The Steps of Reducing Black Market Activities - Essay Example

Black Market A black market deals with goods and services which are controlled or forbidden by governments. Such goods and services can be bought and sold in a black market. Drugs, pornography and gambling are examples of goods which flourish in the black market. Black markets prosper in controlled economies where the government has rationed many products. Black market goods are smuggled or produced illegally depending on demand. Sometimes legal goods can also be sold in the black market to avoid taxes. A black market is an illegal structure which is usually created when governments control economies in emergency situations like wars. When foreign currency is set below the market rate, an excess demand is created for acquiring foreign currency. A government usually responds by devaluing the currency or setting quotas on purchase of foreign goods. A parallel underground economy emerges by manipulating the forces of supply and demand. A black market can also emerge if trade creates an artificial scarcity of goods which in the process causes high returns on their investments by profiteering. The black market generates unreported wealth and income. Officially allocated foreign exchange is resold in the underground market (Atkins, 609). Black market transactions are disruptive to society. They undermine the ban on goods and services which have been banned by the government. Legitimate businesses are at a disadvantage because goods and services are sold in the black market to avoid taxes. The underground market can also affect public revenues and delimit national productivity. It can also drain the balance of payments and distort equity concepts of economics (Atkins, 609). Black market transactions usually involve cash which is easy to evade detection by governments. It also bypasses complex financial operations. There is some dispute about the size of the black market. Economists look at the volume of cash which is circulated in a black market economy. The internet has emerged as the major indicator of the extent of the underground economy. eBay has 40 million users. Sellers are responsible to pay taxes but there is no study which details if the sellers pay taxes and whether governments have intervened to ensure they do (Atkins, 609). Goods sold in the black market can either be cheap or more expensive than normal prices. If goods are stolen than they can be cheaper than normal prices. However illegally supplied goods may be more expensive because of difficulties in production and dangers associated with trying to smuggle such goods in countries. Black markets thrive if consumer demands for goods which are not available through legal channels are unavailable (Bagnasco, 157). Underground markets can be reduced by removing the legal barriers for goods. Some people advocate that products like drugs should be legalized and government should focus on more dangerous elements of society. This has been countered by critics as legalizing crime. Removal of legal restrictions reduces the prices of goods. If products like drugs are legalized their prices would drop and most people would access trustworthy legal sources. Black market also consists of legal activities which are not reported to government tax authorities. Many corrupt officials in developing countries avoid paying taxes. Black money is the outcome of this practice. The black market has some important functions. It is a cash economy which is liquid and fast. It increases the flow of money. It injects foreign exchange into the economy and increases the money supply. It can also provide employment, create economic activity and encourage labor mobility. It is important for countries which face economic hardship. Developing countries have backward economies. Their technological expertise is primitive. Unemployment, dilapidated machines, dysfunctional infrastructure are rampant in such economies. Trade deficits, crime and budget deficits rise sharply in such economies. They continue to be dependant on aid and assistance from international financial institutions and countries. The black market increases exports and technology transfers. It increases the wealth of the nation and injects liquidity in the market (Bagnasco, 157). The black market is morally wrong because it is exploitative. Legitimate businesses which pay taxes suffer due to the black market. A country usually invests in the infrastructure from taxes. The black market however enjoys these services without paying for them. They do not bear the costs associated with maintaining infrastructure. Black markets flourish in countries during wartime. States engaged in warfare must impose restrictions on critical resources like food, gasoline, metal, etc. A black market usually emerges in response to these restrictions. They supply rationed goods at exorbitant rates. Rationing and price control has encouraged the rise of black markets during major conflicts. In many public places in the United States smoking is prohibited. However many businesses have special rooms that allow smoking. Drugs are another commodity which have been sold and bought in the black market. The United States has banned the possession or use of various drugs. Many people continue to use drugs despite the ban. The black market exists to supply recreational drugs to people. Despite extensive efforts by law enforcement agencies to curb illegal drug supplies, demand remains high. Drugs are a major source of income and profit for organized criminal groups. A report published by the United Nations has found that 320 billion dollars revenue was earned by organized criminal groups selling drugs in 2006. Despite the fact that law enforcement agencies capture distributors of illegal drugs, the high demand for drugs ensures that the black market will