Vol. 38, No. 18

3-17-2009
By: Adam King

Sex, drugs & counterfeit Gucci

Popular new course delves into what drives underground economies

Sex, drugs and rock and roll helped drive the counter-culture of the 1960s. Two out of those three — including some human trafficking, illegal gambling and arms dealing — are what currently drive an estimated 8 to 9 percent of America’s gross domestic product, according to Bruce Bellner, a senior lecturer and undergraduate adviser in economics.

Bellner is offering a new course this spring that takes a look at underground economies and their influence in the world, which is vast, he said.

While up to 9 percent of GDP sounds like a lot (and it is for the United States’ $15 trillion economy), it pales in comparison to how much places like Russia rely on the black market to support their economies.

“In Russia, the underground economy is at a higher percentage of GDP than say, China, which isn’t as high,” Bellner said. “In places like Belarus and the Ukraine, such a profitable trade exists in human trafficking that a recent book gave it its own name, the Natasha Trade. But Russia is much lower compared with Zimbabwe, which is way off the charts.”

Underground economies, however, can be found anywhere and take many different forms. Part of Bellner’s curriculum will ask students to mentally take a walk down High Street and point out all the things they see that could be considered contraband in an underground economy — black market cigarettes, pirated CDs and DVDs, fake Gucci handbags and knockoff watches.

“Underground activities can even include something like unreported income and work related to otherwise legal services or goods,” Bellner said, adding that shadow economies’ lines are often blurred with legal activities — a truck driver operating from Mexico, for instance, who brings in legitimate goods but also decides to smuggle drugs or illegal immigrants.

Human trafficking is one of the more nefarious ways underground economies flourish — it’s currently ranked third most profitable behind the drug and weapons trades — and Bellner said there are concrete examples of that in Ohio, which his course will cover.

“The course uses a monograph by social scientists Jeremy Wilson and Erin Dalton entitled ‘Human Trafficking in Ohio’ published in 2007,” Bellner said. “The US State Department estimated the annual worldwide trafficked population at 800,000 to 900,000, with between 14,500 to 17,500 in the US. Wilson and Dalton showed five concrete cases in Columbus and 10 in Toledo.”

But underground doesn’t always mean unseen. The Bank of Credit and Commerce International, before its downfall in the early 1990s, was a credible financial institution in many of its functions, “but it also dealt in the arms trade, hostage taking and terrorism,” Bellner said.

“By many accounts, the underground economy is growing. We are not talking about some guy in the alley with a trench coat, because a lot of this activity happens online. But the underground economy does better in areas were there is not as clearly a defined rule of law, where there is more corruption and less economic freedom.”

Economics courses generally aren’t sought-after electives, but this one has bucked the trend. The original 40-student limit was quickly raised to 50 when interest in the class skyrocketed, and 42 more students are now sitting on a waiting list. It is available only to juniors or seniors seeking to satisfy their “Issues of Contemporary World” GEC category.

“The inspiration came from a few different areas, but I have to give credit to the students for providing a lot of it,” Bellner said. “During some of our class discussions, they would want to spend more time on these issues and were very supportive when I floated the idea to them of this new course.

“I hope, in a general sense, that students take away a greater appreciation for and lasting interest in economics. More specifically, I hope they are able to apply some economic principles to current issues like those we see in the underground economy.”

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