Pariah Underground Economy Essay ⋆ Criminal Justice Essay Examples ⋆ EssayEmpire

“Underground economy” describes economic activities outside the purview or regulation of government agencies. Government is not able to tax the incomes from such enterprises, therefore figures from underground economies are not included in the calculation of the nation’s gross national product (GNP). Underground economies are known by various names, including, illegal economy; unreported economy, unrecorded economy, and informal economy, among others. It is estimated that in the United States alone, the volume of underground economy is as high as $2 trillion. That is a loss of about $500 billion of taxes that would otherwise accrue to the government each year. Worldwide, it is estimated that about three-quarters of the world’s economic activities are unrecorded. The majority of the economic activities of most developing countries operate outside the control and regulation of government agencies.

States, groups of people, and individuals can be marginalized economically and politically for several reasons. For example, South Africa during its apartheid regime was not able to do business with other nations for several years because of the economic sanctions imposed on the country. Some other countries that have been adjudged to have violated international norms or policies have suffered sanctions under the auspices of the United Nations or other regional economic groupings. Recent examples of pariah states include Libya, Iraq, Iran, North Korea, and Syria. When a country is classified as a pariah or rogue state, and restricted from participating in international commerce, it means that cannot acquire goods and services that it cannot produce locally. Some of these goods and services are so essential that not acquiring them may create hardship for the country. In addition, discontent among the citizenry of such a country can lead to political crisis or even uprising. Therefore, pariah states resort to unconventional means to acquire the goods and services that they need. Some other countries, either out of pity, political affiliation, or profit motive may agree to do business with a pariah state. Such countries, conscious of the fact that doing business with a pariah state is a violation of the international agreement they entered into, and that such act may attract sanctions against them, resort to doing business with the pariah state under the table. Furthermore, states that are placed under economic sanctions are unable to attract international investments that are vital for the growth of their economy.

When a state or group of people are excluded or barriers put in place either intentionally or otherwise that make it difficult for them to participate in the economic activities of the society, chances are high that an attempt will be made by them to circumvent the process to acquire the desired goods and services. This gives rise to “underground” economies.

An economy is described as underground when the exchange of goods and services is undertaken outside governmental control and regulation. It is also known as a “shadow” economy, unreported economy, unrecorded economy, and informal economy, among others. This means that government agencies are not able to factor the economic activities into the GNP calculation. The GNP is a recording of a country’s exchange of goods and services in a given year. Such data are obtained from corporations, nonprofit organizations, and the taxes paid by individuals for the year under consideration. Illegal economic activities such as prostitution or gambling operate outside the purview of government agencies and therefore are not included in the GNP data.

Additionally, some legitimate business activities such as online auctions or bartering services that are strictly cash-based transactions are also not included in the GNP calculation. This is because people engaged in these economic activities and other illicit economic activities often do not report their earnings to the Internal Revenue Service (IRS). There are many cash-based economic transactions that the government is unable and even unwilling to track.

Government monitoring of every minute economic transaction in the country would be daunting and too costly and could even be disruptive of the smooth operations of the economy. It is, however, important not to confuse underground economy with black market economy. The black market economy falls completely under the illicit or illegal economic category and is often under the control of organized crime groups or even corrupt governments. As illegal economic activities under the manipulation of organized criminal groups, conflicts arising from such economic activities are often resolved outside the formal conflict resolution institutions and in most cases through violence. This accounts for why drug dealings and Mafia businesses are characterized by violence.

Other problems associated with the underground economy include the exploitation of minors and other vulnerable members of the community. The chance of service providers and product marketers creating a monopoly is high due to the lack of government regulation of the economy. Bribery and corruption, which sometimes occasion violence, is also a possible consequence of underground economic activities. The size of the underground economy in the United States is significant. Some studies put the value of unreported taxes to the IRS to be more than $500 billion annually. This is about 18 to 19 percent of total reportable income. The underground economy is viewed positively in certain quarters where it is seen as complementary or a subset of the informal economy that employs more than 1.8 billion people worldwide.

Some simple and everyday business transactions such as babysitting fall under the category of underground economy. This is because the government for the most part is not able to regulate the transactions or enforce laws governing that business activity. Government is also unable to tax the individuals engaged in the babysitting business. As is clear, this is a legitimate business engaged in by individuals who are interested and willing. However, it falls into the category of underground economy because the government is not able to tax the beneficiaries of the transactions.

Sometimes, the government looks the other way for political expediency. For example, the Chicago County government during the late 19th century was reluctant to enforce laws prohibiting or regulating the operations of many businesses that were part of the underground economy. Laws prohibiting or regulating brothel operations, illegal gambling, and alcohol manufacture and distribution were rarely enforced for fear of alienating their political supporters, who were involved in the underground economy. During the Prohibition era (1920–33), many of the bootleggers were very resourceful and contributed generously to the political campaigns of popular politicians. The underground economy also employed a significant proportion of the labor force. It would have been a political suicide for many officials of the day to zealously enforce the Prohibition laws. It is also fair to note that enforcing a law that is not in consonance with the morals standards and economic conditions of a society is difficult.

There are also ethnic, class, and racial dimensions of the underground economy. Available records show that in the early 20th century, illegal businesses were known to thrive in the immigrant and African American neighborhoods in Chicago. One explanation for this was that the politicians who represented these areas were too weak to enforce the laws. Again, some of the politicians were sponsored by the owners of the illicit businesses. Besides, some of the residents of the minority neighborhoods could not find jobs in the mainstream businesses, so they relied mostly on the illegal businesses for their economic survival. It is believed that the local governments in the minority neighborhoods condoned illegal businesses because they were major sources of tax revenue for the local government. This is unlike the more affluent neighborhoods that were more inclined to enforce the vice laws. Another example of the ethnic dimension of the underground economy was in the 1930s and 1940s, when taxi cabs operated freely without licenses in the African American neighborhoods. Illegal taxi operators provided services the licensed taxi cab owners created by refusing to serve residents of the ethnic and poorer neighborhoods.

Government laws and policies force certain enterprises underground. For example, following the end of the World War II, many basic products were scarce but in high demand. To avoid hoarding, some of the products were rationed. Regulating the distribution of scarce commodities forced economic activities underground. Again, the scope of certain businesses is just too small for government to regulate. Businesses such as lawn care services, hairdressing, and babysitting services are often operated by teenagers and illegal immigrants who do not maintain a checking account and are paid cash when they provide the needed services. These economic activities constitute a significant portion of the underground economy.

Bibliography:

Abadinsky, Howard. Organized Crime. Belmont, CA: Thomson Wadsworth, 2007.
Haller, Mark. “Bootlegging: The Business and Politics of Violence.” In Violence in America: The History of Crime, Ted R. Gurr, ed. Newbury Park, CA: Sage, 1989.
Kelly, Robert. Encyclopedia of Organized Crime in the United States. Westport, CT: Greenwood Press, 2000.
Roth, Mitchel. Organized Crime. Upper Saddle River, NJ: Prentice Hall, 2010.

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