DISCUSS THE ILLICIT GLOBAL ECONOMY.

The illicit global economy consists of markets that states cannot easily regulate or tax.
The other terms to describe these global markets are also illicit, illegal and black market. The
activities involve in these markets are smuggling, trafficking, money laundering, tax evasion, and
counterfeiting. The actors that involve in these transactions make profits by breaking laws,
defying authority, ignoring borders, and often using violence to exploit other people.
The illegal economy provides a challenge to the three main international political
economy (IPE) perspectives. Although mercantilists stress the primacy of the nation-state, the
illicit global economy is full of non-state actors that sometimes thwart the best intentions and
institutions of even powerful countries. Whereas liberals focus on the markets invisible hand
and individual freedom, the illicit global economy is full of powerful, manipulative criminal
hands. The open commercial interchange and deregulation that liberalism promotes are supposed
to lead to peace and prosperity, but in the illicit realm unfettered trade can spread horrible
conflict, pervasive coercion, and social decay. Structuralists tend to portray capitalist, developed
countries as exploiters of the developing countries, but in the illicit global economy, developing
countries can sometimes take revenge on the rich North, as when China steals intellectual
property or when secrecy jurisdictions (places with strong bank privacy laws) in the Caribbean
attract billions of dollars from wealthy tax evaders.
Illicit transactions already start since centuries ago when European
rulers and Barbary Coast potentates authorized pirates to seize other
countries ships and split the booty with them. European countries colonized
many parts of the world, seizing the territory and the property of their
inhabitants. On that time the colonial powers tried to justify colonialism as a
kind of civilizing mission, but their activities has no different with theft.
Violence used to be an important way to gain comparative advantage and
important commercial benefits in the world. Great Britain, the United States
and other European countries achieve their development by engaging in land
grabbing, slavery, looting, and dope peddling in less developed countries

(LDCs). This shows that the bloody hands and the invisible hand in fact, were
often attached to the same body. Britain once forced China to buy opium; Belgium
brutalized millions of Congo inhabitants and slaughtered elephants for ivory; Spain and Portugal
literally plundered the Aztec and Inca civilizations; and U.S. entrepreneurs trafficked in slaves
for decades.
Marxists, too, have long recognized that the development of capitalism is rooted in
processes of primitive accumulation, whereby classes coercively or violently seize assets (such
as land) from other actors. Sociologist Charles Tilly, asserted that state-making is quite similar to
organized crime. Just like crime bosses, would-be leaders centuries ago used violence against
their rivals and extracted protection money that they used to expand their territory and make
war. Eventually these state-makers gained legitimacy as kings and turned extortion into legal
taxation, masking their sometimes violent and thuggish beginnings. History shows us that leaders
of states have often participated in or sanctioned violent illicit activities. At the same time, these
leaders have the power to define what is legal or illegal and who is a legitimate entrepreneur or
an illegitimate one.
Illicit transactions today often repeat these historical processes, even though we often
tend to give new names to modern processes. For example, human trafficking is a modern-day
form of slavery practiced around the world. Todays drug lords expropriate from peasants and
addicts alike, expanding their turf and productive apparatus as would-be kings once did. Corrupt
leaders in places such as Nigeria and Iraq have stolen massive amounts of public resources, just
as European powers stole from the colonies that they were supposed to be helping. Some leaders
in recent decades, such as Slobodan Milosevic in Serbia and Charles Taylor in Liberia, ran their
states like criminal enterprises, working in cahoots with mafiosos to keep their kleptocracies
running before they were ultimately ousted by foreign countries. Israels seizure for decades of
Palestinian real estate and farmland is little different from state-sanctioned theft by pirates and
imperialists hundreds of years ago. States and entrepreneurs today still sometimes use violence
and coercion to harm their competitors. Although we like to think that the excesses of the past
are limited today by international law, good government, and even globalization itself, the reality
is that illicit history repeats itself (albeit with new names, new faces, and new modus operandi).

