The underground economy or black market is a market consisting of all commerce on which applicable taxes and/or regulations of trade are being avoided. Commerce is a division of trade or production which deals with the exchange of goods and services from producer to final consumer The term is also often known as the underdog, shadow economy, black economy or parallel economy.
In modern societies the underground economy covers a vast array of activities. It is generally smallest in countries where economic freedom is greatest, and becomes progressively larger in those areas where corruption, regulation, or legal monopolies restrict legitimate economic activity. Economic freedom is freedom to produce trade and consume any goods and services acquired without the use of force fraud or theft
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Pricing
Goods acquired illegally can take one of two price levels:
- They may be less expensive than legal market prices, as the supplier does not incur the normal production costs or pay the usual taxes. This is usually the case in the underground market for stolen goods. In law enforcement a fence is an individual who knowingly buys stolen property for later resale in a (usually legitimate market
- Alternatively, illegally supplied goods may be more expensive than normal prices, as the product in question is difficult to acquire or produce, dangerous to deal with or may hardly be available legally. This is usually the case in the underground market for goods that are illegal to purchase, sell or possess.
Consumer issues
Even when the underground market offers lower prices, consumers are likely to continue the purchase of the legal counterparts, when possible, due to the following reasons:
- The consumer may — justifiably — prefer legal suppliers, as they are both easier to contact and can be held legally accountable in case of product faults
- In some jurisdictions, customers may be charged with a criminal offence if they knowingly participate in the unregulated economy, even as a customer. In the sociological field, crime is the breach of a rule or Law for which some governing authority or force may ultimately prescribe a Punishment
- Consumers may feel that they incur a physical risk to their person, whilst dealing with black market goods, depending on the goods and how they are acquired
- Consumers may feel that the black market supplier conducts business immorally, particularly in cases where the black market supplier exploits their own supplier or has a history of exploiting other consumers
However, in some cases consumers may actively prefer the underground market, particularly when government regulations unnecessarily hinder a legitimate service. Examples include:
- Unlicensed taxicabs, in Baltimore, it has been reported that many consumers actively prefer illegal taxis, citing that they are more available, convenient, and priced fairly. [1]
- Highly marginalised groups, such as undocumented immigrants, may effectively be excluded from the legal economy and thus may undertake most of their purchases and employment in the underground economy. Illegal immigration refers to Immigration across National Borders in a way that violates the Immigration laws of the destination Country
Traded goods and services
In developed countries, some examples of underground economic activities include:
Transportation Providers
In areas where taxicabs, buses, and other transportation providers are strictly regulated or monopolised by government, an active black market typically flourishes in providing transportation to underserved communities. In the United States, some cities restrict entry to the taxicab market via a medallion system. This has led to an active market illegal taxicab operation. While most jurisdictions require Taxicab operators to be Licensed many unlicensed cabs are in operation Customers range from black Americans living in urban neighborhoods to rural old-order Amish.
