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 off-loaded 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.