continue to supply drugs to consumers (Benabe, 119). Prostitution is another activity illegal in many parts of the world. However because there is a market demand for prostitutes, black markets have emerged that supply such demands to consumers. Prostitutes operate in secrecy to avoid law enforcement agencies. Illegal prostitutes exist in many countries like Netherlands where prostitution is legalized and regulated. Firearms are illegal in some countries. This is another good which is supplied by the black market. Even in countries where licensed firearms are allowed, people will try to get them from black markets. People might not be able to get the license for several reasons. The black market is thus an ideal market for such people to obtain illegal firearms. There is a high demand for guns because of the presence of illegal gangs (Benabe, 119). Black markets also thrive in parts of the United States where there is loose or no border controls. Different tax rates on similar products also leads to black markets smuggling such products. Such products can include alcohol and tobacco. It has been reported that smuggling one truckload of cigarettes from a low tax US state to those states with higher taxes can give profits of one million dollars. States which produce tobacco do not have high taxes (Bhattacharyya, 348). Many vendors in developing countries sell pirated movies, music CDs and computer software. The widespread availability of technology to copy content from original and cracks have countered most forms of copy protection technology. It takes a few hundred dollars to produce DVD and CD copies. Fighting such operations is difficult given the cheap availability of equipment and decentralized nature of the business. Further there is little or no cooperation from officials in the developing world. The black market of pirated movies, music CDs and software causes great losses to major corporations. It also destroys the livelihood of millions of workers all over the world. It can also damage industry and tax revenue which runs into millions of dollars. Countries worldwide have been devoting efforts to uncover and shut down illegal production of movies, music CDs and software. These efforts have been met by limited success. The cheap availability of DVD and CD burning technology along with decentralized structure of such operations makes it very difficult to stop the proliferation of pirated movies, music CDs and computer software (Bhattacharyya, 348). Black market activities can be reduced if all citizens are obliged to file tax returns. This ensures that discrepancies between tax returns can lead to investigations of criminal activities. All citizens of a country must be obliged to declare their personal wealth and assets. Each business should install cash registers with embedded chips. These chips help store transactions of the business. This would help tax inspectors to randomly pick up the chips and assess its contents. The information could be compared with other sources. All registrars must be computerized. Tax authorities must have unrestricted access to the registers. This would allow them to ask for sources of wealth and would lead to a reduction of tax evasion. Financial statements, tax returns and wealth declarations must be computerized on a monthly and yearly basis (Bhattacharyya, 348). Tax inspectors must have police powers and higher salaries. Judges must be trained about aspects of the black market. They must be trained in tax matters. Contracts between businesses must be registered in the courts. The power of state officials must be reduced to prevent corruption. Simple tax laws are effective in reducing the black market. The quantity of black money in circulation has increased in the past few years. By eliminating cash transactions, tax evasion and black money can be reduced and curbed. Underground markets can be reduced by removing the legal barriers for goods. Some people advocate that products like drugs should be legalized and government should focus on more dangerous elements of society (Bhattacharyya, 348). Black market trade is considered illicit by every country. It breaks the laws and regulations that nations employ to organize trade and commerce. It includes purchases and sales that are illegal. It is highly disruptive to legitimate businesses. Some of the world's largest marketing and distribution channels for black market goods are located in the world's greatest cities. Factories in South East Asia run unauthorized shifts in the production of cheap products. Bootleg videos, night vision googles, drugs all travel in the same containers. The internet has improved the efficiency and speed of marketing and distribution of contrabands (Camera, 377). In many countries the black market openly thrives with support from local officials. For instance in Cambodia the police cooperates with known human traffickers while at the same time being partners with international organizations trying to curb the trade. Many illicit black market traders have opened up companies which as fronts for their illegal activities (Camera, 377). The advent of the 1990s brought important transformations. Political and economic life has been changed. Market oriented reforms have swept the world. Globalization has allowed traders to break the rules and easily move contrabands between borders. Technology has facilitated the rise of the black market by lowering transport costs and making possible the trade of goods like pirated software, music CDs and movies. Markets have also emerged as governments have deregulated their tightly controlled economies. The huge diversity of goods which are being smuggled across borders is amazing. They include drugs, alcohol, humans, weapons, tobacco and even human kidneys (Camera, 377). The black market has now sold products like rocket launchers