Using The Sex Industry To Critique Textbook Economics

Friday, 2 December 2022, 2:57 pm
Article: Keith Rankin

Economics is a profound and important discipline. But its practice is prone to self-censorship, and still reflects in large part its (Victorian era) glory days and the sensibilities of that era. The father and mother of today's textbook economics were Alfred Marshall and Mary Paley who published The Economics of Industry in 1879. While not Marshall's most accomplished work, it was their 1870s' circumspection of the workshops and factories of the English Midlands from which Marshall formulated the key assumptions around labour and capital which eventually made him the 'father of economics'.

Thus, labourers are workers who make – or help make – standardised consumer commodities, any of which could be generalised as 'widgets'. Capitalists are the proprietors of such businesses; men and women who seek to maximise the profits on their (or their shareholders') invested capital, with their businesses operating in an environment with many competitors. These Marshallian businesses are essentially servants of the multitude of consumers; servants of the households who provided the demand that gave businesses their profit-making opportunities.

The whole process is driven by 'consumer sovereignty' – the principle that consumers know best what they want (and how much of things they want) – and also by a certain egalitarianism. Marshall adopted a tacit understanding that income distribution would not be too unequal, while also accepting that there should be richer people to supply capital and poorer people to supply labour.

(We may note that, by the principle of consumer sovereignty, an economy may include a significant amount of consumption of illegal goods and services. However, it is generally accepted that, for goods or services to be made illegal, they are demerit goods [harmful to at least one of the contracting parties] or they convey harms to non-contracting 'third parties'. As a demerit good, market failure may mean a power imbalance between buyer and seller. While regulations to prohibit or disincentivise certain consumables might enhance 'economic efficiency', they could also have unintended adverse consequences [as we saw in the 1920s' 'prohibition era'.)

Productivity would increase if, for a given amount of inputs (resources and materials), more outputs (goods) could be produced. Under conditions of increasing productivity, prices would naturally fall, thereby raising living standards, and enabling consumers to buy more than before. The competitive system would be efficient, in that changes in consumer 'tastes' and in the availability of materials would adjust market prices, ensuring an efficient 'reallocation of resources'. (Businesses themselves had to accept these market prices.)

Labour did not necessarily mean being formally employed, for wages, by someone else. Many labourers would 'work on their own account', but could not accrue enough capital to be classed as capitalists. Indeed such self-employed workers would keep certain monopolising forces, such as trade unionisation, in check.

In this Marshallian world, 'labour' became a byword for decency and dignity. The Victorian idea of the 'dignity' of labour became an essential attribute of the political landscape in New Zealand; and this moral elevation of labour contracts was re-formalised from the early 1990s.

The Sex Industry and left-wing Politics

It's not hard to see how the sex industry – in the 1880s and in the 2020s (and all decades in between) – might fit this Marshallian competitive model; though it did not fit the 'decency and dignity' narrative.

On the demand side, people desire 'sex', just as they desire widgets. On the supply side there is a mix of mainly small operators: capitalist brothels employing workers and/or leasing space to owner-operators; self-employed home-based sex-workers; and streetworkers. There were self-employed home-workers in the English textile industries, and many other industries, in the 1870s. Streetworkers were not common in the male-dominated manufacturing trades, but were common in many service trades (eg boot polishing), and in the provision of street foods, the precursor of takeaways.

A sex-worker could never be as reputable as a widget-maker; that was assured by the mores of Victorian morality. 'Prostitution' had an ambiguous legal status in England (and New Zealand) in 1880, though it was ubiquitous. It is legal in Aotearoa New Zealand today. Sex-workers today are expected to pay taxes just as any other worker should; and, as employees, have the same terms and conditions under law as any other employee.

Prostitution was legalised in New Zealand in 2003, with the Prostitution Reform Act. This was passed as a private member's bill during the tenure of the Helen Clark Labour-led government. Although much of the groundwork was done in the late 1990s under the watch of the then National-led Government, it was the left-wing parliamentarians who eventually proved to be more collegial in facilitating the passage of the bill into law.

Yet, if the episode of Borgen referred to in my How do Left-Wing Elites Make their Money? is anything to go by, in the 2010s there was a left-wing push in Scandinavia (of all places) to recriminalise prostitution. This suggests a more general change in left-wing politics worldwide since 2000; a change that has increased the authoritarian element of left-wing politics, at the expense of the left's libertarian aspect. (Both right-wing and left-wing politics have always had tensions between their authoritarian and their libertarian elements. The tension on the left is particularly prevalent at present with respect to issues around drugs, where there are simultaneous movements to decriminalise presently illicit drugs while criminalising aspects of the legal drug trades: alcohol, tobacco and vapes.)

The Scandinavian dilemma is coloured by the issue of people-trafficking which is substantially more urgent in Europe than in New Zealand. There, this issue gives an opportunity for left-wing authoritarians to conflate the overlapping yet distinct issues of people-trafficking and sex-working. Opposition to people-trafficking created a political opportunity to criminalise prostitution. (In New Zealand the nearest equivalent example of conflationary politics is to muddy the overlapping issues of ethnicity and socio-economic disadvantage.)

Since legalisation the industry has been substantially ignored in New Zealand. In particular, we know little about how the sex-industry has been affected by the Covid19 pandemic; it has received much less attention than other components of the much-affected hospitality industry. It is an industry in New Zealand with equal status under law, but remains far from an industry with equal dignity for its workers. Aotearoans indignify the sex-industry by largely ignoring it.

