A world shadowed by ‘shadow economy’

Shamsul Huq Zahid | Published: November 16, 2016 00:00:00 | Updated: February 01, 2018 00:00:00

None knows for sure the size of the global shadow economy, for most people do talk about tackling it but not many of them have ever tried to find perfect ways of measuring it.Â Its definition is also somewhat blurred.
There exist disagreements among the economists over the use of inputs for measuring the size of the shadow or hidden economy and also over its positive and negative aspects.
Notwithstanding all its opaqueness, international institutions are now gravely worried about the threat that the global shadow economy is now posing to the 'democratic-capitalistic' system around the world.
From the content of an international seminar, titled, "Amplifying integrity in the fight against systemic corruption", one could well notice the degree of concern among the international organisations that are engaged in promoting a market-based global economic system.Â The seminar was organised jointly by the Integrity Vice- presidency of the World Bank (WB) and the Global Financial Integrity (GFI) at the WB headquarters in Washington.
In his introductory statement at the seminar, GFI President Raymond Baker said the democratic capitalist system is now under threat. Because of money laundering and other financial irregularities, the very base of capitalism is now exposed to systemic risk, he added.
Mr. Baker felt that rebalancing democracy and capitalism is a serious challenge for all in view of the widening inequality among the global population, in terms of wealth and opportunities. Any failure to narrow the gap would lead to the collapse of the democratic capitalist system, he warned.
The GFI president listed the global shadow economy as the number one factor responsible for widening the inequality among the global population. That is why he felt the urgency of shattering the very foundation of shadow economy.
However, dismantling or even making the global shadow economy, which has grown from strength to strength over the years, weak, would not be that easy. Â
Statistics dished out by none other than the GFI speak about the enormity of the shadow economy. Between 2004 and 2013, an estimated $7.8 trillion had flown out of the developing economies through illegal channels, representing an average 6.5 per cent increase in outflows.
Bangladesh, according to the GFI, ranked 26th in terms of outflow of illicit funds, which mainly stem from tax evasion, crimes and corruption.Â An average $5.6 billion worth of fund, according to GFI estimate, used to be taken out of the country using various means, including trade transactions, annually between 2004 and 2013.
Global shadow economy is the aggregate total of the fund outflows from shadow economies of individual countries, both developed and developing. The size of such an economy is usually tiny in the developed countries because of adherence to good governance and rule of law by both governments and citizens. But the situation is different in a good number of developing countries, particularly in poor least developed ones. Good governance and rule of law are two important pre-requisites for transparency and accountability in financial transactions at all levels, private and public. Â
With prevalence of high level of systemic corruption, which is the outcome of poor governance and the least respect for rule of law, the shadow economy gains ground and tends to become bigger and bigger. And when the ruling class is too indulgent to graft, the situation turns even worse.Â Â Â
Another speaker at the seminar, Sarah Kayes, senior researcher at the Carnegie Endowment for International Peace, maintained that financial crimes do not only trigger social fragility but also give rise to strong radicalism. "People tend to lose faith in the rule of law and put their faith in radical ideologies when corruption prevails in society in the absence of good governance", she said.
So, for shattering the very foundation of global shadow economy, it will be imperative to stop generation of illicit funds primarily in the developing world that largely supports the global hidden economy.
That can only be achieved through ensuring good governance and rule of law in particular. It is quite a tough job on the part of international organisations or any other country.
People and politicians of any country are the main actors in this connection and getting them along on the same line could prove quite a daunting task. So, the widening of inequality through the generation of more and more illicit funds seems to be an inevitable development under the prevailing circumstances.
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