Vice and Development
It has been a long-standing position of this website that development does not come from big fancy technological innovations. It comes from people selling simple goods and services to each other within a country. Most people think that the only road to development is the road taken by Britain, Germany and the United States – all of which grew through breakthrough inventions. (Britain – mechanized factories and railroads, Germany – steel, the United States – steel, automobiles, computers).
While high-tech does explain the growth of these three spectacular cases, it ignores most of the developed world. New Zealand is a rich country. Canada is a rich country. Belgium is a rich country. Overall, there are over twenty nations that are considered to be highly developed (most of them in Western Europe) and there are many practically high-income countries such as Singapore. Most of these nations got rich before they invented anything of importance. What famous invention is New Zealand known for? What famous invention is Canada known for? Finland was already fully developed before it had breakthroughs in developing cellular telephones.
These countries grew mostly by producing consumer goods and services that they sold to their own people. The French sold the French people French food, French clothing, French housing, French furniture, French paper, and French books printed on French paper. (They did export some of the wine and cheese. Not everything was local.) Australia and New Zealand did export vast amounts of wool to Britain. But being as distant as they are, imported goods were very expensive. Most of their economy was based on making their own food, clothing, etc. because it was cheaper to produce to those goods locally than to obtain them from Europe. Consumer goods manufacture drove the economy of New England and the Mid-Atlantic states and the economies of many other places that became rich.
Another basic principle of growth is that labor intense industries create more growth than do capital intense industries. Labor intense industries hire a lot of people. Capital intense industries use a lot of machines. There are exceptions to this rule. If the product made by the capital intense company is extremely valuable, the sheer profitability of the product creates massive amounts of growth. Petroleum is a capital intense industry, but many countries have grown vastly rich from it. But, in general, the more people you hire, the more those workers consume and the greater is the demand for your local products. France became wealthy despite fairly mediocre coal and steel industries. Most of its industries were not highly mechanized. People did the work. The fashion industry, the farms, the wineries, the fisheries: these industries all hired a lot of people. Many of those people were highly skilled and commanded good wages. (Think about the people working in the perfume industry.) High employment and high wages built a consumer base for French products. Singapore, one of the world’s most dramatic examples of economic growth, has very few mechanized or capital intense industries. Singaporeans work in finance, in commerce, in health, in construction, in government. The average Singaporean works in an office (or on a construction site.) Finance is a high-paying labor-intense white-collar sector. Construction is a high-paying labor-intense blue-collar sector.
Which brings us to the question of vice. Bars. Prostitution. Intoxicants. Gambling. Often these activities are criminal. Nearly always, these activities are associated with disreputability or immorality. Can vice be the basis of successful economic development?
Obviously, vice is horrible for development if it leads to widespread violence. The cartel wars in Mexico have not been wonderful for economic growth. Many of the civil wars in Sub-Saharan Africa are run by warlords who are also involved in organized crime.
Vice is not wonderful if it involves forced labor. Sex trafficking is a form of forced labor. Slavery of any kind hurts economic development because the trapped workers are not paid wages. If a woman chooses to become a prostitute because she likes the wages, keeps the proceeds of her activities and spends the money on herself, she would be a worker just like any other. Her wages would lead to consumption which would lead to increased market demand. A sex slave, on the other hand, is no different from any other form of slave. She receives nothing. She is kept at a very low standard of living. You have all of the human agony of imprisonment and maltreatment, with very little economic growth. It is no accident that historically the American South was consistently poorer than the American North. In the North workers were paid wages. In the South, work was done by slaves. The slaves earned nothing, and could spend nothing. Markets were very limited in the South. It was hard for small business owners and the middle class to make a living. It was only after the elimination of both formal slavery in 1865 and notably, unwaged sharecropping in the 1930’s that the Southern economy began to grow. Economic growth is much greater when workers freely choose what type of work they want to do. This leads to the high productivity associated with high employee morale. Productivity is also increased by workers self-selecting jobs at which they are good.
But not all vice involves violence or forced labor. A guy running a bar is sometimes just a guy running a bar. Some prostitutes are just women looking for short term money or a scandalous lifestyle on the edge. Some towns are just basically peaceful.
In these cases, the economic advantages of vice show themselves. It is a consumer industry. It is labor intense. It is often highly lucrative, meaning both the owner and the workers are well paid. Customers show up in vice towns wanting to be drunk and happy. A worker having a night on the town can blow a lot of money. That is money that circulates right back into the economy.
There are a large number of prosperous places whose wealth derives substantially from vice. Consider Phuket in Thailand, and San Francisco. Phuket is the dominant tourist destination in Thailand, after Bangkok. Phuket is on the West Coast of Thailand, and has spectacular beaches, along with dramatic rock formations, beautiful rain forests and spectacular food. For most of history, Phuket has been poor and economically marginal. Its coast was regularly pillaged by pirates. The threat of marauding was so great that residents had to live inland to avoid nighttime raids. Any form of conspicuous wealth would draw the attention of the pirates, who would simply come and take the assets for themselves.
