Entrepreneurs, at some point in time, created businesses to market and distribute all of the products that we buy today, whether it's a physical good (like a volleyball) or a service (like going to get your taxes done). Businesses choose prices to sell their products for that are competitive with other firms. People choose which products to buy based on price and quality, among other factors.
In every country, the sale of illegal products is present to some degree. In the United States, it is estimated that outside of our booming $14.8 billion legal economy*, a $1-2 billion "Shadow" economy exists, though the numbers will vary from source to source. Government agencies, such as the Bureau of Economic Analysis (BEA), gather economic data from the paper trail left by people and businesses spending their incomes. But when the transactions are cash-based and neither the seller nor the buyer reports it, the government misses it. The Shadow Economy gets its name from this phenomenon; since we can only estimate it's size, there is much data than can be brought into the light.
This underground economy takes several forms and (on this blog) it is composed of any economic activity that takes place "off the books" or "under the table." Here are some common examples:
Transportation Services - When in New York City, you as the Yanks do: hop a ride in either a licensed Medallion (usually yellow) Taxicab, or in a mysterious black town car known only as a "gypsy cab." While both offer the same service, Medallion taxis actually have a medallion fixture on the vehicle; gypsy cabs lack this identifier, however, there is more room to barter with the gypsies (in our experience) and they are ubiquitous in the neighborhoods of the City, often preferred when yellow cabs are deemed overpriced or inaccessible. Medallions and their cabs are strictly regulated by the NYC Taxi & Limousine Commission.
Prostitution Services - The world's oldest vocation probably because of perpetually high demand and incomes. Usually shunned because it's obnoxiously labor-intensive. Arguably a low-skills position - pun intended - but the physical and mental stress, as well as the uneven distribution of said income negates most gains. Prostitution is illegal in the United States, but things are definitely done (and paid for) in the dark. The Netherlands legalized this one in 2000 and regulates it to date.
Weapons - The shadow economy provides the means for obtaining guns and ammunition that a government bans, perhaps via smuggling from another country or pilfering from domestic manufacturers. Often, it is the case of someone having a weapon they are ineligible to posses, because of an existing criminal record or maybe a documented mental illness. Rogue governments acquire guns illegally too, and some use them to start covert wars.
Alcohol & Tobacco - Prohibition of alcohol ended in the U.S. because Americans were still drinking and (because?) the economy was in dire straits. From 1919 to 1933 it was illegal to buy, sell, make or deliver alcohol in this nation. The amount of liquor consumed fell, but the number of illegal speakeasys and criminal activity in general rose during this period. The Twenty-First Amendment repealed the Noble Experiment. The U.S. Archives estimates that in New York City alone, in 1925, there were at most, 100,000 speakeasy clubs, offered the gamut of vice goods! Today, New York authorities are struggling with the manufacture and sale of homemade mixed drinks on the street called Nutcrackers.
Copyrighted Media - Think: bootleg. Your friendly local convenience store hookup; outside the store, that it. Whether you make a hand-to-hand transaction or search for that new movie or song online at little to no cost, it's all under the table and out of the light. The artists would argue that a higher fee is owed them for their work.
There are other markets that could be listed here, but delasol wants to emphasize that this list is not to suggest that the shadow economy is composed entirely of illegal activities. We define the shadow economy as including economic activities that are cash-based in nature, the result of bartering, or just outright illegal. Many cash-based businesses are perfectly legal, such as gambling in some American cities. And bartering, of course, is a matter of an agreement between the seller of a good or service and a buyer.
We will begin a new series on this blog on the economic implications of a dynamic underground economy. The first installation will be about the changing illegal drug trade in the U.S. as marijuana appears to transition from a high societal cost to a potential cash cow.
cheers,
delasol
*3rd quarter 2010 data (.pdf) from the Bureau of Economic Analysis
No comments:
Post a Comment