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Keating: Counting black markets boosts a nation's GDP

Published May 30, 2014 5:53 pm

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This is an archived article that was published on sltrib.com in 2014, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

By Joshua Keating

Slate

Washington • I recently wrote about Nigeria transforming itself overnight into Africa's largest economy by including lucrative new industries like telecommunications and movies.

But the bean counters in Africa have nothing on their counterparts in Europe. Under new EU accounting rules requiring governments to count all economically productive activities, regardless of legality, a number of countries are discovering their economies are getting a fairly substantial boost.

Including revenues from drug trafficking, prostitution and alcohol and tobacco smuggling in official GDP figures could boost Italy's slumping GDP between 1 and 2 percent. Overall, the "gray economy" could account for as much as 17 percent of Italy's GDP.

The inclusion of drugs and prostitution will add about $17 billion to the British economy. Estonia, Austria, Slovenia, Finland, Sweden and Norway will also be adding drugs and prostitution to their official stats.

The new rules make some sense as a way of harmonizing statistics across countries with different laws: An illegal pot dealer in London can generate as much wealth as a legal one in Amsterdam. But it also presents some issues when it comes to reliability. As Italy's National Institute of Statistics put it, calculating the value of these activities can be "very difficult for the obvious reason that these illegal activities are not reported."

Overall, organized criminal activities around the world account for $870 billion, or about 1.5 percent of global GDP, according to the U.N. Office on Drugs and Crime. That's about 50 percent of last year's economic growth.

There's something a bit strange about governments taking credit in their official statistics for wealth generated by activities that they throw people in jail for, but what's a little hypocrisy in the name of accounting accuracy?

Joshua Keating is a staff writer at Slate focusing on international news, social science and related topics. He was previously an editor at Foreign Policy magazine.