The Economics of the Black Market

Half of the world's workforce is employed by the underground economy.  1.8 billion.

It has been reported as being the second largest economy and contains the widest variety of unregulated business practices on Earth.  Whether you are making transactions under the government's nose to avoid tax or you are human trafficking, you are part of the Black Market.  Robert Neuwirth, an American journalist, classifies the less extreme transactions (think trading under the government's nose) as System D - a sub category of the black market.  System D, if it was one collective, would have a GDP of $10 trillion a year.  And its growing.  

So how does System D thrive?  It applies to a different market, one that requires the product and absolutely has to pay for it.  People not attached to government that still have the unlimited desires of people like us still need vendors.  They are the market, they are massive, and they fund informal sellers.  It seems like a foreign idea in the United States, but globally there are thousands of System D stores not paying tax and they have a massive customer base.  Companies such as Procter and Gamble or Colgate want a piece of this market so they sell their products to these stores.  It isn't just a contained and secret system, it is massive and everyone is involved.  They do this legally and it is the majority of their sales.

Above is the percentage of each country's GDP that is the underground economy (Figure sourced from Wired).  

Street vendors are a large portion of this market which may seem counterintuitive at first.  That person selling hot dogs after football games probably isn't paying taxes.  In fact, street vendors are the perfect sales format for things that people need on the go.  Hot dogs, for example.  Large companies recognize this fact and cater to the informal market.  Examples include anywhere from UAC selling sausage rolls to AT&T selling phone plans at kiosks.  

Basically, there is a market of people who desire to buy things that can be taken on the go, things not levied by the government, cheaper goods, or even knock off goods.  Whether they do it for necessity, convenience, or unwittingly the amount of people is massive.  Supply and demand makes this a real economic force.

https://www.wired.com/2011/12/mf-neuwirth-qa/

https://www.businessinsider.com/everything-you-always-wanted-to-know-about-the-black-market-but-were-afraid-to-ask-2012-1#who-makes-up-this-shadow-economy-and-how-big-is-it-2

Comments

  1. AnonymousFebruary 15, 2019 at 1:49 PM

    Nice post! I think it's really interesting to think about the black market and underground markets and how they influence our economy. I never really considered street vendors as the black market but come to think of it, the exemption from taxes does have a significant effect. A question I had in response to this is how should the government enforce this? Having visited China, there once were streets filled with informal street vendors, but the government is cracking down on this with violence. What is a more civil way to do this?

    https://www.scmp.com/news/china/society/article/2108105/chinas-notorious-urban-enforcement-officials-beat-street-vendors

    ReplyDelete

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