Money - Marketing
By: - at June 17, 2014

15 Interesting Facts about the Black Market

15 Interesting Facts about the Black Market

Human ingenuity is as old as humankind itself but that ingenuity doesn't always respect legal or ethical bounds. As long as humans have participated in any sort of commerce, some have sought to take advantage with little thought for the consequences of others and others found ways to provide for their loved ones by ignoring legal niceties in the face of hard facts.

The black market is the home of all types of commerce that happen outside the bounds of the law and it's not a physical space, although there are sometimes physical marketplaces which deal primarily in illegal goods. The black market goes by multiple names, including:  the underground market, the second economy and the informal market. Despite being risky, it continues to thrive in the shadows outside of legal economic activity.

15)  How Do Black Markets Work?
With the wide range of black markets operating in the world, there are many methods by which black market activity is conducted. The most common factor is that black market sales are kept clandestine for the protection of buyers and sellers alike. In order to purchase black market goods, a buyer may have to have the right contacts or know specific locations to find sellers. The difficulty of finding such information also varies widely depending on the market and the goods involved. Finding a seller for street drugs is relatively easy; finding a seller of stolen rare art or collectibles may be considerably more difficult.

There are cases where black market activity happens more or less in the open. Some stolen goods may find their ways to street fairs or open markets, for example, where they are sold at steep discounts to buyers who have no idea they are purchasing stolen goods. In other cases, black market goods may be sold openly recognized by sellers and buyers alike if there is a sufficiently low chance of interference from law enforcement officers. A noted modern example of this is China, where there is a burgeoning market in counterfeit goods.

Map of China
China has a burgeoning market in counterfeit goods

Street Vendor in China
Street Vendor in China

14)  Who Works in the Black Market?
There is a broad spectrum of all types of people working in black market commerce and you can't just tell by looking at someone. The first image many people have of black market workers are those obviously working outside of the law, such as:  drug dealers, prostitutes, human traffickers, weapons dealers and mafia members. These types of individual do make up a large segment and there are correspondingly large numbers of people involved. However, the stereotypical images of these people may be off base. Someone who makes large sums of money dealing drugs may otherwise have a completely ordinary middle class or lower class lifestyle to cover it up.

A Diverse Variety of People Work in the Black Market
A diverse variety of people work in the black market.

It's also important to remember that black market activity encompasses a broad range of activity and under the basic definition that black market commerce is simply any commerce that happens outside strict legal bounds, many more people are included. Some of them are the street vendors and unlicensed small business owners of the developing world who are out to make a relatively honest living. Some of them are people at the highest levels of corporations and governments, conducting most of their business in an above board way but dealing in shady activity on the side. Some wealthy individuals may conduct their professional lives legally but engage in the black market as consumers, purchasing prostitution or buying stolen rare art or antiquities.

13)  What Products Are Sold on the Black Market?
There is potentially no limit to the types of products that can be sold on the black market. Some products and services come quickly to mind, such as:  drugs, prostitution, slavery and assault weaponry. Rare animals have a strong place in black market activity; either live animals captured and sold as pets or animals which are killed in order to sell tusks, horns, pelts as well as other parts at high prices. Recent years have also seen the growth of a black market for human organs; either sourced from individuals living in extreme poverty who offer their own body parts for sale or from people who are kidnapped and assaulted for their organs.

Exotic Animals and Animal Products are Sold in the Black Market
Exotic Animals and Animal Products are Sold in the Black Market.

The black market is not all made up of morally questionable or condemned goods, many ordinary products also find their way into black market sales. Any product which is stolen and later sold becomes part of the black market. Goods such as cigarettes and firearms often find their way into black market transactions so that the seller can avoid paying the legal taxes as well as fees that are required in the legal sale of these items. Also, payment for legal services which are not reported on a person's taxes are technically black market transactions. For a list of black market items, check out this article on the top 15 unusual items sold in the black market.

People are Kidnapped and Sold into Slavery on the Black Market
People are sold into slavery on the the black market.

