The black market, also called the underground market or underground economy, is a market where products and/or services are traded illegally. The term refers to the business activity rather than the products themselves, which may or may not be illegal to own.
As the business activity is done illegally, the market operates outside the formal economy.
It is called the ‘black’ market because business is conducted out of the limelight, surreptitiously ‘in the dark’, outside the radar of regulators and law enforcement.
Many seemingly innocent trades, such as buying duty-free cigarettes at the airport and selling a pack to a neighbor, or selling gum in the school playground, are technically examples of black market activities.
Strict legislation, like the Prohibition in the US, can fuel black market activity and the growth of mafia-like organizations.
Further up the spectrum, the black market also includes the buying of foreign currency at an unofficial rate, plus the sales of smuggled drugs and weapons.
The black market is part of the informal economy, which globally is estimated to employ approximately 1.8 billion people.
There are several reasons why some people might opt to trade illegally – to avoid paying taxes and business rates, rationing, price controls, or circumvent trade embargoes.
National economies and society in general suffer because of black market business. Businesses which produce and sell legitimate products are harmed, governments lose tax revenue, and consumers are at risk from substandard goods.
According to Eurostat, the European Union’s statistical agency, including the black market in Italy’s GDP figures would result in a 2% higher total. The Office for National Statistics says prostitution and illegal drugs represent about 0.7% of the UK’s GDP.
According to FT Lexicon, the black market is:
“The part of the economy involving illegal transactions. Also known as the underground economy.”
Legislation & the black market
Lawmakers are forever torn by their duty to protect society from the dangers of illegal goods such as hard drugs and dangerous weapons, and fueling the black market.
If they pass laws that are too strict, as occurred during the Prohibition in the United States (1920-1933), the black market thrives, dangerous gangs emerge, and society overall suffers.
The global black market is colossal. (Data Source: havocscope.com)
However, if they go too far in the other direction and legalize everything, there is the risk we would end up with virtually no forests, hateful practices like child sex slavery would grow, and drug addiction could go through the roof.
According to Interpol, the world’s largest police organization with 190 member countries, criminals involved in the black market often peddle dangerous goods “with a complete disregard for the health and safety of consumers. The phenomenon has grown to an unprecedented level, posing tremendous risks to society and the global economy.”
Black market & organized crime
Law enforcement agencies say there is a clear link between the trafficking of illegal goods and transnational organized crime.
Mafia-like organizations are attracted by the enormous profits they can make by trading legitimate goods through illicit channels or selling illegal goods.
Criminal networks exploit new technologies, differences among national regulatory regimes, and links between global economic, transportation and finance systems for their own gain.
Their profits fund other criminal activities, such as people smuggling, drug trafficking, kidnapping and robbery.
Black markets were common in the old Soviet Union, its satellite Eastern European nations, and modern Cuba and North Korea. Anywhere, where rationing is imposed on the population, black markets thrive.
Video – Global black market
In this video, Nils Gilman, co-author of the book ‘Deviant Globalization’, argues that the black market may not be a negative from every perspective. It moves money from the northern (the rich nations) to the southern hemisphere, and provides jobs for millions of people in low-income and emerging nations.