Illegal drugs
Beginning in the 19th and 20th centuries, many countries began to ban the possession or use of various recreational drugs, such as the United States’ famous “war on drugs. The illegal drug trade or drug trafficking is a global Black market consisting of the cultivation manufacture distribution and sale of illegal Drugs The 19th century of the Common Era began on January 1, 1801 and ended on December 31, 1900, according to the Gregorian calendar The twentieth century of the Common Era began on Recreational drug use is the use of Psychoactive drugs for Recreational purposes rather than for work, medical or spiritual purposes The United States of America —commonly referred to as the The War on Drugs is a prohibition campaign undertaken by the United States government with the assistance of participating countries intended to reduce the Illegal ” Many people nonetheless continue to use illegal drugs, and a black market exists to supply them. Despite ongoing law enforcement efforts to intercept illegal drug supplies, demand remains high, providing a large profit motive for organized criminal groups to ensure that drugs are available. "Crime syndicate" redirects here For the DC Comics group of villains see Crime Syndicate. The United Nations has reported that the retail market value of illegal drugs is worth 321. 6 billion dollars. [1] While law enforcement efforts do capture a small percentage of the distributors of illegal drugs, the high and very inflexible demand for such drugs ensures that black market prices will simply rise in response to the decrease in supply—encouraging new distributors to enter the market in a perpetual cycle. Many drug legalisation activists draw parallels between the United States’ experience with alcohol Prohibition and the current bans on various psychoactive drugs. Drug liberalization is the process of eliminating or reducing Drug prohibition laws The United States of America —commonly referred to as the In Chemistry, an alcohol is any Organic compound in which a Hydroxyl group ( - O[[hydrogen H]]) is bound to a Carbon Prohibition of alcohol, often referred to simply as prohibition, also known as Noble Experiment, refers to a Sumptuary law which prohibits Alcohol
Prostitution
Prostitution is illegal or highly regulated in some nations throughout the world. Prostitution is the act of performing Sexual activity in exchange for Money. In such areas it is classic study of the underground economy because of consistent high demand from customers, as well the high pay, labor intensive, and low skill aspects the work attract a continued supply of sex workers . While prostitution is observed in virtually every nation, studies have shown that it tends to especially flourish in poorer countries, and in areas with large numbers of unattached males, such as around military bases. [2]
Prostitutes in such areas generally operate with some degree of secrecy, sometimes negotiating price and activities through codewords and subtle gesture. This article is about the concept generally for its meaning specific to politics see Dog-whistle politics. Additionally, in areas such as the Netherlands where prostitution is legal but carefully regulated, illegal prostitutes exist whose services are offered without regard for legal requirements or procedures. The Netherlands ( Dutch:, ˈnedərlɑnt is the European part of the Kingdom of the Netherlands, which consists of the Netherlands the Netherlands In Nicaragua legal prostitution is regulated and most upscale hotels require identification of both parties involved to help prevent the growing percentage of child prostitution. Nicaragua (ˌnɪkəˈrɑgwə officially the Republic of Nicaragua () is a representative democratic republic and the largest nation in Central America Prostitution of children refers to the use of children as Prostitutes The definition of a "child prostitute" can vary depending on who is using the term
Weaponry
The legislatures of many countries forbid or restrict the ownership of personal arms. A legislature is a type of representative Deliberative assembly with the power to create amend and change Laws The law created by a legislature is called Legislation Ownership is the state or fact of exclusive rights and control over Property, which may be an object, land/real estate, Intellectual property These can range from cold steel weapons exceeding certain sizes to firearms, either altogether or by classification (e. A combat knife is a large Knife designed for military or paramilitary use A firearm is a Tool that projects either single or multiple Projectiles at high velocity through a controlled explosion g. caliber, automatism, etc), to explosives. The term caliber or calibre designates the interior Diameter of a tube or the exterior diameter of a wire or rod An automatic firearm is a Firearm that automatically extracts and ejects the fired cartridge case and loads a new case usually through the energy of the fired An explosive material is a material that either is chemically or otherwise Energetically unstable or produces a sudden expansion of the material usually accompanied The black market can supply such demands, by smuggling the arms from countries where they were either purchased legally or stolen. Smuggling, also known as trafficking, is the clandestine transportation of goods or persons past a point where prohibited such as out of a building into a Prison The purchase of personal arms via these channels can be of use to criminals, those who wish to use them for self defense, and weapons collectors. In the sociological field, crime is the breach of a rule or Law for which some governing authority or force may ultimately prescribe a Punishment
Alcohol and tobacco
Black markets can also form near when neighboring jurisdictions with loose or no border controls have substantially different tax rates on similar products. Products that are commonly smuggled to fuel these black markets include alcohol and tobacco. Smuggling, also known as trafficking, is the clandestine transportation of goods or persons past a point where prohibited such as out of a building into a Prison Tobacco is an Agricultural product recognized as an addictive drug processed from the fresh Leaves of plants in the genus Nicotiana.