12)  What Services Are Sold on the Black Market?
Along with the black market for goods, services also make up a large segment of the black market. The most prominent is prostitution but there are many others, any service which is technically illegal falls into this category. Government officials accepting bribes and then giving preferential treatment, is a black market service. Employees in legal service industries may offer extra services or preferential treatment in exchange for additional compensation outside of their reported fees.

Accepting Bribes is a Black Market Good
Accepting Bribes is a Black Market Good.

One of the most common forms of black market activity which could fall under this category is tax evasion. Services are provided and compensation for those services is received but the individuals providing the services fail to report some or all of their compensation as legal income. Some transactions involve both parties, such as:  a job being paid for "under the table" via cash so that there is no record of money changing hands. Most of these types of services are completely legal in themselves but intentionally keeping them out of the eye of government regulation and taxation moves them into the realm of the black market.

Tax Evasion is a Black Market Activity
Tax Evasion is a Black Market Activity.

11)  Why Do Black Markets Develop and Thrive?
There are two primary reasons why black markets develop and one of them is government regulation. If a commodity is illegal but there is still a demand for it, an illegal market will develop to meet the demand. As long as there is profit to be made, whether legal or not, there will be someone willing to sell. In states where regulation is especially heavy, black markets have all the more impetus to grow and expand. Examples of this from recent history include the economies of the Soviet Union and other communist states during the 20th century. As heavy government regulation controlled what products were made and sold, black markets grew to provide for food, clothing and other necessary needs.

Government Regulations can Cause Black Markets to Appear
Government Regulations can Cause Black Markets to Appear.

The other main cause of black market creation is a scarcity of goods, whether legal or illegal. This tends to happen during times of war, famine and other hardships that cause the normal production as well as sale of goods to be disrupted. In the United States during World War II, many basic consumer goods were rationed because so many resources were being absorbed in the war effort. Black markets in food, gasoline and other scarce goods grew to meet the demand. All of these goods were legal to purchase and own but purchasing them outside of the legal rules made them black market goods.

Scarcity of Goods Creates a Demand for the Black Market
Scarcity of Goods Creates a Demand for the Black Market.

10)  How Old Are Black Markets?
Exploring the history of the black market is difficult for the same reason that the modern black market is difficult to study and measure. Buyers and sellers both are keen to keep their business out of the public eye. It seems safe to speculate that as long as there have been laws controlling economic activity or gathering taxes based on commerce, there have been people willing to circumvent those laws for profit. A few ancient examples of black markets serve to demonstrate the age of such activity.

China is home to one of the oldest cultures in the world and is no stranger to black market economics today. During the Song Dynasty, which lasted from 960-1279 A.D., economic conditions fostered a large black market. A guild system regulated skilled artisans and controlled the production of many kinds of goods. Unfortunately, the guilds tended to restrict competition in order to maintain high prices. As a result, a black market in goods flourished that provided items at lower rates than the guilds.

Song Dynasty Town In Dali, Yunnan Province, China, One of the Black Market Origins
Song Dynasty Town In Dali, Yunnan Province, China, One of the Black Market Origins

In medieval Europe a severe famine from 1315 to 1317 led to enormous food shortages. Governments of the day tried to control the grain supply by outlawing exports and setting price controls. Inevitably, much of the available grain ended up on the black market via theft and resale or price gouging by black market speculators.

The Famine during Medieval Times in  Europe Stimulated a Black Market
The Famine during Medieval Times in  Europe Stimulated a Black Market.

9)  How Do Black Markets Compare to Legal Markets?
While black market commerce is nearly as old as legal commerce, the means by which transactions take place is always changing. Just as legal business owners take advantage of new technologies to make a profit, black market sellers are equally ready to use technology to make their activities safer and more profitable. In recent years, websites specializing in the sale of illegal goods have appeared and made it easier for some to buy goods for their own use or to resell to local buyers. Illegal drugs, including meth and LSD, are common products for sale on such sites. Other goods on the digital block may include; pornography, counterfeit products, guns, other weaponry and software products used by hackers as well as online thieves.

Pornography is a Lucrative Business on the Black Market
Pornography is a Lucrative Business on the Black Market.