Raymond Baker, a fellow at the Center for International Policy in Washington estimates
that annual cross-border sales of illegal drugs and counterfeit goods may amount to a minimum
of $120 billion. Revenues from human trafficking could amount to $10 billion annually.
International smuggling of arms, cigarettes, cars, oil, timber, and art may be worth at least $35
billion annually. He also asserted that the scale of the illicit problem has important implications
for development, democracy, and security. With common techniques and use of the
same

structures,

drug

dealers,

other

criminals,

terrorists,

corrupt

government officials, and corporate CEOs and managers are united in abuse
of capitalism, to the detriment of the rich in western societies and billions of
poor around the world. The illegal economy can also undermine fragile new
democracies by putting money into the hands of rivals of the central
government, corrupting institutions such as the judiciary, and decreasing
government efficacy.
The central actors in the high-stakes illegal networks are mafia dons, drug lords, and
other organized crime figures. Many participants have one foot in the legal world and one in the
illegal world, making it difficult to create a profile of the typical illicit actor. Participants include
soldiers who loot, government officials who extort, CEOs who engage in transfer pricing,
bankers who loan to Third World dictators and consumers who buy fake Louis Vuitton handbags
on eBay. Even humanitarian workers in war-torn African countries have been known to
participate in diamond trafficking.
Now, we will examine six important analytical findings about the illicit global economy
that help us answer important questions like these. These findings demonstrate the role that
consumers, law enforcement, and globalization play in the growth of black markets. They also
explain how illicit transactions affect war, development, and cooperation among states.
First of all, attachment and detachment. In illicit markets, producers and consumers are also
related to one another through a small number of people living in many parts of the world.
Between a procurer and consumer are other actors, including financers, processors, shippers,

importers, distributors, and retailers. If we look at international transactions involving the

movement of goods and services, we see a global chain along whose links many points of
illegality can occur. If we look at the human connection in the chain, it clear that none of us is
completely divorced from the illegal world. Whether at the beginning, middle, or end of a chain
of market interactions, we wittingly or unwittingly are involved in a process that may have been
part of the extralegal world. For example, American parents hire illegal aliens from Mexico to
care for their children but do not pay social security tax on behalf of their employees. The
greater our degree of detachment from the illicit part of a global commodity chain, the less we
feel responsible for it.
Secondly is the problem of targeting supply side. Governments have a strong
tendency to adopt policies designed to cut off or interdict the sources of illicit
products. However, they like to target suppliers in foreign countries rather
than demanders in their own country, even though this focus has been
shown in many cases to be more expensive and less effective. For example,
the United States spends enormous funds trying to stop illegal aliens from
crossing the border with Mexico but significantly less money or effort
punishing U.S. businesses that hire undocumented workers. The reasons
states mostly go after the supply side of the problem have a lot to do with
the powerful political, economic, and cultural interests in a society.
Governments often feel obliged to balance entrenched special interests with
the public interest. There is often a sacrifice of efficiency and social goals when powerful
actors force governments to attack illicit problems in someone elses backyard. When law
enforcement tries to stop or interfere with the supply side of robust global markets, it often does
not achieve the intended results. In fact, there are often perverse consequences. A supply-side
crackdown might drive an illegal activity further underground, making it even harder to control.
And a campaign against suppliers can often increase violence and turf wars in a society. Phil
Williams points out that efforts to restrict activities create a restriction opportunity dilemma:
The more that countries try to impose arms embargoes or ban substances such as drugs or Freon,
the more they provide inroads for the creation of new criminal markets or the enlargement of
existing markets. When states use law enforcement to try to prohibit drugs, the reduction of

