The $ 2.5 Trillion Black Market Economy [Explained]

The world is regulated by legal systems designed to keep everything in order and proper governance. While the majority of people follow the rules, some people try to go around the system for personal advantage. One such example is the black market, informally known as the ‘Underground Economy.’ 

What is The Black Market?

A black market is an economic activity that takes place outside government-sanctioned channels where goods and services are traded unlawfully in nature because the transactions fail to comply with government regulations. As underground economies are not subject to official inspection, it is impossible to correctly estimate their size. As a result, no tax returns or official statistics reports are generated as a result of the economic activity. However, according to estimates based on the margins of the world economy, the underground economy as of 2020 may have a value of approximately $2.5 Trillion. 

In the previous traditional scenario, transactions in the black market were mostly done in cash to avoid leaving behind any paper trail, for example, The Panama Papers case. This was a situation that compromised the financial details of several wealthy individuals and published information regarding tax evasions, fraud, illegal transactions, international sanctions and such. In order to prevent such proof from being exploited and underground economic transactions from being exposed, most black market transactions are done either in cash or nowadays on the dark web in digital currency.

Also Read: Can India’s Crypto Fever Turbocharge Its Economy?

The Silk Road black market, which operated from 2011 to 2013, used Bitcoin for money laundering, illicit drug transactions, and weapon sales, and was one of the most recent examples of a black market leveraging contemporary technology. It linked 4,000 drug sellers with 100,000 potential consumers. A person could buy practically anything, including narcotics, rocket launchers, fraudulent paperwork, and even hired killings.

A Mini-Documentary on Ross Ulbricht – Founder, Silk Road Online Marketplace

Black Markets: Modus Operandi

The underground economy traders use money laundering as a technique to legitimise the payments got in from illegal transactions. The purpose of money laundering is to shift money from an illegal enterprise via a series of transactions to hide the trail of money. It makes it difficult for bank compliance staff and federal inspectors to spot indicators of illegal activity. They carry this out in a three-step process:

  • Make a deposit at a reputable bank, smaller monetary deposits are not noticed by the federal government. Shadow businesses combine illegal gains with their financial transactions from a cash-heavy legitimate business in order to hide the sums of higher denomination.
  • The process of stacking transactions in order to conceal the source, ownership, and placement of funds. They may establish offshore shell corporations solely for the purpose of money laundering.
  • Integrate the money into society by presenting them as genuine possessions. Many people utilise money to purchase real estate.

Typical black market Conditions:

  • License Driven Black Market:

Government-imposed licencing limitations force some employees into the black market because they don’t want or can’t afford to invest the time and money necessary to get the needed permits. In many nations, for example, a licence is required to lawfully run a taxi business. These licences cost a lot of money which at times may be unaffordable for wage workers, making them prohibitively expensive for most entrepreneurs. As a result, some people may opt to run unlicensed black-market taxis: at least until they are caught.

  • Trade Driven black market:

Participants in black markets may not desire to behave unlawfully, but they don’t record their occupations or income to the government because they lack the capacity to work lawfully and need to generate money. When illegal immigrants gain jobs, students going abroad acquire employment without obtaining a work visa, or youngsters labour in violation of the minimum age limit, such scenarios develop.

  • Regulations Driven black market:

When government-imposed price limitations cause shortages, black markets might emerge. After a natural disaster, for example, if the government regulates the price at which a grocery shop may sell bottled water, the business will rapidly run out of water. Vendors will most likely come and begin selling water at the higher rates that consumers are prepared to pay. This is an example of a secondary black market.

  • Economy driven black market:

High unemployment might also lead to the emergence of black marketplaces. Workers may turn to the subterranean economy if they are unable to find work in the above-ground economy. These occupations might be innocuous (but they are paid in cash and the money is not reported to the tax authorities) or as grave as selling cocaine (where not only the sale of the product itself but also the non-reporting of taxable income is illegal).

Case study of India’s Covid-19 Black Market:

The population of India in this pandemic is taking desperate steps to keep loved ones alive as a disastrous spike of coronavirus infections overwhelms the country’s healthcare infrastructure. They are turning to dubious medical therapies in some circumstances, and to the black market for life-saving pharmaceuticals in others. Even though India is the world’s biggest manufacturer of pharmaceuticals, drug control in the country was weak even before the outbreak. And people are willing to attempt everything, even dealing in the underground market in the desperate hunt for medicine. Few drugs known to help treat Covid-19, such as remdesivir, which is manufactured by multiple Indian businesses, have grown up to 20-fold in black market rates, reaching almost $1,000 for a single vial.

Conclusion:

As long as there are restrictions and taxes, black marketplaces will persist. People will always hide their actions from law enforcement agencies, tax officials, and other regulators if laws restrict them from purchasing and selling the goods and services they want, and taxes prohibit them from keeping what they believe is their fair portion of earned wealth.

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Aryan Vora
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