In order to stay off the radar of law enforcement, such sites use sophisticated web technologies and anonymous online currencies. Many of these sites use Tor technology, which is a system for enabling a person's web use to remain completely anonymous. Tor itself is legal and is used by many people who simply want to maintain a high level of privacy on the Internet. However, it's also used by black marketers and their customers to hide their transactions. Many black market sites use the online currency Bitcoin, a legal anonymous currency system with no connections to banks or credit card companies, because money transfers through the Bitcoin system are impossible to track.

Software Products and Technology are used by Internet Thieves on the Black Market
Software Products and Technology are used by Internet Thieves on the Black Market.

8)  How Large Is the Global Black Market Today?
It's very difficult to assess the size of the global black market or any smaller segment of it. It's nearly impossible to gather hard data about how many items are sold or how much money is made in black market sales due to black market commerce taking place outside the bounds of the law and being kept secret. Some researchers believe that the size of the global black market rivals many legitimate markets, even beating the size of many national economies. Billions of dollars are spent on black market transactions every year, adding up to roughly 22 percent of global gross domestic product (GDP). One estimate says that the global black market is worth $10 trillion annually, quite a chunk of change for underground business.

Black Market Commerce is Immeasurable
Black Market Commerce is Immeasurable.

7)  What Are the Legal Penalties for Black Market Activity?
The legal penalties associated with black market crime vary enormously depending on the crime and country they are committed in. Such penalties are generally set as part of the laws which either declare certain goods to be illegal or which regulate them. The possible penalties range from light fines to significant time in prison if convicted.

Participation in the Black Market can Lead to Prison Time
Participation in the Black Market can Lead to Prison Time.

Even where there are serious penalties for black market crimes, these laws are not always effectively enforced. In some cases, law enforcement agencies lack the personnel or resources to pursue black market activity and other types of crime take precedence. In other cases, the market is simply difficult to police even with strong law enforcement or other agencies to carry the burden of investigation. There are cases where police agencies and other regulators are themselves involved in the black market, where they accept bribes or other incentives to avoid pursuing black market activity.

Hefty Fines can be a Consequence for being Caught in the Black Market
Hefty Fines can be a Consequence for being Caught in the Black Market.

6)  How Does Law Enforcement Fight Black Markets?
Preventing black markets from growing or stopping them once they are established is a complicated problem. Since all markets are built on basic economic forces of supply and demand, manipulating these forces so that black market commerce is not attractive or profitable is one way to prevent their growth. A contemporary example, is the black markets of Afghanistan which depend on pilferage from U.S. army bases. With the upcoming withdrawal of U.S. troops from Afghanistan, these markets will lose their source of goods and either shrink considerably or disappear altogether.

The Law tries to Fight Against the Black Market
The Law tries to Fight Against the Black Market.

Afghanistan has a Large Black Market for U.S. Army Supplies
Afghanistan has a Large Black Market for U.S. Army Supplies.

5)  How Does a Global Economy Influence Black Markets?
The global economy has a similar influence on the black market as it does on legitimate markets. Before the development of the global economy, all markets were size limited by geography. The size of markets rise or fall with supply and demand, the fewer people involved naturally limit the size. This is true for both legal markets and black markets. With the global economy comes new opportunity for selling goods and services to more people, which means markets can grow. Savvy business owners can make more profits by sourcing new goods for their existing customers and finding new customers for their existing goods.

The Global Economy Plays a Role in the Black Market
The Global Economy Plays a Role in the Black Market.

The interplay of economic forces across greater geographic areas and the higher level of interconnection between markets can influence black markets to grow or shrink. Part of what makes some black markets profitable is the ability to reach buyers in distant locations then provide the service or item they need at a price they are willing to pay.

4)  Who Gets Hurt by Black Markets?
Some black markets have direct victims where the connection between the black market activity and those who are hurt by it are clear. One of the most obvious of these is the black market sex industry in which millions of individuals are forced into prostitution. It's estimated that 2.5 million people are victims of human trafficking at any time, the vast majority of them women and children but men are affected as well. Even when prostitution is legalized, it has been demonstrated that human trafficking increases as few individuals choose to be prostitutes of their own volition.

