cent of GDP then the largest GDP figure possible is desirable to the profligate; conversely, as GDP determines the level of contributions to the EU budget, some may be less keen to boost GDP figures. The UK, Ireland and Italy are among countries to include illicit activity in their figures with Italy, struggling with its deficit, including smuggling in addition to drugs and prostitution.

The overall effect of these changes may turn out not to be dramatic given the number of other technical adjustments included in the statistical revisions such as how to capitalize expenditures on research and development and how to account for pension programs and most types of insurance policies. The U.K., for example, has altered how it will measure non-profit groups, a shift that will boost its GDP more than the drugs and prostitution, and capital formation and inventories, which will shrink its GDP.

Be that as it may, this theoretical tinkering will simply serve to raise the general level of skepticism about government statistics and prove Mark Twain right. And is there not a moral dimension to this. Are we not putting GDP statistics above more important values? As Oscar Wilde wrote: “What is a cynic? A man who knows the price of everything and the value of nothing.”

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