Sex, drugs and GDP

THE announcement on May 22nd by Istat, Italy’s statistical body, that from October it would include drug trafficking, prostitution, and alcohol-and-tobacco smuggling in its economic-output numbers has generated a stream of sniggering headlines. To some, it smacks of 1987, when Italy started taking account of its shadow economy, the off-the-books business which makes up about a fifth of Italian GDP. As a result, the economy grew by 18% overnight, surging past Britain to be the West’s fourth-largest economy. The event was hailed as il sorpasso (the overtaking) and the source of much national joy, until two decades of economic mismanagement sent Italy tumbling back down the league tables.

In fact, then as now, Italy was merely one of the first countries to announce its compliance with international accounting standards. Reporting illegal economically productive activity in which all parties take part voluntarily is required under EU rules known as the European System of Accounts (ESA). But as the guidelines have not so far outlined how to measure drug deals and fake cigarettes, and as such things are by their nature difficult to gauge, few countries comply. That will change from this autumn, when an update of the ESA will refresh guidelines on calculating revenues from the seedier side of the economy.