Everything Counts - Calculating crime’s contribution to Iceland’s economy

Calculating crime’s contribution to Iceland’s economy

Statistics Iceland (SI) raised a few eyebrows when the institution announced that it would as of September include estimates of various illegal activities when calculating Iceland’s GDP and balance of payments. Drug trafficking, smuggling and prostitution are now included among the more “traditional” industries in the state’s official GPD calculations, a move that SI claims will increase Iceland’s GDP by 0.47%.

Understandably, the institution’s announcement generated a loud “whaaat!?!?” across social media, as people attempted to make sense of this unexpected addition to the Icelandic economy. It just made no sense! Why would the statistics bureau be interested in boosting measured GDP by adding criminal activities? What on earth could be gained by such a move?

A global criminal conspiracy?

Perhaps indicating the deep distrust many Icelanders have come to feel toward their government, some immediately speculated that this decision carried sinister motives. What if the government—desperate to claim economic growth—was in effect cooking the books, adding some 8.4 billion ISK to the GDP through creative accounting?

Iceland is not the first country to include estimates of criminal activity in GDP calculations. Several European countries, including the UK, have made the move already. The initial reaction has been similar across the board, as bloggers and commentators speculate that their governments are boosting GDP through adding dubious estimates of the “value added” from criminal activities, and pointing out the state’s supposed hypocrisy for taking credit for acts they throw people in jail for.

“Take domestic marijuana production, which has in recent years grown into a minor industry, yielding at least one ton of marijuana per annum (that goes for an estimated 3.5 billion ISK).”

As it turns out, these new methods for calculating the GDP are not part of a government conspiracy to deceive the public as to the real size of the economy. Rather, they are a part of an international effort to reform and standardize economic statistics and national accounting. In September, all members of the European Economic Area (the EU plus Norway, Iceland and Liechtenstein) are scheduled to have adopted the new standard, which in turn is a European version of a UN system of National Accounts that was created in 2008. If this is a government conspiracy, it involves the entire EU as well as the UN (admittedly, many conspiracy buffs would consider this lending credit to their theories).

Moss vs. marijuana?

Ultimately, there is absolutely nothing strange or unreasonable about estimating crime’s contribution to a given nation’s economy. Especially when we consider the fact that the national economy is composed of all economic activity, whether it is reported to the authorities or not, and whether or not it is in total compliance with the law. It makes no particular sense to measure only the activity on one side of the fence, and not the other.

Moreover, the difference between illegal and legal economic activities is not all that great. Consider this: why should the national production of moonshine (estimated at 0.4 litres of pure alcohol per person), a tradable commodity, not be counted as part of the economy? Clearly, making moonshine is economically productive activity, not all that different from what goes on at the industrial distilleries that make Víking or Reyka Vodka.

Take domestic marijuana production, which has in recent years grown into a minor industry, yielding at least one ton of marijuana per annum (that goes for an estimated 3.5 billion ISK). While illegal, the trade is in no fundamental way different from the production and distribution of herbal remedies made from Icelandic mosses and lichen.

Sure, we might disapprove of moonshining and cannabis farming, but we cannot deny the fact that they are economic activities where value is added, money changes hands and consumers derive supposed utility from the end product. Both also require considerable capital investment in machinery and inventory. Why should authorities not include estimates of such ventures when estimating the total sum of economic activities on the island?

Cannabis farming might well be detrimental to our society—our current legislation certainly assumes this. However, we cannot simply ignore it out of existence.

We cannot shape reality to our ideas of what’s proper. Attempts to describe and document it will fall flat if they do not take its true scope into account.

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Magnús Sveinn teaches economic history at Bifröst University.

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See Also:

Parliament Approves New Drug Policy

I Occasionally Do Drugs But I’m Fine

Keeping It Clean