The black market and shadow economy as global economic challenges

People retreat to the shadow sectors of economy in response to inefficient government policy and the unrestrained rent profiteering of government officials, making the black market grow at a fast rate. Indeed, when the interests of government and big business converge only the black market can serve as a zone of free entrepreneurial activity including a relatively independent circulation of capital. As a sort of socio-business breathing window, nevertheless, it cannot help harming society and the national economy, because it washes out assets and resources. Organized crime, terrorists, and illegal political groups profit from the black market. However, the most important thing is that national shadow economies make up the global black market.

We can have only approximate statistics regarding the global black market, they are subject to constant change and therefore, need correction; they may be different depending on calculation techniques; some data is concealed by some nations’ security services. However, there is a bulk of data that is available to the public, including the following:

• Global trade is estimated to be worth over $10 trillion;
• The most popular goods are arms, human organs, exotic animals, drugs, food, medicine, oil, gambling, and counterfeit products;
• An estimated two billion people are involved in the global black market (almost 50% of the world’s workforce);
• African countries have the biggest share of black market in their economy (an average of over 40% in this region of the world). Latin America come in second with over an average of 36% in the region;
• Economic crises, such as the global financial crisis of 2008 – 2010, stimulate the shadow economy (the period saw shadow economy grow in all countries).

“Some countries’ economy is literally based on illegal business: piracy, drugs and weapons dealing (these countries include Somalia, Niger, Columbia and Afghanistan), counterfeit products (these countries include China, Russia and Ukraine). In many transition economies, including Russia, shadow economic activity is part of micro- and small business (retail, foodservice, DIY services, the lumber and fishing industries, etc), but it is not limited to these areas. Studies show that shadow economy affects all industries in the Commonwealth of Independent States (former Soviet republics) including securities market, insurance, international trade, construction, manufacturing, etc). Illegal migration also contributes to the black market as a source of corruption. As far as developing countries are concerned, many studies conducted by the World Bank, World Labor Organization and other international organizations demonstrate that shadow activities are inherent in any sectors of economy. For example, informal business in the construction, retail and clothing industries of developing countries constitutes 80% of the countries’ GDP; in the car manufacturing and food industries, as well as in cement and steel making the share is 30%; while in home appliances and software production from 20 to 25% of the GDP”¹.

¹ - Kapitsa L.M. Tenevaya globalizatsia. Ekonomika (Shadow Globalization. Economy) Moscow: MGIMO Press, 2014. pp.73 – 74.