It has been reported that smuggling one truckload of cigarettes from a low-tax U.S. state to those jurisdictions of the same country with the highest taxes can lead to a profit of up to $2 million. A US state is any one of the fifty subnational entities of the United States of America that share Sovereignty with the federal government [2] The low-tax states are generally the major tobacco producers and have come under enormous criticism for their reluctance to increase taxes from their minimal rates. North Carolina eventually agreed to raise its taxes from 5 cents per pack to 35 cents, although this remains far below the national average. North Carolina ( is a state located on the Atlantic Seaboard in the southeastern United States [3] However, South Carolina has thus far refused to follow suit and raise their taxes from seven cents per pack (currently the lowest in the U. South Carolina ( is a state in the southern region ( Deep South) of the United States of America. S. A. ) [4] Some law enforcement officials have expressed concern that the profits from tobacco smuggling may be directed to terrorist organizations. Terrorism is the systematic use of terror especially as a means of coercion This has led to calls for the U.S. Congress to intervene by setting mandatory minimum tobacco taxes for all states. The United States Congress is the bicameral Legislature of the federal government of the United States of America, consisting of two houses
Copyrighted media
Street vendors in many third world countries, particularly in Asia where loose enforcement of copyright law exists, often sell deeply discounted copies of films, music CDs, and computer software such as video games, sometimes long before the official release of a title. Street food is food obtainable from a streetside vendor, often from a makeshift or portable stall. Copyright is a legal concept enacted by Governments, giving the creator of an original work of authorship Exclusive rights to control its distribution usually for Music is an Art form in which the medium is Sound organized in Time. A Compact Disc (also known as a CD) is an Optical disc used to store digital data, originally developed for storing digital audio A video game is a Game that involves interaction with a User interface to generate visual feedback on a video device. Innovations in consumer DVD and CD burners and the widespread availability on the Internet of cracks for most extant forms of copy protection technology allow anyone with a few hundred dollars to produce DVD and CD copies that are digitally identical to an original and suffer no loss in quality. DVD (also known as " Digital Versatile Disc " or " Digital Video Disc " - see Etymology)is A Compact Disc (also known as a CD) is an Optical disc used to store digital data, originally developed for storing digital audio The Internet is a global system of interconnected Computer networks Software cracking is the modification of Software to remove protection methods Copy prevention, trial/demo version serial number hardware key CD check Copy protection, also known as content protection, copy prevention, or copy restriction, is a technology for preventing the unauthorised reproduction
Such operations have proven very difficult for copyright holders to combat legally, due to their decentralized nature and the cheap widespread availability of the equipment needed to produce illegal copies for sale. Widespread indifference towards the enforcement of copyright law on the part of law enforcement officials, as well as social acceptance, further compounds the issue.
Appearance and disappearance
In the case of the legal prohibition of a product viewed by large segments of the society as harmless, such as alcohol under prohibition in the United States, the black market can prosper, allowing the black marketeers can reinvest profits in a widely diversified array of legal or illegal activities, well beyond the original item. In the United States, the term Prohibition refers to the period from 1920 to 1933 during which the sale manufacture and transportation of alcohol for consumption
Underground markets can be reduced or eliminated by removing the relevant legal restrictions, thereby increasing the supply and quality of formerly banned goods, e. g. marijuana-trade debate. Cannabis, also known as marijuana or marihuana, or ganja (from Hindi / Sanskrit: गांजा gānjā hemp) is a Removing legal restrictions will usually reduce the price of the goods in question, possibly resulting in more of them being bought and sold. This can be beneficial to the state, as the state:
- simultaneously decreases the illegal cashflow, thus making the performance of other, potentially more harmful, activities financially harder. Cash flow (also called net cash flow) is the balance of the amounts of Cash being received and paid by a business during a defined period of time sometimes tied
- can perform quality and safety controls on the traded goods, thus reducing the harm to the consumers
- can tax the trade, thus providing a source of revenue
This can, however, be seen by some people as the equivalent of legalising crime, in order to reduce the number of “official” criminal activities.