supply tends to drive up prices. This bolsters the profits of those entrepreneurs willing to take the
risk to keep on supplying the black market. And the higher price encourages other would-be
criminals to get into the business.
Thirdly is double edged sword. Open markets may increase global efficiency, but they
also empower the bad guys. Although we still do not know if the ratio of illegal to legal business
in the world is increasing, we can be sure that in some countries the ratio has risen.
Technological change, which has become something of an object of devotion in Western
societies, can also be a false idol. For each potentially desirable trend in neoliberal globalization,
there is a criminal downside. The transition to market economies gave rise to powerful mafias,
influence peddling, and old-fashioned gangsterism. And some of the weak states that emerged
from the collapse of the Soviet Union became smugglers lairs. A case in point is Transdniestra,
a sliver of Moldova that claimed independence in 1992. It became a hub of weapons trafficking,
contraband, and stolen cars. And at the end of the Cold War, exWarsaw Pact countries offloaded many small arms into Third World markets. New technologies of globalization are used
by shadow actors just as they are used by governments to police the bad guys. For example,
global positioning system (GPS) technology helps governments track criminal activities such as
illegal timber harvesting and illegal waste disposal, but it also helps drug cartels manage
international logistical operations.
Fourthly is lack of state coordination. Although illicit markets can threaten sovereignty,
sovereignty can also shield black markets. For example, some statessuch as Liberia under
former President Charles Taylorhave become havens for criminal operations. They charge
criminals a fee for protection behind their sovereign cocoon. In this kind of failed state, leaders
can issue diplomatic passports to dubious businessmen, offer flags of convenience (places to
register ships and airlines that actually conduct all their international business somewhere else),
and allow the establishment of servers to conduct Internet gambling or pornography distribution.
In exchange for a payoff, they may look the other way as criminals use their territory to smuggle
goods. These activities are part of a wider phenomenon that Ronen Palan calls the
commercialization of sovereigntythe renting out of commercial privileges and protections to
citizens and companies from other countries. A state can market itself as a place to disguise the

origin of dirty money. For example, dozens of mostly small countries and territories are tax
havens (also referred to as offshore financial centers or secrecy jurisdictions), where foreigners
can park their money and conduct international financial transactions with very little regulation
by local officials. These places such as the Cayman Islandsattract money launderers and tax
evaders who want to stay entirely out of the reach of their home governments. These sovereign
jurisdictions benefit both indirectly and directly from global crime (as well as from legitimate
international business).
Fifthly is war and natural resources. Since the 1980s that black market influences on
natural resources have important effects on the global security structure. Weak governments and
rebel groups in developing countries need money to buy weapons, pay off supporters, and
finance activities within their borders. Controlling the extraction and export of natural resources
is an important way to guarantee a revenue flow. Insurgents also know that if they deprive the
government of control over natural resources, they can achieve important political goals.
International commodities dealers generally do not have any compunction about buying from
criminal insurgents or corrupt governments. In Sierra Leone, several factions in the civil war that
devastated the country in the 1990s financed their fighting in part by illegally controlling
diamond mining. Rachel Stohl points out that the same networks that smuggle timber, gems, and
drugs out of troubled countries also bring illicit small arms back in.
The last one is corruption. Political economists have spent decades trying to explain why
some countries develop and others fall behind. They have correlated many factors with
development, including the degree of trade openness, levels of political stability, and even the
squiggliness of borders. Corruption is another key factor that is hampering poor countries. For
example, former leaders of Indonesia, the Philippines, and Nigeria skimmed billions of dollars
from government coffers, leaving their countries indebted and unable to attract foreign
investment. Corruption in China has become an increasingly important political problem, leading
to social unrest and inequality. The World Bank has launched an international campaign to
promote good governance and reduce corruption. Analysts of the illicit global economy agree
that corruption is a big problem, but they argue that the cause of corruption is not simply bad
leaders in developing countries. In other words, they find that corruption is a transnational

process in which many legal and illegal actors are complicit. Therefore, the fight against it must
focus on global actors. Economist William Easterly argues in his book, The White Mans Burden,
that foreign aid is frequently eaten up by corrupt governments, and he calls on utopian social
planners in wealthy countries to adopt much more humble programs to help developing
countries.