Sizing Up Black Markets and Red-Light Districts for G.D.P.

PARIS — As the spokesman for the National Association of Sex Clubs in Spain, José Roca has fielded all sorts of offbeat inquiries. But rarely has he been more flummoxed than when he received a call late last year from the government statistics agency.

In earnest tones, a statistician asked him if he knew the average price of a session with a prostitute in Spain, and the typical cost of a room at a Spanish brothel.

“He even asked stupid questions like how much energy is consumed by a club,” recalled Mr. Roca, whose Valencia-based group represents hundreds of so-called alternate clubs across Spain.

“I thought it was a joke,” he said. “I was so incredulous that I asked them to send me an email to make sure it wasn’t.”

The questions were not a hoax, but part of a new effort to measure the size of the Spanish economy. As of September, all European Union countries will be required to take fuller accounting of trade in sex, drugs and other underground businesses as part of an overhaul of economic measurements by Eurostat, the European statistics agency.

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José Roca of the National Association of Sex Clubs in Spain estimates that prostitution generates $27 billion in Spain each year. CreditSamuel Aranda for The New York Times

The point of counting everything, including the wages of sin, is to get a more accurate reading of each country’s gross domestic product. Because G.D.P. is such an important number — one that can sway national policies and make or break politicians — the European Union wants numbers “better reflecting the economic environment,” Vincent Bourgeais, a Eurostat spokesman, said.

With European Union governments obliged to reduce debt as a percentage of their economies, the changes are also expected to make growth rates from Spain to Sweden look better, possibly also making debt ratios seem rosier.

Other measures besides vice will be recalibrated, like research and development, and charitable contributions. Those measures are certain to pump up G.D.P. figures much more than any gains registered from prostitution or cocaine production.

Still, accounting for prostitutes and heroin can add billions to an economy. And as some countries try to dig out of the euro zone’s nearly five-year growth slump, every little bit helps.

“According to my calculations, prostitution generates about 20 billion euros,” or $27 billion, in Spain each year, Mr. Roca said. “Spanish men often frequent clubs, and there’s a lot of tourism,” for example, from French clients just over the border.

Mr. Roca’s number is close to the government’s estimate that €18 billion is generated by the legal sex trade in Spain. If that is added to G.D.P., Mr. Roca said, “of course Spain will benefit.”

Technically, reporting black-market economic activity has long been required under European Union regulations. But measuring the underground economy is hardly an exact science. Only a handful of countries, including the Netherlands, Italy and Germany, have even tried to fully comply.

The European Union’s new rules will require all 28 countries in the bloc to redouble their efforts, even if it means questioning brothel owners or tallying tons of cocaine seized from drug dealers.

“Agencies are able to gather information, but it hasn’t been particularly accurate because we’re talking about activities that people try to hide,” said Gian Paolo Oneto, the director of national accounts at the Italian national statistics agency, Istat.

“These rules say G.D.P. should include everything, even tomatoes grown in your backyard,” Mr. Oneto added. “But sometimes, we can only estimate it. We can’t go around counting the tomatoes.”

Because the math can be fuzzy, economists have tended to be wary of such measurements. Italy holds a place in the annals of creative accounting for “il sorpasso,” or “the overtake,” of 1987, when the government revalued G.D.P. to include the black-market economy. So large were the figures, which included estimates of tax evasion and illegal workers, that almost overnight Italy leapfrogged over Britain to become the world’s fifth-largest economy.

Now, as Italy struggles to pull out of a recession and labors under one of the developed world’s biggest debt burdens, it will start counting smuggled alcohol and tobacco. Mr. Oneto declined to make a forecast, but he noted that Italy’s overall black market already accounted for 15 percent of the country’s €1.5 trillion economy.

Still, Mr. Oneto said his agency would not go so far as to include one of the biggest possible economic enhancers — business conducted by the Italian mob, which is thought to generate around €180 billion in annual revenue, equal to about 7 percent of Italy’s G.D.P. “The mafia is too difficult to pin down,” he said.

For most governments, illicit activity may count for little more than a rounding error. In the Netherlands, known for its red-light districts and marijuana coffee shops, such activity counts for 0.4 percent of G.D.P.

The biggest boost to G.D.P. figures will come from something with no titillation value: a Eurostat revision allowing governments to count research and development as investments rather than costs. Finland and Sweden, hotbeds of high-tech capitalism, could increase the size of their economies by as much as 5 percent, according to Eurostat.

In Italy, Ireland, Portugal and Spain, which are struggling to overcome recessions, G.D.P. could increase by as much as 2 percent, Eurostat estimates, while Germany and France could see expansions of as much as 3 percent. Britain might show a gain of 3 to 4 percent, Eurostat said.

Britain’s Office for National Statistics recently announced it would start counting vice for the first time in the country’s economy, which is rebounding from a recession. It has begun by going back five years in its recounting. In 2009, the only year for which it has thus far done a tally, prostitution and drugs including cocaine, heroin, cannabis, Ecstasy and amphetamines added nearly 10 billion pounds, or $17 billion, to British G.D.P., equivalent to 0.7 percent.

In other countries, the issue transcends numbers.

France’s statistics agency is refusing to include drugs and sex work out of concern that prostitution, for example, often stems from sexual slavery and should not be given the veneer of economic legitimacy.

For some, such moral arguments call into question the very concept of G.D.P., a statistic whose value has been philosophically second-guessed by critics since at least the 1960s. Robert F. Kennedy, speaking in 1968 during a run for the presidency, took stock of the way America measured success and lamented that it counted “everything except that which makes life worthwhile.”

Even some economists who see value in G.D.P. as a way to measure living standards nonetheless question the wisdom of trying to tally decadence.

“If you think that drugs and prostitution are things that do not necessarily improve the quality of life in a country,” said Simon Tilford, deputy director of the Center for European Reform in London, “then including them undermines G.D.P. as measure of well-being.”

Back in Valencia, Mr. Roca, the sex club representative, was suspicious that Spain would use the new data to gild its G.D.P. for political purposes, even as the nation slowly crawls out of a three-year recession.

Statistics agencies, though, say that whatever the improved ratios, debt will not be easier to service, because governments cannot collect taxes from illegal underground activity.

In which case, Mr. Roca says, he fails to see the point. “The whole thing,” he said, “is a huge stupidity.”

Source: The New York Times