Black market – definition and meaning
The black market, underground market, or underground economy is a market where people buy and sell products illegally. The term refers to the business activity rather than the products themselves. In fact, the products may be legal to own.
For example, smoking, buying, and selling cigarettes are legal. However, smuggling cigarettes from abroad and selling them without paying import duties is illegal. It is also illegal to buy those cigarettes.
As black marketeers work in illegal activities, the market operates outside the formal economy.
We call it the ‘black’ market because business is conducted out of the limelight. In other words, the participants work in the dark; outside the radar of regulators and law enforcement.
Many seemingly innocent trades are, in fact, black market activities. For example, if I buy duty-free cigarettes and sell them to a friend, I am a black marketeer. Even selling chewing gum to friends at school forms part of the underground economy.
The underground economy also includes the buying of foreign currency at an unofficial rate. Additionally, smuggling and subsequently selling drugs and weapons are part of the underground market.
There are several reasons why some people choose to trade illegally. Perhaps they want to avoid paying taxes and business rates or wish to circumvent trade embargoes. Additionally, they see an opportunity to make money when the Government imposes rationing.
The economy suffers because of black market business. It harms companies which produce and sell legitimate products. The government also loses tax revenue, and consumers are at risk from substandard goods.
According to Eurostat, including the black market in Italy’s GDP figures would result in a 2% higher total. GDP stands for gross domestic product.
The UK’s Office for National Statistics says prostitution and illegal drugs represent about 0.7% of the country’s GDP.
According to FT Lexicon, the black market is:
“The part of the economy involving illegal transactions. Also known as the underground economy.”
The black market – legislation
Lawmakers are forever torn between protecting their citizens and triggering a new problem. In other words, protecting people from the dangers of some goods and fueling the black market. Examples of potentially harmful goods are drugs and weapons.
If they pass laws that are too strict, the black market thrives. Dangerous gangs also emerge, and society suffers. In fact, this is what happened during The Prohibition in the United States (1920-1933). During The Prohibition, the Government banned alcoholic drinks.
However, if lawmakers went too far in the other direction, what would the consequences be? What would happen if we legalized everything?
Would we end up with virtually no forests? Would hateful practices like child sex slavery thrive, and what about drug addiction?
According to Interpol, black market criminals often sell dangerous goods “with a complete disregard for the health and safety of consumers.” In fact, the phenomenon has grown to an alarming level.
The black market today poses “tremendous risks to society in the global economy,” says Interpol.
Black market & organized crime
Law enforcement agencies say there is a clear link between the trafficking of illegal goods and transnational organized crime.
The enormous profits attract Mafia-like groups. Criminal organizations make billions trading legitimate goods through illicit channels or selling illegal products.
Criminal networks exploit new technologies and differences among national regulatory regimes. They also exploit the links between global economic, transportation, and finance systems.
Their profits fund other criminal activities. For example, they finance people smuggling, drug trafficking, kidnapping, and robbery.
Black markets were enormous in the old Soviet Union, Eastern European, modern Cuba, and North Korea. In other words, wherever there is a communist dictatorship, the underground economy is huge.
In fact, anywhere where rationing is imposed on the population, black markets thrive.
Video – Global black market
In this video, Nils Gilman argues that the black market may not always be a negative. Gilman is a co-author of the book ‘Deviant Globalization.’ The black market moves money from the northern to the southern hemisphere.
In other words, money moves from the rich to the developing countries. It provides jobs for millions of people in low-income and emerging nations.