Domestic Product (GDP)

Nations’ economies are typically quantified using a variety of metrics, the most important of which is the Gross Domestic Product (GDP). In most circumstances, GDP figures account for all legal transactions of goods and services. Nevertheless, historically, illicit, unlicensed, and undiscovered products and services were not included. The subterranean economy is something that many countries do not take into account when determining economic power. In actuality, because of its worldwide character and the types of commodities and services delivered, the underground economy plays an important role in economics. Such an economy is composed of all unregistered economic activities, they are not regulated by legal institutions like other entities, and the production and sale of the goods and services escape detection by the official agencies. Simply put, these underground activities tend to avoid government regulations and policies, taxation and most of all recognition and oversight.

Based on this definition, it is clear that drug trafficking and sex through prostitution are all part and parcel of the underground economy. Economic growth is determined by both the size and changing aspects of the underground economy. As such, the determination of the extent of which the effects are felt is subject to further research. Nevertheless, it is beyond doubt that there is a strong relationship between the dynamics of the national economy and the underground finances. Keeping in mind the consumption and cost of illegal drugs and sex, it is sensible to conclude that these aspects of underground markets have a positive impact in raising the economic status of a region with specific attention to the gross domestic product (Aurel 280). For this reason, ignoring the addition of sex and drug trade in the estimation of an economy spells out two crucial disadvantages. The first is that the actual proportion of finances involved in the underground businesses will remain unknown. Secondly, the exclusion of these significant contributors to the GDP causes a lower economic ranking of a country and also fails to fully account for the entire economy accurately.

Economic Significance of Drug and Sex

Whether legalized or not, prostitution accounts for significant economic implications in the world today. Taking the example of Nevada, a region where prostitution is legal the sale of sex in this area is responsible for a substantial share of the county’s income. In a study conducted in the same county, the conclusions suggest the possibility of the area benefitting greatly from this entity. As such, sex business is highly lucrative, and unlike the other illicit markets, prostitution is composed of both small and large scale operations. Various data from available national revenue records, public health services, policy initiatives, criminal justice records and media reports show that the sex trade generated close to 186 billion US dollars worldwide (Badulescu and Caus 7051). And this figure says a lot concerning the significance of the sex industry to the global economy as a whole.

On the other hand, drugs including marijuana, cocaine, and heroin among others account for large sums of money which are undetected by the national agencies. The drug trade yields significant financial flows and for this reason, a major contributor to the organized crime revenues. In the European Union, illicit drugs including cocaine, cannabis, heroin, amphetamines, and ecstasy form a quarter of the overall underground retail market share. According to a 2009 study, the global cocaine trade created approximately 85 billion US dollars with 60 dollars considered to be profits (Rines 1). The monetary figures in drugs and sex are huge, a phenomenon that explains why countries that included this revenue surpass those that do not in terms of economic position. Neglecting the economic significance of the leading underground trades of drugs and sex is paramount to the lack of recognizing some of the greatest contributors to the national funds. The moral excuse of not including such businesses is therefore not valid considering the fact that at the end of the day, money laundering renders the finances legal per se.

In order to understand the significance of sex and drug trade in the economy, it is first important to comprehend the measure of economic growth. In this regard, the Gross Domestic Product (GDP) is the calculated figure that defines and summarizes a country’s or a region’s prosperity. However, Rines (2013) purports that in most instances, this measure of wealth is more or less inaccurate and vague. This is simply because the GDP does not usually measure all the components of economic output. In this article, the author explains that the unreliability of the calculated information is due to the exclusion of all interactions including those of the underground economy mainly sex and drugs. In the quest to obtain more reliable and realistic economic information, there is the need to revise the guidelines for GDP measurement. This is the only way the significance of sex and drugs in an economy can be fully estimated (Rines).

Illegal commodities and services are not usually included in national performance statistics hence the notion that they may not be beneficial to the overall economy. In the recent past, however, various nations have begun to include all aspects of the economy including underground markets. With the facilitation of organizations such as the Office of National Statistics (ONS), the economies of activities including drugs and prostitution are now part and parcel of the national accounts (Lowrey). The reason behind this inclusion is funded on the fact that drug dealers and prostitutes do have productive outputs and involving these measures into the national economic performance yields more realistic information. These two businesses are just like any other organizations with the only difference being the legalities, taxation and the escape from detection by law enforcement agencies. The outcome of adding sex and drugs in GDP calculation shows tremendous results which uplift the current statistics by massive figures, to the extent of some nations surpassing the economies of those who do not include underground markets.

Italy is one country that opted to put into consideration drug trafficking and prostitution in GDP calculations. Later on, the United Kingdom joined this practice. The accounting of drugs and sex is not by any means an attempt to make the economy of a nation appear better. On the contrary, it is a step to gauge performance between countries using realistic approaches. The determination of actual finances transacted in the underground markets is a difficult task. Nevertheless, despite the methodology employed, the use of this information makes GDP more authentic. By using various questionnaires, the model-based estimates become part of the economic data used.

