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The Ugly Effects of Black Market on the Economy

Effects of Black Market on the Economy
Black markets occupy a prominent place in the informal economic sector of the world. However, the effects of black markets on the global economy are phenomenal.
Sucheta Pradhan
Last Updated: Apr 9, 2018
"No government, no global nonprofit, no multinational enterprise can seriously claim to be able to replace the 1.8 billion jobs created by the economic underground. In truth, the best hope for growth in most emerging economies lies in the shadows."
― Robert Neuwirth, Scientific American
Black market, a.k.a. underground economy is a phenomenon that can be observed all over the globe, no matter how developed or underdeveloped a particular country is. The term 'black market' refers to an economy, wherein all the transactions taking place are illegal in nature. In other words, the goods and services, which are traded in a black market, do not come from legal channels. Owing to its illegality, the black market economy runs in parallel to the established economy of the state, which is supported by the respective government. The term 'black market' encompasses illegal and, many times, unethical trade of several different goods and services. These range from drugs, weapons, people, and counterfeit products to human organs, animals, currency, and fuel. One of the generally accepted viewpoints states that there are two possible motives due to which black market may thrive, viz. to evade taxes, and to trade in smuggled goods.
Pricing of Goods in the Black Market
The pricing of goods and services in an underground economy depends on the status of a particular product in the established or white market. That is to say that it depends on the demand and supply trends that a particular product displays. Thus, pricing of goods in the black market can be essentially done on two levels:

- A product or service, which may be commonly and abundantly available in the established market, may be available at a cheaper price in the black market. This may be due to the fact that the source through which a particular product has entered the black market may be illegal itself. For instance, it may be stolen or smuggled, in which case, there may be no expenses towards taxes and/or production cost from the seller's side. So, the total cost of the product automatically reduces, and the buyer gets it at a much cheaper price.

- A product or service, which may be in a short supply in the white market, may be available in the black market, but at elevated prices. The reason for elevated prices of such products in the black market is that the supply for them might not meet the demand in the established market. So, the buyers, because such items are difficult to acquire, choose to turn towards the black market. Added to this, certain goods which are illegal in the established market may be available in the black market, but at highly inflated prices.

Owing to the very nature of the black market, it goes without saying that the buyers have to acquire their goods without any kind of receipt or guarantee. Despite several measures implemented by the various governments, most black market transactions go unnoticed and unrecorded, and no record means no tax.
Impact of Black Market on the Economy
The share of black market is huge in the world economy, and it has numerous direct and indirect effects on the same. Owing to its illegal nature, any kind of products can be sold in there, as there is nobody to ask how and why. Following are some of the effects that black market may have on the economy:
Black market equals Less Revenue to the government
Though huge amount of money is involved in black market transactions throughout the world, the very aim of these off-the-record transactions is to avoid the various taxes, which otherwise need to be paid to the governments. Owing to this, every year, the various governments tend to lose revenue amounting to millions of dollars, which otherwise would have been used for the benefit of countries and their citizens.
Black market equals Losses to Legitimate Industries
Black markets easily make available to the people all that they need, either at cheap prices, or all that is difficult to get and/or short of supply, at higher prices. More often than not, the products offered by the black markets are smuggled and stolen. When people buy goods from the black market under any of the above-given scenarios, it amounts to losses to the domestic industries and eventually to the government, as it is not possible for the white marketers to sell their goods either at cheap prices, and/or without authentic legal permits and formalities.
Black market equals Underestimation of the National Income
The black market is illegal in nature, and all the transactions that happen therein, are off the record. In the absence of any authentic record, it is very difficult for the government to correctly estimate the actual economic status of the country. Consequently, it becomes immensely difficult for the government to plan and implement policies for the country's economic development.
Black market equals Underestimation of Employment Data
Even the unemployment data of the country may have major loopholes, owing to the presence of the underground economy. Black markets are a big part of the informal economy of the world, and millions of people are employed in these markets. However, it is not possible for any economic statistics to estimate the exact number of employed people in the country, as those employed in the black markets, are often marked as unemployed.
Black market equals Deliberate Creation of Shortages
Underground economy arises from as well as leads to corruption. Because black markets may lead to immense monetary gains for its players, sometimes, deliberate shortages of certain necessary commodities are created in the established markets. These goods are then sold in the black markets, and despite the elevated prices, the demand does not diminish. This leads to high profits, often in cash, which go unnoticed.
While at one end, black markets encourage the common people to break laws, they also tend to make anything and everything available to them rather easily than the established markets. However, one needs to note that more often than not, the quality of an illegal product purchased from a black market and that of a legal product purchased from a white market, differs to a great extent.

Despite black markets being potentially disruptive for the global economy, there is no denying the fact that they comprise some really major economic players. These illegal, unlicensed, and often small businesses involve trillions of dollars, and also employ a substantial portion of the world's working class. This is perhaps, one of the reasons why, despite strict legislation and numerous measures to curb their spread, black markets still thrive all across the world.