A black economy operates outside established commercial and accounting principles and is often cash-based, making it difficult to track. It includes legal and illegal goods and services, but the financial aspect is almost always illegal due to tax evasion. Black economies flourish during periods of rationing or heavy regulation, and can include activities such as copyright infringement and the arms trade.
A black economy, also known as a shadow economy, refers to an economic segment that does not follow established commercial and accounting principles in its region. The goods and services offered in the black economy can be legal or illegal, but the financial aspect of a black economy is almost always illegal. Since most black economies are cash-based and not reported to financial agencies, they are not trackable. For this reason, no one can say for sure how big a black economy really is, although many economists try to make educated guesses based on data.
The reason a black economy violates business laws is that money is usually paid in cash or “under the table”, therefore not subject to state or national taxes. Those who receive money from a black company often avoid depositing it into bank accounts or reporting it as income so as to remain traceable. The anonymity of a black industry also allows for the inclusion of illegal activities such as arms trading, prostitution and drug trafficking, as people involved in these industries naturally want to remain under the radar of government corporations.
Not all goods and services offered by a black economy are per se illegal. Any job, even those performed by a licensed professional, turns into a black market transaction if money is paid through unreported channels. Construction work, restoration, landscaping, and almost any other type of service or exchange of goods can become part of black trade if the money is not properly reported to tax authorities or if it fails to comply with trade laws. So a job like building a house can be totally legal and coding but the financial aspect can be illegal.
Black economies tend to flourish during periods of rationing, such as during war. In World War II, shortages of everything from coal to sugar created a thriving black market across Europe. For cash or trade, extra rations of all kinds were available to those who knew where to look. War profits, or the sale of stolen military goods by black companies, became a huge issue during the long and difficult campaign. Likewise, under Prohibition in the United States, all alcohol trade was the result of black market finance, as reporting earnings or expenditures on alcoholic beverages was to alert authorities to the presence of an illegal supplier.
Modern examples of black economies mostly revolve around heavily regulated or illegal activities and goods. Copyright infringement or piracy is a common form of black enterprise, allowing unauthorized copies of copyrighted movies, music and other material to be sold for cash over the Internet or through night-flying vendors. Countries with strict censorship laws are likely to create an expansive black economy that trades prohibited goods at exorbitant prices.
The arms trade is a frequent and frightening nest of the black economy. The movement of guns is usually heavily regulated by government law, which means deals to obtain illegal or restricted guns must be handled with the least traceable methods possible. This industry is seen as extremely dangerous and has been linked to the proliferation of weapons among gangs around the world.
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