Overall, the statistics show that unauthorized transactions mainly sex trade and drug trafficking have strong associations with high growth in GDP. Specifically, the co-dependence based on scientific calculation indicated that illicit drugs and sex markets encompassed. 0.7% of the entire United Kingdom’s GDP. This percentage translates to a £9.7 billion contribution to the 2009 economy. Britain’s calculation of GDP composed of sex and drug markets propelled the economic status of the country to great heights, surpassing even the well-established French nation. The extent of the economic contribution of the two entities (drugs and sex) is therefore quite great and has tremendous implications for the overall economy of most countries.

Marinetto (2014), explains that the underground trades of sex and drugs is worth even more than advertisement and media which accounts for only 0.5% of the British GDP. Additionally, these markets also surpass the real estate sector which contributes approximately 0.35% to the GDP. It is important to keep in mind the fact that the actual impact of sex and drugs in the economy might be underplayed. This is due to the conservative strategies employed in the estimation process. If anything, the underground market provides high degrees of investments and developments through financial means more so in the struggling economies. This effect is realized when the income generated from these prohibited transactions are channeled into legal ones causing the creation of deviant globalization process.

The aspect of money laundering cannot be left behind when discussing the economic significance of drugs and trade. An in-depth outlook into this issue reveals that the business of money laundering is the primary contributor to the support of mainstream legal firms. The amount of money from drugs and sex transferred into legitimate accounts and companies is a lot both locally and internationally. This significant contribution makes the actual calculation of the implications of sex and drugs a hard task. However, by comparing the GDP of various countries that include illicit economies and those that do not, the tentative impact is easily estimated.

One of the ways in which money from sex and drugs enter into the typical acceptable economic system is through gambling particularly the electronic terminals. In itself, betting is estimated to be worth a staggering £1.4 billion. The lack of employment is blamed for the increasing levels of prostitution with the UK having about 60,879 of them. This number in addition to the drug trade seemingly offers the largest private entity in most countries including Britain. The question of personal income also comes into play in these underground economies. For prostitution, the rate stands at 25 clients per prostitute per week with an average cost of £67.16 per customer. Simply put, prostitution in the UK pays a monthly remuneration of about £6700, an amount that the government receives little as it goes untaxed. Basic economics illustrates that such money is usually recycled into the mainstream economy through personal use, a process that is crucial for growth and stability. As such, the profitability of drugs and sex offers an attractive flow of income especially to the individuals without employment or those experiencing declining wages amid increasing prices of goods and services.

Recently, the statistics conducted in the United States show a significant drop in violent criminal activities including robbery. The explanation for this phenomenon lies on the effects of drugs and sex to the economy. In other words, potential criminals opt for lucrative and non-violent approaches that are within the legal and illegal entities. This clearly shows the power that sex and drugs have in the economy beginning from individual income and ascending all the way to the large corporations and eventually infiltrating the mainstream economy of a nation (Marinetto). Drugs and sex trades therefore not only support the individual but also funds the operation of legal companies making it a major contributor to the economy.

To further show the economic impact of drugs and sex trades, Britain’s rate of economic growth is a perfect illustration. According to Chan (2014) Britain’s current rate of economic recovery reached unexpected levels. The rising figures coupled with various forecasting methods purport that the presence of prostitution and drug trafficking will increase the economy by a massive degree amounting to £10bn annually. The Unions regulator ONS also estimates that revisions will be made based on a 0.5% margin every year translating to greater growth rates than previously expected. If the unrevised data shows 1.7% economic growth in the year 2013, then the inclusion of drugs and sex will undoubtedly propel the growth rate by higher percentages. Contemporary estimates by the ONS indicate the impact of drugs and sex trade to be between £7bn and £11bn annually for the periods 1997 to 2009 (Chan). As mentioned before, the extent in which these two entities tend to push the overall economy is sufficient proof that indeed, sex and drugs are major contributors to the economy even though most governments do not factor them in when calculating the Gross Domestic Product.

Sex and drugs are also capable of improving staggering economies. Italy is a concise illustration of this impact. Istat, Italy’s statistical agency proposed the inclusion of drug trafficking, sex trade, alcohol and tobacco smuggling as part of the economic output figures. Earlier in the year, 1987 Italy did the same thing of accounting for the underground economy, which basically makes up approximately 20% of the nation’s GDP. This inclusion led to the increase of Italy’s GDP by an astonishing 18%, surpassing Britain to be recognized as one of the top five economies in the Western world.

Despite this high economic rise in such a short time, financial mismanagement reduced this development. Nevertheless, the point obtained from Italy’s case is that reporting illegal yet economically productive entities of sex and drug trade results in massive changes in the average GDP. As such, the indication is that these criminal entities contribute massively to the overall national economy. In the absence of these markets, then most economies would be suffering. Additionally, failure to factor in the underground economy makes the GDP more or less inauthentic especially since the profits are channeled into the mainstream economy via personal consumption and money laundering as well (The Economist).

