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The Global Black Economy
[Opinion] Crime, counterfeit goods and the world's money
Bright B. Simons (baronsimon)     Print Article 
Published 2007-05-29 10:35 (KST)   
A "black economy" that transcends national borders is growing in depth and breadth with each passing day as it spreads like a deadly tumor underneath the "real" global economy, but it rarely receives adequate attention in the popular and financial media.

This is remarkable considering that the counterfeit, piracy, trafficking and smuggling industries that constitute this sprawling and rapidly expanding segment of global productive enterprise may together account for at least 15 percent of global GDP.

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In 2000, the global trade in counterfeit goods alone stood at $450 billion, a value that put it at number 12 on national GDP rankings. According to the United States Chamber of Commerce, by 2006 the trade had reach $650 billion, with the output in some sectors such as pharmaceuticals projected to double within four years. Figures on the economic scope of trafficking, smuggling and for other unconventional industries are scant, sparse and not generally reliable; but there is ample reason to believe that they mirror the scale of their counterfeit kin.

And yet most regulators, commentators and analysts, when they bring themselves to comment on this sprawling global black economy (GBE), almost always focus entirely on its impact on public health, safety and security, and construe it thereby as predominantly a law enforcement issue.

True, the impact of the GBE in these areas gives much cause for concern. In 2001 alone estimates put the number of deaths in China as a result of counterfeit pharmaceuticals at close to 200,000 -- a tragic irony, given the belief of U.S. law enforcement officials that China exports half of the world's counterfeit supplies. Sometimes, however, the effects of GBE outputs are masked until at the very end of the supply chain, as was the case in 1989 when a Norwegian aircraft containing fake parts crashed on its way from Oslo to Hamburg killing all 55 passengers on board. Then there is also the growing domination of the GBE by the nastiest type of political baddie: terrorists. For instance, Carratu, a leading intellectual property protection firm, through extensive investigations has established links between counterfeit pharmaceuticals and Hezbollah, the Iranian-backed, Lebanese pro-terror group, and between fake designer handbags and ETA, the Basque pro-terror separatist movement.

But the sheer extent of this shadowy segment of the world economy implies the potential to pose immense structural risks to many financial systems around the world, if that is not already happening.

One minor aspect of this menace has been studied. According to the FBI and the U.S. Chamber of Commerce, counterfeiting costs U.S. companies between $200 billion and $250 billion a year. It is also blamed for the loss of at least 100,000 jobs every year. The effect on tax revenues and the welfare budget are easily imagined.

No one, however, is certain about the amount of fake currency, stock and bond bills circulating around the globe. Yet witness the deep and widespread anxiety about "hot money" sloshing through such mistrusted channels as hedge funds and kindred novelties in the modern financial speculation business. A British aristocrat (or "peer"), Baroness Noakes, once cited the European Central Bank during a House of Lords debate in a claim that collapsing hedge funds pose a greater risk to the health of the international financial system than a bird flu pandemic.

The concern of the likes of Baroness Noakes about lightly regulated mediums of speculation then, perhaps, ought to be multiplied severalfold by the presence of huge volumes of real cash and probably identical quantities of fake money in a vast, wholly unregulated, swathe of the global economy.

Even discounting the possibility of deliberate sabotage, the high and mighty of the global black economy cannot be expected to be paragons of prudence in the way they invest their hoards. Money laundering legislation is effective only so long as the real world measures quite accurately reflect the view of a largely legal system sprinkled with dots of illicit behavior. But should entire financial institutions in emerging markets fall under the ownership of unscrupulous people, who also, at that stage, may control a third of the global economy, the issue will become, properly, one of economic warfare rather than "deviancy management" -- somewhat in the same way that terrorism nowadays is no longer seen as a political crime but a threat to civilization.

With all that erratic activity on Asian markets in recent months ... could there be a subtle link somewhere? We hope not.
©2007 OhmyNews
Other articles by reporter Bright B. Simons

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