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green and sustainable business

Sex, drugs and GDP

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grand daddy purpleThe continuing discussion about what Gross Domestic Product (GDP) should include in order to more accurately reflect the scope and health of the economy has entered a new and intriguing dimension.

From across the Atlantic comes this question: Why not include prostitution and drugs in GDP calculations, as Italy and the United Kingdom have done? After all, those are economic activities, right?

The U.K.’s Office of National Statistics announced that paying for drugs and sex adds about £10 billion ($16.7 billion) a year to the economy. So, the British government is now including prostitution and narcotics sales in its official GDP statistics.

While illegal activities are a small part of the U.K. economy—only 0.7 percent—according to the government’s estimates, the reason for the inclusion is to harmonize economic reporting across the European Union. Prostitution and some drugs are legal in the Netherlands, and the Dutch count those activities in official government statistics. Because prostitution and many narcotics are still illegal in the UK, the government is using a combination of police seizures and other data to estimate how much money these activities are adding to the economy, according to a report by CNN Money.

Italy also made a similar announcement, saying it would begin measuring narcotics and sex work in its GDP. Other countries besides the UK and Italy measure illegal business activity, including Estonia, Austria, Slovenia, Finland, Sweden and Norway.

Will the idea catch on the U.S.? Well, it already has to a small degree, in Nevada, where prostitution is legal.
The U.S. Bureau of Economic Analysis measures prostitution as a part of Nevada’s state GDP. Presumably, GDP could also cover states where marijuana use is legal, medical and otherwise.

So the development in Europe adds a spicy dimension to what GDP should encompass in the U.S. Many view it as an inadequate measure of the nation’s wealth and well-being, noting it should be updated to include more of the human element.

Harvard Business Review blog post in 2011 noted that GDP is a “distortion of reality that guides us to decisions contrary to what people really want.” And Triple Pundit’s 2011 Economics of Sustainability series described the GDP measure as a misleading and perhaps grossly deficient paradigm.

It’s a discussion that crops up now and then. But the actions by the UK and Italy could add impetus to the idea that GDP in the U.S. shortchanges human elements and factors in calculating—and understanding—the totality of economic activity.

Keep in mind that GDP is also Grand Daddy Purple.

Image: GRAND DADDY PURPLE aka GDP medicinal cannabis sativa by Cannabaceae via Flickr

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Written by William DiBenedetto

23 June, 2014 at 8:18 am

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