While several countries have initiated the integration of sex and drug trades into the government accounting systems, France has chosen no to follow suit. The possible reasons for this refusal lie in the debate as to whether or not such activities should be estimated as well as the specific aspects that are being measured and for what reasons. The GDP is used worldwide as a measure of national success indicating strength and greatness. Nonetheless, the GDP is a calculated statistic surrounded with the typical limitations and errors in many other numerical estimations. Since it was created to determine the expansion of national accounts, the GDP fails to be a comprehensive tool for multiple areas that contribute to the economy including volunteer work, domestic jobs and many other forms of underground activities. But sufficient research data has proven beyond reasonable doubt that the unaccounted for illegal activities contribute heavily to the national GDP more so sex trade and drug trafficking.

The United Nations Commission in the year 2008 also acknowledged the fact that prostitution and the business of illegal drugs are among the top significant economic activities since they are not fixed in the primary economic statistics, then the overall picture is not a true one (Zumbrun 2). Furthermore, without the inclusion of these underground trades then having an estimate of their actual significance is next to impossible. Likewise, the difference in policies between countries also calls for the inclusion of these activities. For instance, in the Netherlands, prostitution is a legal entity, similar to marijuana. This means that Netherlands GDP is inclusive of the sex trade and marijuana business while in a country where these activities are illegal, then there is no inclusion. This observation means that Netherlands might be ranked as an economically robust nation than another equally or even more advanced republic which doesn’t recognize the inclusion of drugs and sex. Apparently, the lack of a standard practice leads to errors in ranking and also causes the inaccurate representation of the GDP.

The example of Netherlands legalization of prostitution and marijuana trade is a possible indicator of the level in which the entities contribute to the country’s economy. After all, the Netherlands is a well-established nation in terms of GDP, making it one of the richest countries across the globe. Commercial transactions of sex and illicit drugs may not be directly due to the possibility of laundering. It is for this reason that the contributions of drugs and sex to the mainstream economy is estimable in the countries where they are included in the GDP calculation. Britain, for instance, is estimated to have the contribution of sex and drugs into the nation’s GDP by about 10 billion pounds. The United States and many other regions such as Mexico, Canada, Colombia and many other countries have prostitution and illegal drugs to thank for their respective reputable GDPs (Karabell). While legalization of drugs and sex may not auger well with everyone, there is no harm in introducing them in the computation of the gross domestic product. It is not feasible and reasonable to have each nation deciding whether to include underground business in the general economy simply because the comparison between the countries would not be easy.

The magnitude of illicit drugs, their high cost, the number of people indulging in prostitution and the prices all contribute to the daily income of a significant percentage of the population. Beginning from the prostitutes themselves to the pimps, the mafia, the drug lords, retailers and even the petty street hawkers, finances from these underground trades eventually get redirected back into the government’s mainstream circulation through personal spending and also the investment in various businesses that are legal (Goldman). As such, it is accurate to claim that drugs and sex are major contributors to the economies, particularly in the western world. In the absence of these entities, then most economies would be rendered weaker and stagnant. There is also the need to develop a standard approach for the inclusion of these illegal businesses since they do contribute to the overall economy. Lack of inclusion means that a significant proportion of the money in circulation is not accounted for.

Conclusion

Drugs and sex form the largest proportion of the underground economy hence contributing to the bulk of the GDP either directly through personal spending or indirectly via money laundering into legitimate businesses which are taxed. Since GDP is the measurement of national output, the estimation of the actual significance of drugs and sex requires their inclusion in the calculation of the GDP. Nations such as Britain and Italy have embraced this approach since it encompasses almost all the entities that undertake financial transactions. The elevation of the GDPs for the nations as mentioned earlier is heavily associated with the rates of prostitution and drug trafficking and trade. For this reason, it is possible to conclude that the GDP may not necessarily be an appropriate indicator of real life, a sustainable economy or a stable nation. On the other hand, not measuring the economic significance of drugs and sex is an opportunity missed by the governments to estimate the entire economy comprehensively. Likewise, it is not easy to exercise the efforts towards better improvement of sustainable lives and most of all the development of effective policies to improve employment and deal with the underground economic activities as a whole. New strategies in the estimation of the influence of drugs and sex in the economy may seem to be inappropriate, but in their absence, the real picture of an economy will not be known. Similarly, a false high economic performance might be allocated to individual nations which use the comprehensive approach while placing others without the same strategy as non-performing economies. All in all, the main realization is that sex and drugs play a vital role in the development, growth, and sustainability of a nation’s economy. As such, their integration in the calculation of the GDP is crucial for policy-making, authentic results and realistic comparison of the diverse economies.

Works Cited

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