Countries whose governments are powerless to some degree or another are called failed states. But even in countries that don’t qualify as failed states, the ability of governments to provide basic services is often severely compromised. Thus, people are often forced to provide their own. This is called the shadow economy, and a recent Foreign Policy magazine report claims that the global shadow economy is worth $10 trillion a year – about one-sixth of the global economy and about equal with the Chinese economy. The report calls the shadow economy the fastest-growing economy in the world.
The shadow economy can have a real impact on the real economy. Take Greece, a particularly salient example Transparency International recently said of Greece, “The black economy is estimated to be as much as a third of Greece’s gross national product with tax evasion costing upwards of US$20 billion a year.” This represents just under half of the Greek government’s deficit.
The shadow economy is also a place where organised crime thrives. Today, The Age reports that about US$2 trillion of criminal money is laundered worldwide every year, according to the United Nations. In his 2009 book McMafia, tracing the outlines of globalised organised crime, Guardian journalist Misha Glenny estimated that organised crime accounts for about 15% of the global economy – or about US$9 trillion a year.
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