Modern examples
Wars
Black markets flourish in most countries during wartime. Most states engaged in total war or other large-scale, extended wars must necessarily impose restrictions on domestic use of critical resources, which are needed for the war effort, such as food, gasoline, rubber, metal, etc. Total war is a conflict of unlimited scope in which a Belligerent engages in a total mobilization of all available resources at his disposal War is an international relations Dispute, characterized by organized Violence between National Military units Food is any substance usually composed primarily of Carbohydrates Fats water and/or Proteins that can be eaten or drunk by an The M acro E xpansion T emplate A ttribute L anguage complements TAL, providing macros which allow the reuse of code across , typically through rationing. Rationing is the controlled distribution of resources and scarce goods or services In most cases, a black market develops to supply rationed goods at exorbitant prices. The rationing and price controls enforced in many countries during World War II encouraged widespread black market activity. Rationing is the controlled distribution of resources and scarce goods or services World War II, or the Second World War, (often abbreviated WWII) was a global military conflict which involved a majority of the world's nations, including
During the Vietnam war, soldiers would spend MPC (military money) on maid service and sexual entertainment, thus supporting their partners and their families. The Vietnam War, also known as the Second Indochina War, or the Vietnam Conflict, occurred in Vietnam, Laos and Cambodia Maid is also a shortened form of " Maiden " an archaic word for an unmarried woman or a Virgin. Generally speaking human sexuality is how people experience and express themselves as sexual beings A sexual partner is a person with whom one engages in sex acts. If the local then wanted consumer goods, which were sparse in the civil stores due to governmental import controls, he would purchase them for the double price from one of the soldiers, who owned a monthly ration card and thus had access to the military stores. The transactions ran through the on-base maids to the local populace. Despite the fact that these activities were illegal, only flagrant or large scale black marketers were prosecuted by the military.
Prohibition in the United States
Of alcohol
The prohibition period in the 1920's in the United States is a classic example of the creation of a black market, its activity while the affected good has to be acquired on the black market, and its end. In the United States, the term Prohibition refers to the period from 1920 to 1933 during which the sale manufacture and transportation of alcohol for consumption Prohibition of alcohol, often referred to simply as prohibition, also known as Noble Experiment, refers to a Sumptuary law which prohibits Alcohol The United States of America —commonly referred to as the Many organized crime syndicates took advantage of the lucrative opportunities in the resulting black market in banned alcohol production and sales. "Crime syndicate" redirects here For the DC Comics group of villains see Crime Syndicate. In Chemistry, an alcohol is any Organic compound in which a Hydroxyl group ( - O[[hydrogen H]]) is bound to a Carbon Since much of the populace did not view drinking alcohol as a particularly harmful activity (that is, consumers and its traders shouldn’t be treated like conventional criminals), illegal speakeasies prospered, and organizations such as the Mafia grew tremendously more powerful through their black market activities distributing alcohol. In the sociological field, crime is the breach of a rule or Law for which some governing authority or force may ultimately prescribe a Punishment A speakeasy was an establishment that surreptitiously sold Alcoholic beverages during the period of United States history known as Prohibition (1920-1933 The Mafia (also known as Cosa Nostra) is a Sicilian Criminal Secret society which is believed to have first developed in the mid-19th century
Of smoking