Productivity and Economic Growth

The appropriate way for an economist (and bearing in mind that Marshallian economics is built on liberal values) is to treat all legal industries equally. So it is as appropriate to discuss the productivity of sex-workers as it is to contemplate the productivity of widget-makers.

Before doing so, we remind ourselves that productivity is a central concept in the understanding of living standards, and in the economic analysis of economic growth; with growth still widely seen as a necessary component for economic success.

It's easy to understand productivity with respect to widgets. Productivity increases when there is an increase in the output of widgets per person employed in the widget-making industry. (Or it could mean the same number of workers making higher-quality widgets.) If there's an increase in the demand for widgets, then that increase may be able to be satisfied through productivity gains, without employing more widget-makers. Or, if there's not an increase in demand, then the widget industry can fuel economic growth by releasing workers into other goods' or services' industries.

Can we say the same about prostitution? If sex-workers can perform more sex-acts (or the same number of higher quality sex acts) at no extra cost, then the industry can grow without needing more workers!? Or, if the demand for sex-acts is not growing, then maybe the sex-industry could take advantage of its productivity gains to release workers; maybe redundant sex-workers could retrain as widget producers?

(Here we face a particular dilemma, in that under-capitalised self-employed prostitutes may follow a different dynamic to brothel managers. People working on own account – people with few if any alternatives – may move into a service industry despite a fall in demand; that is, not only because of a rise in demand. Such supply-side growth of [mainly service] industries does not feature in Marshallian textbook economics. But it is ubiquitous in impoverished societies; it happens in fact if not in theory.)

Presumably brothels can raise their productivity when demand is increasing, by becoming bigger, and gaining economies of scale from reducing the number of back-office staff relative to frontline workers. And, when demand is low, it probably means that brothel prostitutes are experiencing too-much idle time, a signal in any service industry that the firm should shed staff.

One of the problems with economic growth theory is that workers might be released from a high-productivity sector into a low-productivity sector. In the service sector, the addition of one worker may add nothing to the output of that sector. Indeed we have typically looked to the personal services sector to absorb labour when unemployment is seen as too high. (Indeed, the establishment of Uber meant that the growth in the supply of taxi services grew much faster than the demand for such services.)

(When redundant seamstresses become sex-workers, if they can apply their skills to their new occupation then average productivity might increase in both trades, while average productivity falls in the economy as a whole. [This is, in essence, the same paradox as that famously stated by Robert Muldoon with respect to labour migration from New Zealand to Australia.])

We have to face the fact that, if consumer demand for legal sexual services increases, then the expansion of the sex industry is desirable, in principle. (The proviso, of course, is that there may be demerit market failure; in the form of, say, sexually transmitted diseases or worker exploitation. If so, it's an argument for regulation rather than banning the sale of sexual services.)

Should productivity analysis be applied to the sex industry? And, if not, where does it leave 'productivity' as an objective of economic policy? (Similar arguments about productivity may be made about hairdressing. And retail work, given that both the sex industry and the retail industry involve a degree of marketing; in reality they [and many others] are in part about the creation of demand, and not just about the satisfaction of pre-existing demand.)

To get a good understanding of the strengths and weaknesses of an academic disciple such as economics, we should be able to gain insights by using the (legal) sex-industry as an example. In today's very tight labour market, we should be seeing a reallocation of labour from low-wage occupations with low labour productivity to occupations with high labour productivity. Profits and wages should be higher in high-productivity occupations. Are we seeing fewer workers and higher wages in the sex industry? Possibly we are. Is the sex-industry subject to the same labour shortages that we see elsewhere?

Welfare and Dignity

Is there more dignity in some labour than other labour? Surely a job is a job? If the Ministry of Social Development (MSD) – or, as it may be in some countries, the Department Of Labour and Employment – has the aim of getting people off the dole and into work, then any job or occupation should be OK, so long as it is legal.

The social reality however is that some jobs do convey more dignity than others; though sex-workers are possibly not the only money-makers who might have a poor public relations image. (We might note that, in David Graeber's conceptual framework, sex-worker jobs are not "bullshit jobs"; although many other jobs are.)

The way out is to recognise that there is a dignity in life, and that contributions to the greater good are diverse; and that only some of those contributions may come through paid work. It is unbecoming of government authorities to place as much emphasis as they do on the 'paid work' aspect of people's lives.

That's why everyone should have access to a democratic dividend, an income payment made to all adults – including the caregivers of children (mainly parents). And that further incomes should arise from the workings of a free market; from a market subject only to regulation or proscription when harm is being done to third parties, or when there is a power imbalance between the contracting parties. (We may treat 'the natural environment' as a collective of third parties; indeed the Whanganui River has the legal status of a human third party.)

A democratic dividend is essential to the working of a dignified labour market. As well as ensuring that all adults have 'skin in the game' – ie have economic interests which align with the common good – a democratic dividend is a worker's first defence against exploitation.

People need basic economic rights, including the freedom to ply their trade and to change it. In addition, there is always a place for charity, for systemic kindness towards people with particular welfare needs; and for minimal judgemental unkindness. Dignity arises from an unselfish life, not from a career.

Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

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Keith Rankin

Political Economist, Scoop Columnist

Keith Rankin taught economics at Unitec in Mt Albert since 1999. An economic historian by training, his research has included an analysis of labour supply in the Great Depression of the 1930s, and has included estimates of New Zealand's GNP going back to the 1850s.

Keith believes that many of the economic issues that beguile us cannot be understood by relying on the orthodox interpretations of our social science disciplines. Keith favours a critical approach that emphasises new perspectives rather than simply opposing those practices and policies that we don't like.

Keith retired in 2020 and lives with his family in Glen Eden, Auckland.

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