and nuclear designs to governments. Governments have boosted illegal trade by making new activities criminal. File sharing through the internet allows the cheap exchange of pirated software and movies. Money laundering is on the rise. Every black market trader needs to launder money. More dirty money is floating in the international markets despite constant efforts by governments and law enforcement agencies. Only recently have governments recognized the threat of illicit black market trading. Treaties and cooperation between law enforcement agencies have been implemented. International standards have been recently introduced to curb black market economy and fight money laundering. Intellectual property crime and software piracy have increased efforts by countries to stop counterfeiting. Human trafficking has been recently declared and defined as a crime against humanity (Caridi, 239). Illicit trade in the twenty first century is not only about crime. New players are emerging in this global black market. They are reshaping the rules and changing the balance of power. For instance Dr AQ Khan, Pakistan's top nuclear scientist ran a black market network which sold nuclear design and assistance to rogue regimes worldwide. Governments believed that most of the illicit black market trade was conducted by criminal organizations. In many countries laws against black market traders are those which were introduced to fight organized crime. This is changing after the 9/11 terrorist attacks which shows that a network of specialized cells can do. The huge proliferation of decentralized black market traders is a threat to the world. Another myth associated with the black market is that it is underground crime. Politicians still try to associate black market trading with underground crime. The global black market has been mutating since the 1990s. Traders have moved from fixed hierarchies to decentralized, specialized and motivated cells. They have dispersed their agents and cells. They continue to innovate in response to challenges from law enforcement agencies. Illicit trade will continue to mutate unless effectively curbed by law enforcement agencies. The black market offers subversive groups the means of surviving and financing their operations. These networks pose considerable threat to developing countries with fragile political and vulnerable economic systems. Criminals operating in the black market enjoy political clout in fragile states. They have their own media organizations and charity networks. The size of the informal economy is very huge in these countries. It employs huge numbers of peoples. It provides contrabands to people who need them. Developing economies cannot match the volume and size of black market economies. Trafficking networks become big and diversify their operations in other businesses. They breed more corruption and have government protection in developing countries (Caridi, 239). Black market networks are closely tied with legitimate private sectors in developing countries. They have ties in the public sectors. They have connections and clout in the political system. Local governments, media, military, courts are all influenced by such organizations. This can be harmful to the formal economy and breed more corruption. It is also a threat to the world. Black markets have existed the world for centuries. A black market usually emerges in response to government restriction of goods. Such goods can include drugs, prostitutes and alcohol. The rise of the internet has created more opportunities for black market. The cheap availability of technology has created more opportunities for black market crime. The black market has some uses for developing economies as it injects foreign exchange in fragile economies. They also can provide employment and increase standard of living. However they also negatively affect the economy. Black market traders enjoy services and infrastructure looked after by the government without paying taxes (Caridi, 239). Drugs are a major commodity for the black market. Despite extensive efforts to curb drug smuggling there is a high demand for recreational drugs. Prostitutes, firearms, tobacco and alcohol remain popular contrabands in many parts of the world. The advent of globalization in the 1990s and the market reforms which swept the world opened new opportunities for black market. New players have emerged which are changing the rules and ready to sell anything. Small decentralized and motivated cells have dispersed their agents and cells. The internet gives them important opportunity to survive. The use of cash transactions has allowed them to bypass the complex financial operations involved. Governments which have opened their borders have also allowed the proliferation of black market. The only way black market crime can be reduced is through international cooperation. Law enforcement agencies must cooperate with each to reduce the threat of black markets. Works Cited Atkins F. J. (1999) Macroeconomic time series and the monetary aggregates approach to estimating the underground economy. Applied Economics Letters Vol. 6, no. 9, pp. 609-611 (3). Bagnasco, A. (1990) The Informal Economy. Current Sociology Vol. 38 (2/3), pp 157-174. Benab, S. (2002) Informal Employment in countries in Transition: A Conceptual Framework, CASE paper 56, London: Centre for Analysis of Social Exclusion. Bhattacharyya D.K. (1999)On the Economic Rationale of Estimating the Hidden Economy. The Economic Journal, Vol. 109, no. 456, pp. 348-359 (12). Camera G. (2001) Dirty money Journal of Monetary Economics, Vol. 47, no. 2, pp. 377-415 (39). Caridi P. (2001) The Underground Economy, the Demand for Currency Approach and the Analysis of Discrepancies: Some Recent European Experience The Review of Income and Wealth, Vol. 47, no. 2, pp. 239-250 (12). Read More