This effect similarly is seen today, when jurisdictions pass bans on smoking in bars and restaurants. Smoking bans are public policies including Criminal laws and Occupational safety and health Regulations which prohibit Tobacco smoking In such jurisdictions, smokeasies (businesses, especially barrooms, which allows smoking despite the legal prohibition) frequently arise. A smokeasy (also spelled smoke-easy or smokeeasy) is a business especially a barroom, which allows smoking despite a Smoking ban enacted as This phenomenon is very prevalent in many jurisdictions with smoking bans, including California,[3][4] Philadelphia,[5][6] Ireland,[7] Utah,[8] Seattle,[9] Scotland,[7][10] Ohio,[11] Washington, D.C.. California ( is a US state on the West Coast of the United States, along the Pacific Ocean. Philadelphia (ˌfɪləˈdɛlfiə Ireland (pronounced /ˈaɾlənd/ Éire) is the third largest island in Europe, and the twentieth-largest island in the world The State of Utah (ˈjuːtɔː or) is a western state of the United States. Scotland ( Gaelic: Alba) is a Country in northwest Europethat occupies the northern third of the island of Great Britain. Ohio ( is a Midwestern state of the United States. As part of the Great Lakes region, Ohio has long been a cultural and geographical crossroads Washington DC ( formally the District of Columbia and commonly referred to as Washington, the District, or simply D [12] and Iowa
Clearstream
The Clearstream scandal is an example of such tax evasion. Clearstream Banking SA (CB is the clearing division based in Luxembourg, of Deutsche Börse. Tax avoidance is the legal utilization of the Tax regime to one's own advantage in order to reduce the amount of tax that is payable by means that are within the law Based in Luxembourg, Clearstream practices financial clearing, which means it centralises operations of multiple banks, some based in tax havens. Luxembourg (Groussherzogtum Lëtzebuerg Grand-Duché de Luxembourg Großherzogtum Luxemburg is a small Landlocked country in Western Europe, bordered by In Banking and Finance, clearing denotes all activities from the time a commitment is made for a transaction until it is settled (see settlement A banker or bank is a Financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money
See also
- Agorism
- Counter-economics
- Informal economy
- Grey market
- Business ethics
- Wide boy
- Household electricity approach
References
- ^ Feature: A Baltimore Way of Life | 4/21/2004 | Citypaper.com
- ^ Journal of Political Economy, "A Theory of Prostitution" February 16, 2001
- ^ “California’s Ban to Clear Smoke Inside Most Bars,” The New York Times, December 31, 1997
- ^ “The Land of Smoke-Easies, $500 Barfs,” The San Francisco Chronicle, May 15, 1998
- ^ “‘Smoke-easys’ ignore the tobacco ban”, Philadelphia Inquirer, March 27, 2007
- ^ “Smoke-easies”, Fort Wayne News-Sentinel, March 28, 2007
- ^ a b “Warning over ‘smoke-easy’ lock-ins,” The Scotsman, August 29, 2006
- ^ “Everyone Head for the Smoke-Easy,” Utah Statesman, December 12, 2006
- ^ “Smokers find refuge in secret nicotine dens”, Seattlepi.com, May 31, 2006
- ^ “Speakeasies? Nah, smoke-easies”, The Toronto Sun, May 25, 2006
- ^ “smoke-easies, altoid tins, blue moon, janis joplin and vivid imaginations” Yellow Is The Color Blog
- ^ “Smoke-easies offer cover from puff police; Aficionados just want a place to light up, relax,” The Washington Times, November 20, 2003
External links
- Shadoweconomy.eu Publications and research on the shadow economy and tax evasion
- Official March 2000 French Parliamentary Report on the obstacles on the control and repression of financial criminal activity and of money-laundering in Europe by French MPs Vincent Peillon and Arnaud Montebourg, third section on “Luxembourg’s political dependency toward the financial sector: the Clearstream affair” (pp. Agorism is an anarchist Political philosophy founded by Samuel Edward Konkin III that holds the ultimate goal as bringing about a society in which Counter-economics is a term originally coined by Samuel Edward Konkin III, a radical Libertarian activist and theorist who defined it as " the study and/or In Economics, the term informal economy (or second economy in the South African context refers to all economic activities that fall outside the formal A grey market or gray market is the trade of a commodity through distribution channels which while legal are unofficial unauthorized or unintended by the original manufacturer Business ethics is a form of Applied ethics that examines ethical principles and moral or ethical problems that arise in a business environment Wide boy is a British term for a man who lives by his wits wheeling and dealing The Household Electricity Approach to measuring the size of the Underground economy or Black market of a country exploits the presumed relationship between household Vincent Benoît Camille Peillon (born 7 July 1960 in Suresnes) is a French politician and Member of the European Parliament for the Arnaud Montebourg (born October 30, 1962, in Clamecy, Nièvre) is a French politician and a deputy of the fifth district of Saone 83-111 on PDF version)
- The Underground Economy from National Center for Policy Analysis (1998)
- Going Underground: America’s Shadow Economy by Jim McTague (2005)
- The Underground Economy: Global Evidence of Its Size and Impact (1997)
- The Effects of a Black Market Using Supply and Demand
- Information on Black Market products
- Cold War Black Market Secrets
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