Date: March 14, 2012

In an article I posted a year ago, I explained why “end demand” approach to prostitution is harmful to women in the sex trade. But since “end demand” approach is just as popular as it was back then, I thought I’d provide a little bit more detail on the economic logic behind this argument. I’m not an economist, and besides I don’t have any actual data to back up my theory, so I’d appreciate feedback from people who know more about economics than I do.

“End demand” approach is often promoted as the application of simple economic principle of supply and demand, even though there is not a single credible economist who supports the idea. Siddharth Kara, a former Merrill Lynch investment banker turned anti-trafficking activist and author of poorly written Sex Trafficking: Inside the Business of Modern Slavery, is frequently referred to as the “economist” who is in favor of “end demand” policy, but his training is in business management, not economics.

In “supply and demand” model, we expect the market to automatically arbitrate constantly updating levels of supply and demand through price. An increase in supply in excess of demand results in price drops, which would stimulate more demand to match the supply. A decrease in supply raises the price, which in turn reduces the demand for whatever is being sold. Similarly, an increase or decrease in demand can raise or drop the price, which encourage or discourage supply.

It is unquestionably true that there would be no sex trafficking (or consensual sex trade for that matter) if there weren’t any market for commercial sex, because market transactions require both buyers and sellers (whether the sellers are people engaging in sex trade, or pimps and traffickers who are selling another person’s sexual labor). But the total elimination of the market altogether is unrealistic and probably involve some sort of totalitarian government control over people’s lives that most of us are not willing to accept. We must, therefore, think about the impact of “end demand” approach on the assumption that prostitution would remain as an underground economy, rather than that it would be completely eliminated.

Let us first think about the market for an ordinary commodity, like wheat. Imagine that the government passed some policy–whether it’s a restriction or new taxation or whatever–designed to artificially discourage the demand for wheat. The price of wheat goes down, which would simultaneously encourage 1) farmers and producers of wheat to switch to producing other crops that are more profitable, and 2) consumers to buy more wheat and wheat-based products instead of some other crops because it’s now cheaper than before. In a free, competitive market, this whole process occurs smoothly and transparently until the market adjusts to the new equilibrium at different levels of transaction amount and price point.

The question we have to consider is what that equilibrium would look like if we artificially reduced the demand for commercial sex through increased penalty and public education. The price would likely fall, as the sellers are forced to compete for the business of a smaller pool of buyers. But a modest drop in the price will not deter vast majority of the sellers, because many of them do not have other, comparable means for generating income. Even pimps and traffickers have little reason to change career (investment banker maybe?) until and unless the price of commercial sex goes down quite a bit, especially if pimping is as profitable as anti-trafficking groups claim.

In other words, a decrease in demand reduces the price, but that is not likely to lead to a comparable decline in supply: in economics, this is called inelasticity of supply. And because supply is inelastic, the market must compensate that by reducing the price further in order to reach the new equilibrium at the price point at which enough of the lost demand would return, either through more buyers entering the market or existing buyers purchasing more frequently.

From the buyers’ point of view, the cost of purchasing commercial sex is not just the money they pay to the seller (be it individuals who trade sex or their pimps/traffickers). “End demand” approach increases the overall cost of buying sex by increasing the legal, financial, and social risks of arrests and/or public humiliation as well as the transaction cost (cost of finding the seller and negotiating the transaction). Assuming that each buyer is willing to incur up to a fixed amount of cost in their pursuit of sexual exchange, they will be unwilling to hand over the same amount of cash as before if non-monetary costs (risks and transaction cost) are increased.

“End demand” policies are thus unlikely to reduce the actual amount of commercial sexual exchanges, but it shifts the distribution of cost buyers incur from the direct payment toward the non-monetary costs of risks and transaction costs. It means that while buyers are incurring an equivalent level of cost overall, sellers are receiving less of it for each transaction. To put it differently, sellers must engage in more transactions than before in order to maintain the same level of income, which pimps and traffickers are sure to insist–and even then, it becomes more and more difficult as other sellers also try to sustain their profitability, further driving down the price through competition.

In addition, “end demand” policies will have two other consequences for the sellers beyond the loss of income, both of which are harmful to the people who either consensually or unconsensually engage in the sex trade. First, they lower the seller’s bargaining power, which is the ability of each side of the transaction to “take the business elsewhere.” When the number of buyers decreases, it leaves sellers with a smaller number of potential buyers to negotiate with, and buyers with a larger number of potential sellers. In a market environment like this, buyers can easily find other potential sellers who might agree to a more beneficial (to the buyer) deal, they have a greater bargaining power that they can take advantage of. Sellers on the other hand cannot afford to lose the business by insisting on a favorable deal, and are pushed into arrangements that are less safe or comfortable, such as engaging in unprotected sex or performing acts they consider degrading.

Second, “end demand” policies change the profile of buyers in the market. Because not all potential buyers assign equal values to the increased risks of arrest and its various consequences or potential loss of reputation, “end demand” policies do not discourage all potential buyers equally: they discourage buyers who are generally more afraid of the risks (or risk-averse), while doing little to deter those who are impulsive and thrill-seeking (or risk-seeking). It seems reasonable to assume that members of the latter group are more interested in having unprotected sex and more likely to assault the person engaging in the sex trade than do those in the former group who are afraid of potential health, legal, and physical risks.

If I were an academic economist, I could not get away with hypothesizing the potential consequences of “end demand” approach, as I am doing now, without testing it against the actual data. But I am not an economist and I am concerned that proponents of “end demand” approach never even address what might happen when the demand actually begins to fall as a result of the policies they advocate: they seem to be operating under a vague sense that reducing demand means less prostitution and therefore less sex trafficking. I might not have an econometric proof of my model, but they do not even have a model that is worth testing.

It is this complete lack of concern and care for the well-being of the people they are ostensibly trying to protect that frustrates me. From where I stand, “end demand” is bad for all sex workers and others who are consensually engaging in the sex trade, and probably for most people who are forced and/or coerced into the trade as well, possibly even worse (as they are under greater pressure to maintain the same level of revenue after the market crashes). We must demand politicians, celebrities and anti-trafficking organizations that promote “end demand” approach to explain what they are hoping to accomplish and how these policies actually bring about desired changes.