Human Trafficking Individuals are Victims of the Black Market
Human Trafficking Individuals are Victims of the Black Market.

In other black markets, the victims may be harder to see. There may not be a clear link between the illegal commerce and individual people who are hurt. Such markets may actually affect more people but in a less acute way.

Sometimes there isn't a clear link on who is a victim of the Black Market
Sometimes there isn't a clear link on who is a victim of the Black Market.

3)  Is Anyone Helped by Black Markets?
There are arguments to be made for the benefits of some black market activity, especially commercial activity which trades in goods that are otherwise legal and not morally objectionable. Journalist Robert Neuwirth, who has studied black market activity around the globe, argues that off the books small businesses account for trillions of dollars of economic activity and employ up to half of the world's workforce. Such unlicensed, untaxed businesses are run by entrepreneurs who are providing for their families and contributing to their communities by creating jobs and providing needed goods as well as cash flow. Neuwirth claims that in many developing countries black market activity, or "System D" economies, is the only economic sector that is growing. The participants in these markets don't see themselves as criminals but as self-reliant hard-working businessmen and businesswomen.

Some Small Businesses Benefit from the Black Market
Some Small Businesses Benefit from the Black Market.

Underground Businesses Benefit from being part of the Black Market
Underground Businesses Benefit from being part of the Black Market.

2)  Can Black Markets Be Prevented?
Black markets thrive under conditions where goods are scarce because there simply aren't any goods to go around, government regulation makes them available at the wrong price or tries to make them totally unavailable by outlawing them. One of the best ways to prevent black markets from developing is to remove the conditions of scarcity and regulation. In most cases, this is more easily said than done.

Value and Price of Demandable Items can Help Combat the Black Market
Value and Price of Demandable Items can Help Combat the Black Market

In general, the greater economic freedom there is in a state or society then the less need or appeal there will be in a black market economy. If an individual can produce and sell a product legally under a fair and sustainable level of government regulation as well as taxation then they will have little incentive to sell their goods on a black market. Likewise, if people can choose and purchase the goods they want easily at fair market set prices then there will be much less demand for black market goods.

Globalization may be able to help the situation where goods are simply scarce. When there is scarcity in one region, other regions may be unaffected and have plenty of goods available. If entrepreneurs in regions with an abundant supply are able to sell their products legally and at a profit in areas where there is scarcity, everyone benefits. This is also more easily said than done but the global marketplace is making it more possible all the time.

Globalization can help Prevent Black Markets
Globalization can help Prevent Black Markets.

1)  What Do People Think about Black Markets?
Public opinion about black market commerce varies widely and depends on the products as well as services being sold. This is compounded by the broad scope of black market activity, where some types of commerce are seen as morally offensive and others may be seen as permissible or as "not hurting anyone". One notable example of mixed public opinion regarding black markets happened during the period of American Prohibition, where the manufacture and sale of alcohol was outlawed between 1920 to 1933. With a stroke of the pen, an activity which was seen as completely ordinary and positive by many was made illegal against their wishes. An enormous black market in smuggling and selling illegal alcohol sprang up, largely under the control of organized crime. As these organizations fought for a greater share of the market, violence and higher levels of corruption among government as well as law enforcement agencies followed. Citizens were outraged by these types of crime but not by the equally criminal, in the eyes of the law, activity of simply buying alcohol. Many citizens were criminalized for their normal patterns of behavior under Prohibition law, which a few scant years earlier had been completely legal and acceptable.

There is a broad range of Opinions about the Black Market
There is a broad range of Opinions about the Black Market.

The black market is a complex topic and an even more complex business. There are possibly as many forms of black market commerce as there are legal market commerce crossing a wide range of legal as well as moreal considerations. Devastating trafficking in human lives, accepting a professional fee "under the table", sales of guns, dealing of drugs, sales of vital supplies and  illegal commerce threads its way through every nation on earth via many types of communities. Wherever there is economic demand, someone will seek to supply that desire. When the law restricts such sales, some entrepreneurs will still find underhand ways to do business. The world's black markets are hard to measure and easy for many to ignore. Whatever else is true about them, one thing is certain and that is that they're not going anywhere.





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