Black or underground or illegal economy, Microeconomics

Black or underground or illegal economy:

Black or underground or illegal economy has to be conceptualised as an integral and growing part of a variety of economies which emerges as a result of calculated and systematic violation of either the economic or other civil laws or both by many people on a large-scale and as fairly common practice in order to fraudulently and on an on-going basis obtain, deploy and enjoy income or wealth by evolving symbiotic linkages with the state. These activities enter and relate to the legal and informal economy in numerous ways, including for buying tacit governmental connivance and support and for conversion of ill-gotten wealth and income within the country or abroad, so extensively and regularly that it becomes difficult in practice to distinguish between the formal (legal), informal (alegal) and the dirty or illegal economy. Such illegal business practices generate competitive pressure and labour mobility-influencing rates of return and remuneration. Similarly, administrative practices and ethos colluding with the black sector too expand their diasporas  and depth overtime. In so far as the black operators increase their actual (as distinct from declared) rates of return, their competitive strength in the economy grows and by forging linkages and alliances with administration, they acquire political and social clout eroding democratic control and accountability of the public domain. The use of black resources for a variety of purposes gives it entry into wider social arena. The undercover operations within a country and outside by many governments also feed into the black economy. The experts, participants, perpetrators and protectors of the black deals tend to have inter-firm mobility. They are enticed by those who want to emulate the successful ones who rake in comparatively higher returns by means of black shenanigans. In brief, overtime, the black activities and devices and practices tend to become wider and general. The Government authorities who receive bribes and rent of authority (i.e. the price of using one's discretion as a quid pro quo for permitting, not detecting and/or promoting black activities, or for expediting favourable decisions) too over time start using these slush funds for acquiring black assets and become direct participants (normally in fictitious names, i.e., what we in India call benamis) in the black economy. Such rental black incomes arise from the existence of both suppliers (who offer rents) and demanders (who seek rents). Some neo-classical economic theorists blame the black economy mainly on rent-seeking behaviour, i.e. by the demanders. This  is contrary to their basic supply-side economics, according to which supply creates its own demand. Actually, rental black incomes arise from the active, joint operation of both the blades of the pair of scissors. 

The black economy by its very nature involves the rich, powerful and famous/infamous. This is an implication of the fact that black incomes, wealth and transactions can be undertaken mainly by the rich and the super rich, primarily non-wage earners. It may be noted that wages paid to the workers engaged by the black economy producers cannot be considered a part of the black economy for the simple reason that the wage-earner becomes only a subsidiary, indirect and others' directed party to the process of violating the laws of the land and, legal provisions apart, in a substantive sense, has only a very marginal role as a participant in the black economy. Often, the 'rewards' given to the hirelings for the black economy operations are hardly commensurate with the risks and stigma attached to their 'work'. In any case,  

Posted Date: 11/10/2012 5:21:07 AM | Location : United States

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