France Refuses to Include Drugs and Prostitution in Its GDP. That’s a Mistake.

Taking the Long View of the Global Economy
June 20 2014 4:23 PM

No Sex, Please, We’re French

It’s silly that France won’t include drugs and prostitution in its GDP.

Belle du Jour.
Catherine Deneuve in Belle de Jour: Not included in the French GDP.

Courtesy of Valoria Films

The government of France has just made what on the face of it appears to be a nonannouncement announcement: It will not include illegal drugs and prostitution in its official calculation of the country’s gross domestic product.

Zachary Karabell Zachary Karabell

Zachary Karabell is an author, money manager, and commentator. His most recent book is The Leading Indicators: A Short History of the Numbers That Rule Our World.

What made the announcement odd was that it never has included such activities, nor have most countries. Nor do most governments announce what they do not plan to do. (“The U.S. government has no intention of sending a man to Venus.”) Yet the French decision comes in the wake of significant pressure from neighboring countries and from the European Union to integrate these activities into national accounts and economic output. That raises a host of questions: Should these activities be included, and if those are, why not others? And what exactly are we measuring—and why?

Few numbers shape our world today more than GDP. It has become the alpha and omega of national success, used by politicians and pundits as the primary gauge of national strength and treated as a numerical proxy for greatness or the lack thereof.

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Yet GDP is only a statistic, replete with the limitations of all statistics. Created as an outgrowth of national accounts that were themselves only devised in the 1930s, GDP was never an all-inclusive measure, even as it is treated as such. Multiple areas of economic life were left out, including volunteer work and domestic work.

Now Eurostat, the official statistical agency of the European Union, is leading the drive to include a host of illegal activities in national calculations of GDP, most notably prostitution and illicit drugs. The argument, as a United Nations commission laid out in 2008, is fairly simple: Prostitution and illicit drugs are significant economic activities, and if they’re not factored into economic statistics, then we’re looking at an incomplete picture—which in turn will make it that much harder to craft smart policy. Additionally, different countries have different laws: In the Netherlands, for instance, prostitution is legal, as is marijuana. Those commercial transactions (or at least those that are recorded and taxed) are already part of Dutch GDP. Not including them in Italy’s or Spain’s GDPs can thus make it challenging to compare national numbers.

That is why Spain, Italy, Belgium, and the U.K. have in recent months moved to include illegal drugs and nonlicensed sex trade in their national accounts. The U.K. Office for National Statistics in particular approached its mandate with wonkish seriousness, publishing a 20-page précis of its methodology that explained how it would, say, calculate the dollar amount of prostitution (police records help) or deal with domestically produced drugs versus imported drugs. The result, which will be formally announced in September, will be an additional 10 billion pounds added to Great Britain’s GDP.

France, however, has demurred. A nation with a clichéd reputation for a certain savoir faire when it comes to sex and other nocturnal activities has decided (or at least its bureaucrats have) that in spite of an EU directive, it will not calculate the effects of illegal activities that are often nonconsensual or nonvoluntary. That is clearly the case for some prostitution—one French minister stated that “street prostitution” is largely controlled by the Mafia—and the same could be reasonably said of the use of some hard drugs, given their addictive nature.

There is undeniably a strong moralistic component in the French decision. By averring that because they are not voluntary or consensual these exchanges should not be included in GDP, the French government is placing a moral vision of what society should be ahead of an economic vision of what society is. That in turn makes an already messy statistic far messier, and that serves no one’s national interests.

GDP is messy in part because, though it’s quite good at capturing industrial nation-states, it falls short of measuring our economies amid a global flow of goods and services and free technologies such as Google. Statistics bureaus around the world are actively attempting to remedy these shortcomings, but none are highly funded and none move as quickly as the global economy and technology are evolving.

One thing that GDP does not suffer from, however, is an overly moral cast. The decision not to include domestic work in the mid-20th century was not based on a moral ranking of food preparation and cleaning as lesser activities. It was based simply on the difficulty of assigning a market price to these actions. GDP is at best amoral. If I buy an LED light bulb and thereby reduce my spending on electricity, that makes GDP go down, but it is undoubtedly good for our collective economic future and my personal discretionary income. If a factory pollutes a river, the cleanup, the health care costs, and the spending required to upgrade the factory all add to GDP, but they are hardly a moral positive. In both examples, GDP as a calculation is neutral about morality.

With all of GDP’s limitations, adding a new moral dimension would only make the number that much less useful. After all, why stop at not including prostitution because it degrades women? Why not refuse to measure coal production because it degrades the environment? Why not leave out cigarette usage because it causes cancer? The list of possible exclusions on this basis is endless.

If GDP is our current best metric for national output, then at the very least it should attempt to include all measurable output. The usually moralistic United States has actually been including legal prostitution in Nevada and now marijuana sales and consumption in Colorado, California, and Washington without any strong objections based solely on the argument that these are commercial exchanges that constitute this fuzzy entity we call “the economy.”

If anything, we need to keep broadening how we measure economic activity, including not just illegal and cash transactions but also the hard-to-measure world of new technologies that undoubtedly shape our material lives but do not have an easily identifiable market price (Google searches, WhatsApp messages, Slate articles). At the same time, the elevation of GDP as one simple proxy for how we are doing needs to be challenged, at least insofar as increasing national output does not necessarily lead to a good life, a sustainable economy, or a stable society.

In the meantime, however, the French decision not to include activities that are morally objectionable is a wistful exercise. Not measuring drugs and sex won’t make them go away, but it will hobble efforts to understand the messy latticework of our economic lives, all in a futile attempt to excise what we do not like.