Last month Italy announced that it would be including revenue from illegal activities such as drug trafficking and prostitution in its GDP. The Economist reports that this isn’t all new—Italy has been recording its “shadow economy” of unregistered businesses since 1987—but the news reminds us how difficult it is to properly measure economic growth even when we think the statistics are cut and dried. Recessions make us take resources seriously, and research shows that the best resources for some social groups can often be the least legit.
Both in-depth ethnographic work and statistical studies show that some of the poorest communities in the U.S. are booming with entrepreneurship—it’s just that most of the work is, well, off the books.
- Sudhir Venkatesh. 2006. Off the Books: The Underground Economy of the Urban Poor. Cambridge, MA: Harvard University Press
- Steven D. Levitt and Sudhir Venkatesh. 2000 “An Economic Analysis of a Drug-Selling Gang’s Finances.” The Quarterly Journal of Economics 115(3): 755-789.
Legal and illegal markets share many of the same coordination problems, but state restrictions change the social relationships in illegal markets. Taxation and regulation may actually be better methods to quell illegal markets than prohibition.
- Jens Beckert and Frank Wehinger. 2013. “In the Shadow: Illegal Markets and Economic Sociology.” Socio-Economic Review 11(1): 5-30
- Gary S. Becker, Kevin M. Murphy, and Michael Grossman. 2006. “The Market for Illegal Goods: the case of drugs.”Journal of Political Economy 114(1): 38-60
This doesn’t just happen with poor communities or criminal enterprises, though. Secondary markets where companies resell their goods and services—such as “gray markets” for unauthorized transactions or the budding market for buying up strangers’ life insurance policies—highlight the shifting boundaries between market regulation and social morality.
- Sarah Quinn. 2008. “The Transformation of Morals in Markets: Death, Benefits, and the Exchange of Life Insurance Policies.” American Journal of Sociology 114(3): 738-780
- Kersi D. Anita, Mark Bergen, and Shantanu Dutta. 2004. “Competing with Gray Markets.”MIT Sloan Management Review.
For more on the social construction of markets and value, check out this Sociological Images post and a previous TROT on Bitcoin.
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Comments 1
elle ko — July 15, 2014
many people are now aware of bitcoin being the currency of choice for transactions on the tor network, which, among other things, include those for illegal drugs & illegal porn. keyword here is illegal. <--did you catch it?
l live in California. the state government recently legislated to permit using currencies other than the US dollar as legal tender. many sources reported this as legalising bitcoin. this is step for the state toward accounting for these transactions short of plainly stating that drug trafficking, prostitution, and alcohol-and-tobacco smuggling are figured into the GDP. the state also has a history of local currencies although their volume is certainly smaller than online currencies facilitating sales of addictive substances.