This changed in the nineteenth century when tin was discovered in the Phuket area. Tin mines were big enough to defend themselves allowing them to ignore the predations of pirates. (The pirates did not go away. They simply concentrated their attention on shipping.) Tin mining led to a substantial economic boom. Canned food was one of the hottest industries of the late nineteenth and early twentieth centuries. Canned food required tin.
Phuket became flooded with Chinese immigrants aiming to get rich working in the mines. The population was heavily male, young and single. Wages were high. The miners spent their money in Phuket living the high life.
Significantly, the Chinese families that owned and operated the tin mines also owned and operated the vice complex. The Chinese mine owners imported narcotics and ran opium dens. The mine owners recruited women and set up brothels. They distilled their own alcoholic beverages, purchased other alcoholic beverages and ran the bars where alcohol was sold. They ran the gambling dens where miners played mahjongg for money. They also dominated nearly every other form of economic activity on the island. They controlled the shipping companies. They ran the banks. They ran the hotels. They ran the major stores. They also ran rubber plantations, the other major source of export profits.
Phuket was vice-ridden but peaceful. The Chinese families who ruled the island were fabulously wealthy. They also had absolute political control over the island; they were in no danger of being displaced by anyone. Smooth relations among the families was insured by a long tradition of intermarriage and a complex web of joint endeavors. There was no need for violence because there were no threats to their control.
Ultimately, the tin industry declined, a result of the general exhaustion of the mines. Rubber declined as well. By the 1950’s and 1960’s, the Phuket elite was facing a major crisis. They had vast amounts of money to invest, but few outlets for their investment. The Chinese families turned to tourism and created the vast complex of hotels and resorts that characterize Phuket today. Note that Thailand is known for its sex industry; the Chinese families insured that that would be well represented in Phuket too.
The Phuket elite had a long history of running bars, a long history of running opium dens, a long history of running brothels, and a long history of entertaining single men. Opium was no longer a viable option in the 1960’s. However, the beaches were there and offered a good (and free) alternative. The vice complex became the tourism complex (and in some cases, the vice-plus-tourism complex.) The Vietnam War provided a giant supply of American servicemen who were sent by the Armed Forces to Thailand for rest and recreation breaks. This provided a huge natural customer base that could be the first cohort of visitors to patronize the beaches, bars and brothels. After the Vietnam War, Phuket attracted non-military visitors from all over the world. Phuket is one of the richest provinces in Thailand today.
Phuket is not an isolated case. Consider the case of San Francisco. San Francisco got its start from the gold mining rush of the mid-nineteenth century. Its economic life after the Gold Rush was centered around its port. Miners and sailors are often young, single, unattached males. The miners spend their money in town on good times, hard drinking and womanizing. Sailors come into port looking for women and bars. It is no accident that San Francisco has had a long history of being one of the most sexually free-wheeling cities in the United States. It is no accident that tourism is a dominant industry in San Francisco. And it is remarkable on the face of it that San Francisco is rich. It is not particularly known for its manufactures. It has no special natural resources. As an administration center, San Francisco might just as well be Sacramento. For a long time, San Francisco lived and died off the port. Vice was integral to the profitability of the port.
San Francisco was also relatively non-violent. There were some minor gangs. But there was nothing like the Mafia control of the East Coast waterfront or of the negotiated syndicate control of Las Vegas.
I suspect that vice plays a role in what frontier towns transition into full fledged permanent cities and what frontier towns die when the fundamental resource behind them dries up. Canadian mining and sawmill towns typically did not stabilize until there was an influx of women to balance the initial influx of young single men. As the sex ratios of these towns became more even, men would pair off with women and start families. These new families would generally remain in the town. Rogue migratory men who lacked permanent social connections migrated out when other opportunities arose.
Where did the women come from? Women could migrate in as domestic servants for the managers of the mines. When the town became more populous, women could migrate in as schoolteachers or store clerks. However, the most common occupation for early female migrants was working in the vice complex. A nontrivial number of families had their origins in miners or lumbermen proposing to a prostitute they really liked.
None of this gainsays the adverse effects of vice complexes that turn violent or become the basis of warlordism. None of this gainsays the adverse effects of forced labor, particularly the forced labor of sexual trafficking. But happy peaceful vice complexes staffed by free workers who receive high wages can be the basis of robust economic growth.
Getting rich by creating memorable Saturday nights? There are roads to industrialization that are far more savage.
For More Information
For a general economic and social history of Phuket, see Colin Mackay’s History of Phuket and the Surrounding Region. (White Lotus, 2013).
On the relation between gender dynamics and the survival of Canadian frontier towns, see Rex Lucas’ Minetown, Milltown, Railtown: Life in Canadian Communities of Single Industry. (University of Toronto, 1972)
On the general question of labor-intense, consumer goods based economic growth overall, see my own essay, Technological Basis of Egalitarian Economic Growth on this website.