The decision by the national statistics authorities to get our national GDP figures to better reflect a current reality by also including estimate figures for prostitution and other illicit economic activities (September 22) is good, but of course one which has been taken very late in the day. This is something which several other overseas statistical authorities have been doing for many years, even in the face of the ongoing debate in many academic circles over GDP, which is seen as hardly the best of measures (at least in its current diverse compositions) for objective assessment of any nation’s economic output.
Another, some would say unrelated, aspect of this issue is the basic stance that economics is an amoral science and must be considered as such even when debating these matters.
Way back in 1988, one of the first undergraduate theses in this area submitted in our University’s Department of Public Administration was Michael Micallef’s The Underground Economy in Malta. It had several very interesting conclusions, such as:
Between 1970 and 1985, Malta’s underground economy grew from 3.2 per cent to some 23 per cent of the economy;
Concealed work employs mostly men in the prime age group who already have a measured job in the economy;
People availing themselves of concealed labour services are generally satisfied with the quality of work and usually pay a lower price for the services;
About 80 per cent of the services rendered in the hidden labour market was then paid in cash;
Lastly, the authorities had still not fully recognised concealed employment, whilst the potential appeared to be well appreciated by its participants.
Since then, no doubt, more realities about the underground economy in Malta have ingrained themselves into our system, not the least of which is tax evasion.
Around 1997 a black economy believed to exceed $100 billion was costing the British Treasury $32 billion a year. A year earlier, the European Commission had appointed international accountancy firm Deloitte Touche Tohmatsu to estimate the size of the black economy in Belgium, France, Germany, Italy and the UK and assess its impact on public finances.
Perhaps our own native eels are even more slippery than elsewhere
I remember that at that time we locally had a CMTU which argued (what would today probably be a very strange stance) that it should be the trade unions who should determine what is good and bad about the informal economy, while also strangely urging action to curb such black economy.
In terms of economic policy and action-wise, we do not seem to have moved much ahead since then. Yes, it is true that the United Nations international standards are requiring that estimates of the non-reported economy (illegal activities, the shadow economy, misreporting and so on) would also be included in national calculations of GDP.
But action to reduce as much as possible its size is still light years away from proving effective. In the UK they could add £10 billion to their GDP by including illicit drugs and prostitution, enough to boost the size of the economy by 0.7 per cent. If France were to do the same, their GDP would be bigger by an estimated whopping 3.2 per cent. Austria, Estonia, Finland, Norway, Slovenia and Sweden have all initiated important reporting and calculating changes on this front, and when their measures work in through their various systems, I have this feeling that the EU will be looking at them differently, at least in terms of what EU funds go to them.
But these are all big countries when compared to Malta, and it is understandable that some levels (even high or moderately high) of economic activity would therefore escape formal recording mechanisms. Should the same be said for Malta?
On the basis of pure size I certainly do not agree. But then perhaps our own native eels are even more slippery than elsewhere. I would much rather think that in this country we know of alternative methods towards legality but – for obvious reasons – simply do not want to introduce them... a property tax, for example!